This lesson examines the October 5, 2012, U.S. Department of Labor, Bureau of Labor Statistics (BLS), announcement of employment data and the unemployment rate for the month of September, 2012. This lesson introduces more of the basic concepts of the BLS employment and unemployment data. The meaning and importance of the data are discussed. Assessment exercises are included for reinforcing knowledge of the concepts.

KEY CONCEPTS

Business Cycles, Economic Growth, Full Employment, Labor Market, Macroeconomic Indicators, Unemployment, Unemployment Rate

STUDENTS WILL

  • 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.

Current Key Economic Indicators

as of May 5, 2013

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.

Employment and Unemployment

Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

Real GDP

Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent...

INTRODUCTION

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 September, 2012, BLS announcement of the "Employment Situation" reported on October 5, 2012.

[NOTE: "Employment and Unemployment Rate" Focus on Economic Data lesson schedule:

During the first half of the 2012-2013 school year, (September-December), EconEdLink will publish four Focus on Economic Data lessons on employment and the unemployment rate. During this time period, the lessons will begin with the 'basics' in September (this lesson) and progressively focus more on complex data, issues and comparisons. All monthly Focuses on Economic Data will include the current data and significant recent changes.

  • September 7, 2012:  August 2012. Employment and unemployment data basics. What is employment? What is the unemployment rate? How are they measured? What is the current data? What do they mean?
  • October 5, 2012: September 2012. Details and issues about the measurement and meaning of employment and unemployment, adding concepts such as underemployment, full employment, etc.  THIS LESSON
  • November 2, 2012: October 2012. Detailed breakdown of the data by region and industry (trends, identifying trends and comparisons of regions and demographic groups.
  • December 7, 2012: November 2012. The relationships of employment and unemployment data to other economic data, such as GDP, CPI, etc., and the business cycle, plus an end-of-year review.

MATERIALS


Key Economic Indicators

as of October 5, 2012

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers increased 0.6 percent in August after being unchanged in July. The index for all items less food and energy rose 0.1 percent in August, the same increase as in July.

Employment and Unemployment

The unemployment rate decreased to 7.8 percent in September, and total nonfarm payroll employment rose by 114,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care and in transportation and warehousing but changed little in most other major industries.

Real GDP

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.3 percent in the second quarter of 2012 (that is, from the first quarter to the second quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.0 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

PROCESS

It Sounds Like Great News for the U.S. Economy.

  • In September, 2012, the U.S. unemployment rate fell to 7.8 percent.
  • The number of employed people in the U.S. increased by 873,000 in September.
  • The number of unemployed people in the U.S. decreased by 456,000 in September.
  • The U.S. civilian labor force increased by 418,000.
  • The number of people “not in the labor force” fell by 211,000.
     

More people are working.  Fewer people are unemployed. But, employers report an increase of just 114,000 net new jobs in September, 2012. A consensus estimate of the number of jobs it takes to simply keep up with population growth and to maintain the current unemployment rate (all other factors remaining the same) is hard to find, but about 125,000 per month seems to be a common estimate. 

Let’s assume that 125,000 is a reasonably good number of monthly job creation to keep unemployment rate.   How can the economy create only 114,000 jobs in September and the unemployment rate drops to 7.8 percent?  Let's see exactly what the Bureau of Labor Statistics (BLS) said about U.S. employment and unemployment in September, 2012.

Note to Teachers and Students:  Unless otherwise cited, all quoted material in this lesson are from the U.S. Bureau of Labor Statistics news release, “The Employment Situation – September 2012.” (Released October 5, 2012)  URL: http://www.bls.gov/news.release/archives/empsit_10052012.pdf

U.S. Bureau of Labor Statistics
Economic News Release

The Employment Situation – September 2012
Released October 5, 2012

“The unemployment rate decreased to 7.8 percent in September, and total nonfarm payroll employment rose by 114,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care and in transportation and warehousing but changed little in most other major industries.”

Remember, this data comes from two very different sources. 

  • The unemployment rates is derived from the “Household Survey,” data derived from the reports of a sample of U.S. households, reporting, among other things, who worked in the previous month and who did not.  It provides, as the BLS explains, “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.”  From this data, the unemployment rate (percent of the labor force who did not work and looked for employment) is determined.
  • 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.  From this survey, the number of jobs created or lost is determined.
     

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.

The BLS announcement followed with a reference to the recent history of the unemployment rate.“The unemployment rate declined by 0.3 percentage point to 7.8 percent in September. For the first 8 months of the year, the rate held within a narrow range of 8.1 and 8.3 percent. The number of unemployed persons, at 12.1 million, decreased by 456,000 in September.”  (See table A-1 in the news release.)

Figure 1, below, shows the monthly unemployment rates estimates from the year 2000 to the present.  Note the increases in the unemployment rates during the recession period from the end of 2007 to mid-2009.

figure 1

[Teacher Note: Ask your students: Can you identify the period of the recent recession in the unemployment rate graph? (The recession was, officially, December, 2007 to June, 2009.)]

In September, the unemployment rate for all major demographic groups decreased.“Among the major worker groups, the unemployment rates for adult men (7.3 percent), adult women (7.0 percent), and whites (7.0 percent) declined over the month. The unemployment rates for teenagers (23.7 percent), blacks (13.4 percent), and Hispanics (9.9 percent) were little changed. The jobless rate for Asians, at 4.8 percent (not seasonally adjusted), fell over the year.” (See tables A-1, A-2, and A-3 in the news release.)

Even after a one month drop of 0.3 percentage point, the U.S. unemployment remains historically high, indicating that the recovery from the recent recession continues to be slow.  How can unemployment remain high if there are 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.

Category

August 2012

September 2012

Change

Labor force

154,645,000

155,063,000

+ 418,000

Employed persons

142,101,000

142,974,000

+ 873,000

Unemployed persons

12,544,000

12,088,000

 - 456,000

In September, although the net job gain was just 114,000 jobs, the U.S. labor force increased by a much larger number (418,000.)  As a percentage of the labor force, the decrease in the number of unemployed resulted in the significant decrease in the unemployment rate.  The BLS announcement in September also restated the estimates of job growth in July and August, 2012. “The change in total nonfarm payroll employment for July was revised from +141,000 to +181,000, and the change for August was revised from +96,000 to +142,000.” That is a total of 86,000 more new jobs not previously reported.

Note: The current employment data has been adjusted as a result of the population data from the 2010 U.S. Census. Some historical data has been adjusted to reflect the more accurate census data.

114,000 New Jobs in September

Now, take a look at the details of the employment and unemployment data for September, 2012.


Note the differences between the unemployment rates for the demographic groups, by race/ethnicity, age, and levels of education.

[Teacher Note:  Here is an opportunity to have your students look at primary data and draw inferences and make generalizations.  What is the relationship between educational attainment and unemployment?  What happened to the unemployment related to age?]

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 September, 2011, the BLS reported six "alternative measures" 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. (The announced 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.
     

The BLS adds this note to the six unemployment definitions: “Persons marginally attached to he labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.”

For the BLS definitions use in the above categories, see the BLS "Glossary," http://www.bls.gov/bls/glossary.htm

[Teacher Note:Ask your students: Which of these do you think is the most meaningful measurement of unemployment? [Students should consider the definitions of the six groups and how they represent the economy as a whole. Should part-time workers be lso considered part-time unemployed if they want a fill-time job?  What about discouraged workers?]

Unemployment Rates by Demographic Group

Figure 2, below, summarizes the August and September, 2012, unemployment data for age, ethnic, educational attainment groups, and the month-to-month change. Note that all groups are better-off in September than in August, except for college graduates whose already low unemployment rate did not change.

figure 2

[Teacher Note: Ask your students if they can identify any patterns in the September, 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?]


[Teacher Note:  For more information about level of education, median earnings, and unemployment rates, go to the BLS page, "Education Pays ."]

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 “Focus on Economic Data” lessons for the past few months.)  The Business Cycle model is illustrated below.

figure 3

[Teacher Note:  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 September?

“Total nonfarm payroll employment increased by 114,000 in September. In 2012, employment growth has averaged 146,000 per month, compared with an average monthly gain of 153,000 in 2011”(See table B-1 in the announcement.)

Figure 4, below, shows the changes in employment among major industry groups.  Of primary concern to many is the long-term trend of job losses in manufacturing.  Manufacturing lost 16,000 jobs in September after a loss of 22,000 manufacturing jobs in August.

figure 4

[Teacher Note: For a complete breakdown of employment by industry in September, 2012, go to the BLS announcement Table B-1. http://www.bls.gov/news.release/empsit.t17.htm ]

Note that the number of "service-providing" jobs increased by 114,000 in September, while the number of "good-producing" jobs decreased by 10,000.  Is this more evidence of a structural change in the U.S. economy and workforce? If so, what does it mean for the economy and individuals?

[Teacher Note: Ask your students: What important industries in your region have higher or lower rates of job growth (loss) than the average?]

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."

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.  

[Teacher Note: Ask your 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.

[Teacher Note: For a full explanation of the seasonal adjustment process, see the BLS article Revision of Seasonally Adjusted Labor Force Series in 2008 .]

Household vs. Establishment Series

As noted previously, 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:

  1. 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.
  2. 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.

What is 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.

  1. 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.
  2. 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.

[Teacher Note: Ask your students what they think. Does this difference matter?]

[Teacher Note: Give your students several sets of data for the size of the labor force and the number of unemployed.  the students should be able to determine the unemployment rates for those examples. The rate should be rounded to the nearest 1/10 of a percent.

  1. Labor force = 100,000,000    Unemployed = 5,000,000   Unemployment Rate: 5.0%
  2. Labor force =  275,000,000   Unemployed = 7,000,000   Unemployment Rate:2.5%
  3. Labor force =   46,789,000     Unemployed = 2,563,000   Unemployment Rate:5.5%
  4. Labor force =   18,739,000     Unemployed = 1,045,996   Unemployment Rate: 5.9%
  5. Labor force =  1,198,000,000   Unemployed =  211,000,000  Unemployment Rate: 17.6%

The Common Core goals suggest that students should be able to use math skills to solve problems in the context of the subject content.]

ASSESSMENT ACTIVITY

CONCLUSION

Once again...

Total U.S. nonfarm payroll employment increased by just 114,000 jobs in September, 2012, slightly below the number required to keep up with population growth.  U.S. manufacturing industries lost 16,000 jobs in the month.

The U.S. unemployment rate dropped to 7.8 percent in September.  The number of employed increased by 873,000 in September, 2012. Almost 12.1 million people remained unemployed in September, a decrease of 456,000 from August.

The simple numbers of the unemployment rate, the employed, and industry employment do not tell the whole employment story.  The numbers are derived from different sources that count different groups of people.

The Establishment Survey may undercount the number of people who are working and earning an income.  The Household survey may undercount "unemployment" by counting even those who worked just a couple of hours a week as employed. 

How do you best define "employed" and "unemployed"?

[Teacher Note: Again, have your students take another look at the six BLS definitions of the "unemployment rate" in the lesson process.  Which do they think is the best (most appropriate) measure of the health of the economy?  Have the students write their rationale for their choice.] 

EXTENSION ACTIVITY

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.

You can find more data on women in the labor force at this U.S. Department of Labor site: http://www.dol.gov/wb/factsheets/Qf-laborforce-10.htm