Focus on Economic Data: U.S. Employment and the Unemployment Rate, January, 2012
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Each month, the U.S. Bureau of Labor Statistics (BLS) releases data from the monthly "Household Survey" conducted by the Bureau of the Census, providing a comprehensive body of information on the employment and unemployment experience of the U.S. population, classified by age, sex, race, and a variety of other characteristics.
The BLS also conducts the Current Employment Statistics (CES) program, surveying about 150,000 businesses and government agencies, representing approximately 390,000 individual work sites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls.
The BLS compiles information from these sources and announces the monthly "Employment Situation," reporting the current U.S. employment and unemployment data estimates. The monthly announcement reports employment data from the previous full month.
This lesson is about the BLS February 3, 2012, announcement of the "Employment Situation" for the month of January, 2012.
- Review the most recently reported U.S. employment and unemployment data.
- Determine the changes in U.S. employment and unemployment from the past month and year.
- Determine the factors that have influenced the change in the U.S. unemployment rate.
- Explain the implications of the employment and unemployment data for individuals, population groups, and the U.S. economy.
Is a Jobless Recovery the New Normal?
In the most recent (2008-2009) and the previous (2001) recessions, it took a significant length of time to recreate the number of jobs lost during the downturn. In both instances, the economy began to grow without increasing jobs at a similar rate. - what some call a "jobless recovery."
Historically, at the end of a recession, with the economy in the upward phase of the business cycle, companies have hired back unemployed workers. In these cases, where the recession was in a typical business cycle, the renewed demand for goods and services motivated employers to hire. And, typically, the growth of jobs fell in line with the growth in output in a more labor-intensive system.
Students: The business cycle is explained later in this lesson. See Figure 5.
Today, growth seems to more easily happen without that same pattern of rehiring. Maybe companies are reluctant to hire more workers when the future is uncertain. Maybe companies are taking advantage of the recession to adjust how they do things. Can they produce more with fewer workers? Maybe improvements in technology have created a structural change in the economy and the workforce has to change to fit that structure. In any case, employment growth through 2011 lagged the GDP growth of the economy. The U.S. unemployment rate has remained at an unacceptably high level.
Take a look at the February 3, 2012, BLS "Employment Situation - January 2012" announcement to learn more about current labor market conditions and the recovery.
Bureau of Labor Statistics: The Employment Situation – January ,2012
Released February 3, 2012
"Total nonfarm payroll employment rose by 243,000 in January, and the unemployment rate decreased to 8.3 percent, the U.S. Bureau of Labor Statistics reported today. Job growth was widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing. Government employment changed little over the month."
[Note: Unless otherwise cited, the quoted content of this lesson is from the February 3, 2012, BLS announcement.]
The consensus is that it takes 125,000 to 150,000 new jobs each month just to accommodate growth of the labor force. If that is accurate, a gain of 243,000 jobs means the economy is finally catching up. In January, a total of 847,000 more people were employed and 339,000 fewer people were unemployed. The labor force grew by 508,000, despite the fact that over a million people joined the ranks of those "not in the labor force." All of this adds up to the 8.3 percent unemployment rate reported for January, 2012.
Figure 1, below, shows the key U.S. labor market data for December, 2011, and January, 2012.
Students: For definitions of the key labor market concepts, use the BLS Glossary, http://www.bls.gov/bls/glossary.htm .
"The unemployment rate declined by 0.2 percentage point in January to 8.3 percent; the rate has fallen by 0.8 point since August. (See table A-1.) The number of unemployed persons declined to 12.8 million in January."
Sounds like good news, right? But, 12.8 million unemployed and an 8.3 percent unemployment rate are still almost twice the numbers that are considered to be "normal." The U.S. unemployment rate prior to the beginning of the 2008-2009 recession was 4.7 percent (November, 2007).
Students: Remember, there are three general types of unemployment - cyclical, structural, and frictional. The natural rate of unemployment includes the frictionally and structurally unemployed. Those who are unemployed due to the downward phase of the business cycle and reduced demand for goods and services are the cyclically unemployed.
Figure 2, below, shows the monthly U.S. unemployment rates since the year 2000. The rate was 4.7 percent prior to the beginning of the recession in December 2007.
How can unemployment remain high if there are so many new jobs in the economy? Remember, the unemployment rate is determined by two factors: 1) the size of the labor force, and 2) the number of unemployed persons. Also remember, The number of employed persons plus the number of unemployed persons equals the labor force. In January, the labor force grew by 508,000.
In the past twelve months, since January, 2012, the U.S. economy has created 1,750,000 jobs, but over 13,000,000 Americans remain unemployed.
Take another look at the data in Figure 1, above.
Details of the Employment and Unemployment Data for January, 2012
For more detailed unemployment data for January 2012, go to the February 3, 2012, BLS announcement, Employment Situation Summary Table A. Household data, seasonally adjusted
- For more detailed employment data for January 2012, go to the February 3, 2012, BLS announcement, "Employment Situation Summary Table B. Establishment data, seasonally adjusted ".
In Table A, look at the numbers of “employed persons at work part-time” (up in all categories) and “discouraged workers” (up over 100,000). Are these people functionally unemployed? A part-time worker who wants a full-time job is still counted as "employed." Someone who has dropped out of the labor force is not counted as "unemployed" because he or she has not looked for work in the last four weeks.
Remember the BLS definition of an unemployed person. “Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.”
What is the unemployment rate if you count these and others who are not counted in the "headline" numbers? The BLS has developed a set of "alternative measures of labor underutilization." For January, 2012, the BLS reported six "alternative measures" of unemployment:
Students: Which of these do you think is the most meaningful measurement of unemployment?
- U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
- U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
- U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)
- U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
- U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
- U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
In January, the U.S. unemployment rate including the "unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force," (U-6) was 15.1 percent.
Unemployment Rates by Demographic Group
Figure 3, below, summarizes the January, 2012, unemployment rates for age, ethnic, and educational attainment groups. Note the groups that are better-off or worse-off than other groups.
Students: Can you identify any patterns they see in the January, 2012, employment and unemployment data. How does unemployment impact these demographic groups?
What generalizations can you make about these demographics group unemployment rates?
- How important is education?
- Why are women doing a little better than men?
- Is unemployment evenly divided among ethnic groups?
- Why is unemployment among teenagers so high?
Employment and the Business Cycle
One of the important criteria used by the National Bureau of Economic Research (NBER) to identify business cycles and recessions is payroll employment data. The most recent recession ended in June, 2009, when the NBER concluded that, among other things, employment was increasing - a sign of recovery. Since then, the unemployment rate has remained stagnant, but there has been modest economic growth (see the Real GDP "EconEdLink lessons for the past few months.) The Business Cycle model is illustrated below.
Students: For more information about the business cycles, go to the National Bureau of Economic Research (NBER) website, http://www.nber.org/cycles/main.html .
How Did Workers the Major Industry Groups Fair in January 2012?
"Total nonfarm payroll employment rose by 243,000 in January. Private- sector employment grew by 257,000, with the largest employment gains in professional and business services, leisure and hospitality, and manufacturing. Government employment was little changed over the month."
Figure 5, below, shows the changes in employment among major industry groups. The BLS noted that job creation was "widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing." Job losses continued in the government sector - primarily local government employment.
Students: What important industries in your region have higher or lower rates of job growth (loss) than the average?
Students: Pick an industry group to study. Summarize the recent employment trend in that industry group. Source: http://data.bls.gov/cgi-bin/surveymost?ce
What is Full Employment?
When analyzing business cycles, economists define an unemployment rate that is "full employment." Full employment exists when nearly all persons willing and able to work at the prevailing wages and working conditions are employed. Generally, this is called the an acceptable level of "natural" unemployment, when cyclical unemployment is at a minimum. This often referred to as the "non-accelerating inflation rate of unemployment" or NAIRU.
Economists do not agree or know for certain what the full employment rate is. A consensus estimate is that the full employment rate of unemployment is currently between 4.5 and 5.0 percent of the labor force being unemployed. The measure of full employment will exclude frictional unemployment and structural unemployment.
Remember, there are three general types or causes of unemployment.
- Frictional unemployment is temporary unemployment arising from the normal job search process.
- Structural unemployment is the result of changes in the economy caused by technological progress and shifts in the demand for goods and services.
- Cyclical unemployment is unemployment caused by a drop in economic activity.
When the economy is at full employment and other productive resources are being utilized to their fullest, the economy may be reaching its "full employment GDP." At this point, the economy is reaching or is at its potential output or GDP, given existing productive resources. The lost output from unemployment in a recessionary period is called the "Recessionary Gap."
What is Underemployment?
The BLS does not officially use the term "underemployment." The BLS explains on the Current Population Survey FAQ webpage: "Because of the difficulty of developing an objective set of criteria which could be readily used in a monthly household survey, no official government statistics are available on the total number of persons who might be viewed as underemployed. Even if many or most could be identified, it would still be difficult to quantify the loss to the economy of such underemployment." In other words, the term is hard to define by BLS standards.
In articles, references to underemployment examples are those who work part-time and would like to work full-time, those who work at jobs with wages below their level of training, and those who are marginally attached to the labor force. See the section of this lesson on "alternative measures of unemployment for more details.
Students: Should the underemployed be counted as somehow unemployed?
Seasonally Adjusted Household Survey Data
Short-run trends in labor force are influenced by seasonal and periodic fluctuations associated with recurring events such as weather, holidays, and the opening and closing of schools. Seasonal adjustment eliminates the influence of these fluctuations and makes it easier for users to observe fundamental changes in the level of the series, particularly changes associated with general economic expansions and contractions.
At the end of each calendar year, the BLS updates the seasonal adjustment factors for the labor force data derived from the Current Population Survey (CPS), or household survey.
Household vs. Establishment Series
Statistics on nonagricultural employment, hours of work, and earnings are compiled from two major sources: household interviews and reports from employers.
Some of the confusion over the meaning of the unemployment and employment data arises from differences between the two primary sources of the data, the Current Population Survey (Household Survey) and the Current Employment Statistics Survey (Establishment Survey.)
The Household Survey is based on interviews obtained from a sample of the population, aged 16 years of age and over. This monthly survey, conducted by the Bureau of the Census, provides data on the labor force, the employed, and the unemployed, classified by such characteristics as age, sex, race, family relationship, marital status, occupation, and industry attachment. The survey is conducted during a calendar week that includes the 12th of the month.
The Establishment Survey data is compiled each month from mail questionnaires and telephone interviews by the Bureau of Labor Statistics, in cooperation with State agencies.
This survey provides information on nonfarm wage and salary employment, average weekly hours, average hourly earnings, and average weekly earnings for the nation, states, and metropolitan areas. The survey is conducted from a sample of over 390,000 establishments employing over 47 million nonfarm full or part time wage and salary workers during the same week as the Household Survey.
Data from these two sources differ from each other because of variations in definitions and coverage, source of information, methods of collection, and estimating procedures. The major factors which have a differential effect on the levels and trends of the two data series are:
The key to the difference is the definition of who is employed in the surveys. The Household Survey (CPS) includes the unincorporated self employed, unpaid family workers, agriculture and related workers, private household workers, and workers absent without pay.
The Establishment Survey (CES) estimate of jobs only those receiving pay for the reference pay period. The CES excludes many of the groups included in the CPS who do not work for the businesses that report data.
- Employment. The household survey definition of employment includes wage and salary workers (including domestics and other private household workers), self-employed persons, and unpaid workers who worked 15 hours or more during the reference week in family-operated enterprises. The establishment survey covers only wage and salary employees on the payrolls of nonfarm business establishments.
- Multiple jobholding. In the Household Survey, each person is classified as employed, unemployed, or not in the labor force. Employed persons holding more than one job are counted only once. For the Establishment Survey, people who worked for more than one establishment are counted each time their names appear on a payroll.
- Unpaid absences from jobs. The household survey includes among the employed all civilians who had jobs but were not at work during the reference week—that is, were not working but had jobs from which they were temporarily absent because of illness, vacation, bad weather, child care problems, labor-management disputes, or because they were taking time off for various other reasons, even if they were not paid by their employers for the time off. In the Establishment Survey, persons on leave paid for by the company are included, but those on leave without pay for the entire payroll period are not. Source: http://www.bls.gov/lau/lauhvse.htm
In the definitions above, there are a couple of big differences between the two surveys that may impact the "official" number of employed and unemployed persons. Again, just looking at the simple numbers from the surveys may not provide a complete picture of the health of the labor market in the United States.
Students: What do you think?
The U.S. economy created 243,000 new jobs in January, 2012. Maybe a "jobless recovery" is not the new normal. It is not good practice to identify a trend based on one or two months' data, nut the January employment data was welcomed news to many.
Job creation since the beginning of the recovery has been erratic - a few months of good job growth and then a few months of slow job growth, etc. Both the unemployment rate and number of unemployed are back to the level of February 2009, but well above the levels of November 2007.
Job growth in construction and manufacturing were strong in December 2011 and January 2012. Was it the strength of the economy or the result of warmer-than-usual weather in much of the country?
The 2008-2009 recession was longer and more widespread than any recession since the Great Depression of the 1930s. Job growth in this recovery has been slower than other periods, but may have turned the corner. Keep an eye on job growth over the next few months to see if there is a solid growth trend.
Students: What do you think will be the best sign that the economy is really recovering?
Students, complete this interactive quiz on the GDP lesson.
Women in the Labor Force
The past several decades have been seen significant changes in women’s participation in the labor force and employment. Since the 1970s, women’s labor force participation has risen substantially, particularly among women with children, and a larger share of women work full time and year round than ever before. Although the average hours worked and average wage rates for women lag those of men, the gaps are narrowing.
Go to the BLS online publication, "Women in the Labor Force: A Databook ," to read a brief history of the changes in the labor force participation of women.
How do you think these changes in the status of women have affected our society, our economy, and our lives?
U.S. Labor Force Demographics
The BLS also provides information about the demographics of the U.S. labor force , including age, youth, women, educational attainment. etc. Take a look at any special group you wish to research.