This lesson uses the latest employment and unemployment data release by the U.S. Department of Labor, Bureau of Labor Statistics, for the month of December, 2014, reported January 9, 2015. The lesson focuses on the problems in measuring unemployment and the definitions used by the Bureau of Labor Statistics. 

KEY CONCEPTS

Discouraged Workers, Employment, Employment Rate, Labor Force, Unemployment, Unemployment Rate

STUDENTS WILL

  • Examine the latest BLS report on unemployment and identify those sectors that experienced the greatest gains in employment
  • Discover the various definitions the BLS uses to categorize those who have a job and those who do not
  • Analyze how different employment/unemployment situations fit into the BLS categories

Current Key Economic Indicators

as of February 6, 2015

Inflation

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.4% in December on a seasonally adjusted basis. The gasoline index fell 9.4% and was the main cause of the decrease in the seasonally adjusted all items index. The all items index increased 0.8% over the last 12 months, although the core inflation rate (less food and energy) did not change in December.

Employment and Unemployment

The unemployment rate rose to 5.7% in January of 2015, according to the Bureau of Labor Statistics release of Feb. 6, 2015. Total nonfarm employment rose by 257,000. Job gains were particularly strong in retail trade, construction, health care, financial activities, and manufacturing.This is the second month in a row that posted gains in construction and manufacturing.

Real GDP

Real GDP increased 2.6% in the fourth quarter of 2014, according to the advance estimate released by the Bureau of Economic Analysis. Consumer spending drove growth due to the reduction in gas prices, while a decrease in government expenditures was the most significant drag on growth. Third quarter growth was 5%.

Federal Reserve

In its January 28, 2015, statement, the FOMC cited the continued growth of the labor market, increased household and business spending, and below-target inflation as indicators of an economy that continues to recover. They expect below-target inflation to rise as oil prices and other "transitory" effects diminish. The statement reaffirmed the FOMC intention to keep the federal funds rate at its current low level. Notably, the FOMC added international variables to its list of factors to monitor for the timing of a rate increase.

INTRODUCTION

On the first Friday of every month, the Bureau of Labor Statistics (BLS) releases data from two different surveys to report on the employment and unemployment situation in the U.S. The U.S. Census Bureau collects data from 60,000 households to generate the official unemployment rate. These data are reported by age, sex, race, industry, geographic area, and more. 

The BLS also conducts the "payroll" or "establishment" survey, which includes 160,000 businesses and government agencies, representing approximately 400,000 individual work sites. These data include hours of work, payroll and benefit costs, number of employees, and other measures. Because the criteria for inclusion in these two surveys differs, the resulting measures are different, sometimes significantly so.

This lesson uses the BLS Employment Situation for December, 2014, to explore the problems associated with measuring the unemployed and the various definitions the BLS uses. 

RESOURCES

  • A good overview of how the BLS collects and categorizes data: [EEL-link id='1224' title='bls.gov/cps/cps_htgm.htm' ]
  • The difference between the household and establishment surveys: [EEL-link id='3331' title='bls.gov/news.release/empsit.tn.htm' ]
  • A good discussion of the implications of the two surveys and how, together, they give a more complete picture of the labor market: [EEL-link id='4224' title='bls.gov/web/empsit/ces_cps_trends.pdf' ]
  • A good article on the basic definitions of the three types of unemployment:
  • economics.about.com/od/unemployment-category/a/Types-Of-Unemployment.htm

Key Economic Indicators

as of January 19, 2015

Inflation

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.3 % in November on a seasonally adjusted basis. The gasoline index posted its sharpest decline since December 2008 and was the main cause of the decrease in the seasonally adjusted all items index. The all items index increased 1.3% over the last 12 months, a notable decline from the 1.7 percent figure from the 12 months ending October.

Employment and Unemployment

The unemployment rate for December, 2014, fell to 5.6%, and the economy added 252,000 jobs, according to the Bureau of Labor Statistics. Job gains occurred in professional and business services, construction, food services, health care and manufacturing. The long-term unemployed was unchanged, accounting for approximately 32% of the unemployed.

Real GDP

Real gross domestic product (GDP) increased 5.0 percent in the third quarter of 2014, according to the “third” or final estimate released by the Bureau of Economic Analysis. The second estimate for the third quarter was 3.9%. The second quarter growth of GDP was 4.6%

Federal Reserve

The FOMC believes that the labor market is continuing to modestly improve and will continue to do so. Household and business spending are also increasing, and while the housing market continues to lag, the outlook for the economy is positive. Inflation is below the 2% target, largely due to the decline in energy prices. The FOMC believes that inflation will rise toward the target as the labor market tightens and energy prices return to their normal level. The FOMC reaffirmed its position of a low federal funds rate, possibly continuing beyond the return of inflation and unemployment rates to sustainable levels.

PROCESS

  1. Direct students to the latest employment situation release  from the Bureau of Labor Statistics for December, 2014.

    Ask students how total nonfarm employment increased in the month of December (252,000). Ask what effect this increase in employment had on the unemployment rate (the unemployment rate decreased to 5.6%). Tell students that more jobs were added in the prior month (November), but the unemployment rate didn't change. Ask students how the unemployment rate could have fallen in December when fewer jobs were added. (if fewer jobs were added and the unemployment rate fell, that must mean that more people dropped out of the labor force and/or that the labor force grew at a slower rate than the previous month). 
     
  2. Ask students which industries had the largest employment gains (professional and business services; construction; food service; health services; and manufacturing). Ask how December's gain differed from that of the previous month (in November, retail trade and leisure/hospitality had large increases; this month, construction and manufacturing had large gains)
     
  3. Ask students to stand up. Tell them to sit down if they do not have a job. Ask students if those who are sitting would be considered unemployed (no--some of those who are sitting may not want a job; some may want a job but have given up looking; some may want a job but didn't look for work in the past 4 weeks).  Count those sitting --ask them to compute the ratio of students who are not working. Ask if this ratio is the class's unemployment rate (no, because of the reasons given above)
     
  4. Remind students that there are official definitions that the Bureau of Labor Statistics uses to categorize people as employed, unemployed, and in the labor force. (Note: to refresh their understanding, see [EEL-link id='1224' title='bls.gov/cps/cps_htgm.htm' ] )

    Tell the students who are sitting down that if they do not want a job, or want a job but did not look for one in the past 4 weeks, or who want a job, but have given up looking entirely to put their head down on their desk. Tell students that the people who are standing and the people who are sitting with their heads up comprise the labor force.

    Ask students how to compute the unemployment rate for the class (divide those who are sitting with their heads up by the total of heads-up sitting and standing). (Note: if one of these subsets has zero students, just assign students into hypothetical roles to make the point).

    Ask students which ratio they think is a better calculation of the employment/unemployment status of the class (answers will vary). Point out that the BLS definitions can give a misleading picture of the true health of the labor market.
     
  5. Tell students to assume that some of those who put their heads down wanted a job and had looked for one in the past year, but not in the past 4 weeks. Remind them that these people are not included in the BLS definition of the labor force and are therefore, not counted as unemployed. These are people who are considered to be marginally attached to the labor force--who want work, who have looked for work in the past 12 months, but not in the past 4 weeks.

    Ask students what would happen to the unemployment rate if these people were included (it would increase). Tell them that the BLS keeps data on this wider definition of unemployed workers: U5. For more information, go to [EEL-link id='2574' title='bls.gov/news.release/empsit.t15.htm' ]
     
  6. Of those students who have a job, ask how many of them have a part-time job (probably all of them). Ask how many of them would like to have a full-time job now (answers will vary, but probably not many would want a full-time job while they're in school). Even if no students indicate they are working part-time but want a full-time job, ask students to assume that is the case. Ask students if these people should be considered part of the labor force (yes, they are working). Ask students if these people should be considered only partly employed (or partly unemployed) since they want to work more than they are (answers will vary).

    Tell students that in the official unemployment release, the BLS does not take the desires of workers into account--they simply look at whether they are working or not. So these "underemployed" workers are counted as being employed, even though they want to work full-time. Ask students what would happen to the unemployment rate if these people were counted as only partly employed (it would increase). The BLS does have another unemployment measure that captures these people--U6--and that can be found at the above-referenced link.

    Remind students that most (if not all) of them who were working part-time indicated that they did not want a full-time job. Tell students that many who are part-time workers are so voluntarily. Ask students why someone would choose to only work part-time (because they are students, caretakers, fits with their lives/schedules). 
     
  7. Direct students to "Janet Yellin's Dashboard " and have them click on "Jobs", then "Unemployment".

    Ask students what they notice about the spread between the unemployment rate and the underemployment rate (from 2009--the recovery--until about 2011, the difference between the two rates widens).

    Ask students if that makes sense to them--that during a recovery, the difference between the unemployed and the underemployed should increase, and why that would be so (answers will vary).

    Tell students that in the beginning of economic recoveries, part-time employment is often utilized by employers. Ask why that would be the case (businesses are risk-averse and want to make sure that a recovery is well underway before committing to hiring people full-time).

ASSESSMENT ACTIVITY

CONCLUSION

The official unemployment rate generated by the BLS is narrowly defined, leading to widespread misperceptions about who is included and who is not. This lesson leads students through the process of discovering which individuals are excluded or included so that they can fully understand the data and its limitations.

EXTENSION ACTIVITY

How do you think people who work part-time but want to work full-time should be included in the unemployment data? (answers could include counting them in proportion to how many hours a week they work compared to a full-time work week of 40). Are there populations of workers for which underemployment is a larger issue? (recent college grads, those with low skills, those who have been out of the labor force for some amount of time). 

EDUCATOR REVIEWS