This lesson examines the February 4, 2011, U.S. Department of Labor, Bureau of Labor Statistics (BLS), announcement of employment data and the unemployment rate for the month of January, 2011. This lesson introduces 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 February 4, 2011, BLS announcement of the "Employment Situation" for the month of January, 2011.

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

During the second half of the 2010-2011 school year, (January-May), EconEdLink will publish five 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.

  • January: 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?
  • February: details and issues about the measurement and meaning of employment and unemployment, adding concepts such as underemployment, full employment, etc.THIS LESSON
  • March: detailed breakdown of the data by region and industry (trends, identifying trends and comparisons of regions and demographic groups
  • April: the relationships of employment and unemployment data to other economic data, such as GDP, CPI, etc., and the business cycle.
  • May: End of the school year review of employment data and summary of the recent history of labor markets.]

MATERIALS

For additional information about the Employment and Unemployment data announcem,ents, teachers should visit these BLS sites:


Key Economic Indicators

as of February 4, 2011

Inflation

The U.S. Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.

Employment and Unemployment

The U.S. unemployment rate fell by 0.4 percentage point to 9.0 percent in January, while nonfarm payroll employment changed little (+36,000). Employment rose in manufacturing and retail and declined in construction and transportation.

Real GDP

U.S. real gross domestic product increased at an annual rate of 3.2 percent in the fourth quarter of 2010, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent.

Federal Reserve

The Federal Open Market Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

PROCESS

Good news!  The U.S. unemployment rate dropped from 9.4 percent in December, 2010, to 9.0 percent in January, 2011.

Bad news!  In January, 2011, the U.S. economy created only 36,000 new non-farm jobs.

Good news!  The number of unemployed persons decreased by 622,000 in January to 13.9 million.  This is the lowest number of unemployed people since April, 2009.

Bad news!  The U.S. labor force participation rate dropped to 64.2 percent, the lowest level since March, 1984.

Good news!  Since the most recent low level in February 2010, total payroll employment has increased by an average of 93,000 per month.

Bad news!  In January, 2.8 million persons were marginally attached to the labor force, up from 2.5 million a year earlier.

[Note to teachers: Can your students figure out what really happened in January, 2011, by just looking at these numbers (above)?  It may be interesting to share their initial thoughts.]

The January, 2010, BLS "Employment Situation" announcement seems like a mystery - some good news and some bad news.  Let's see what the Bureau of Labor Statistics (BLS) said about employment and unemployment in January, 2011.

Bureau of Labor Statistics: The Employment Situation – January 2011
Released February 4, 2011

"The unemployment rate fell by 0.4 percentage point to 9.0 percent in January, while nonfarm payroll employment changed little (+36,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing and in retail trade but was down in construction and in transportation and warehousing. Employment in most other major industries changed little over the month."

"The unemployment rate (9.0 percent) declined by 0.4 percentage point for the second month in a row. The number of unemployed persons decreased by about 600,000 in January to 13.9 million, while the labor force was unchanged. (Based on data adjusted for updated population controls.)"

Note: The January 2011 employment data has been adjusted as a result of new population data from the 2010 U.S. Census. Some past data has also been adjusted to reflect more accurate census data.

Remember, the unemployment rate is determined as the percentage of the labor force who are unemployed.  The number of employed, unemployed and the size of the labor force change each month.  It is possible that the unemployment rate can decrease if the size of the labor force increases and the number of unemployed increases, decreases or remains constant.    Just the same, the unemployment rate can increase if enough people leave the labor force and the other factors do not change to the same degree.

In January, when the size of the labor force remained about the same (decreased by just 504,000) and the number of unemployed decreased by 622,000, the unemployment rate decreased.

Month Labor Force Unemployed Unemployment Rate
December 2010 153,690,000 14,485,000 9.4%
January 2011 153,186,000 13,863,000 9.0%


Remember also that those who are working part-time, are "marginally attached," or "underemployed" are not counted as unemployed.  Some estimate that the real unemployment rate, factoring in the underemployed, part-time workers who want full-time jobs and some others, may be as high as 20 percent.

Is the published unemployment rate a meaningful number?  Figure 1, below, shows the basic U.S. labor market data for January, 2011, and the change from the month of December, 2010.  Do any of these numbers surprise you or cause you to wonder what is really going on?

Figure 1:  U.S. Labor Market Data
January 2011
Employment Status Jan. 2011 Monthly
Change
Civilian Non-institutional Population 238,704,000 -185,000*
Civilian Labor Force 153,186,000 -504,000
Participation Rate 64.2% -0.1%
Employed 139,323,000 +117,000
Employment-population Ratio 58.4% +0.1%
Unemployed 13,863,000 -622,000
Unemployment Rate 9.0% -0.4%
Not in Labor Force 85,518,000 +319,000
*January changes in household data have been altered as a result of BLS "updated population controls" or new census data.

 

Note: The U.S. civilian population change was due to new census data.

  • The number of unemployed people dropped by 622,000 in January.  Where did they go?
  • The size of the labor force decreased by 504,000 in January.  Where did they go?
  • The number of people "not in the labor force" increased by 319,000. Where did they go?
  • The number of employed persons increased by 117,00, but the number of new jobs created in January was only 36,000. Where are they working?

These somewhat confusing numbers - apart from the simple measurement of the reported 9.0 percent unemployment rate - tell us that there is more to the real "Employment Situation" than the simple number of officially "unemployed" people.

Alternative Measures of Labor Underutilization (Unemployment)

The BLS announces the "official" unemployment rate defined as: "The unemployment rate represents the number unemployed as a percent of the labor force."  See the BLS definition of "unemployed" for details.  BLS Glossary .    

Many analysts, planners, and economists suggest that other measures of unemployment may be more meaningful.  The BLS argues that the announced rate is the most meaningful, but that other measurements may be appropriate for some purposes.  All of these measurements are determined by the same survey data.

The BLS suggests that there are seven potentially appropriate unemployment measurements. The BLS explains, “The first four measures in the range, which was introduced as “Range of unemployment indicators reflecting value judgments about significance of unemployment,” embodied value judgments on the degree of financial hardship experienced by selected groups among the unemployed (as officially defined). They are:

  • U-1. This measure included “only unemployed persons who were jobless for 15 weeks or more."  The underlying argument for U-1 is that only persons unemployed for an extended period, when unemployment insurance or savings might be exhausted, would actually be likely to suffer serious financial hardship as a direct consequence of unemployment.
     
  • U-2. This measure is made up of “persons who had become unemployed because they lost their jobs (rather than those who recently entered the job market or those who quit jobs to look for work)."  The thinking in this case was that those who lost their jobs (many perhaps without advance notice) likely experienced more financial difficulty than those who entered into unemployment largely of their own volition and on their own schedule.”
     
  • U-3. This measure is “restricted to household heads only."  This measure assumed that unemployment and associated hardship was a more serious matter when those presumed to be the primary breadwinners were affected since the income loss would affect the entire family as well.
     
  • U-4. This measure includes only “persons looking for full-time jobs."  The reasoning was similar to that used for U-3; persons in need of full-time jobs likely had a greater responsibility for ensuring financial security than those looking for part-time employment.
     
  • U-5. The officially announced measurement of unemployment - 9.0 percent in January, 2011.  Essentially free of any value judgments as to the degree of hardship experienced by one unemployed person over another, U-5 was based on the number of persons in the labor force who are not working but actively searching and available for work.
     
  • U-6. This measure exclude “some of those who were included as unemployed in the official measure but added in a larger group of persons who some might consider underemployed."  U-6 encompasses all persons looking for full-time work, plus half of those seeking part-time jobs, plus half of those persons employed part time involuntarily (in essence counting some of the underemployed as unemployed.)
     
  • U-7. This measure adds “discouraged workers to the U-6 total - persons neither working nor currently looking for work who nevertheless indicate that they want work, but have given up searching because they feel no jobs are available for them.”  This is the broadest measurement of the unemployment rate. The BLS did not report this unemployment estimate for January 2011.

See the BLS glossary for definitions of terms: http://www.bls.gov/bls/glossary.htm#top .  

Figure 2:  Alternative Measurement of Employment Utilization
(Unemployment)
January 2011
Measurement of Unemployment (%s) Jan.
2010
Nov.*
2010
Jan.
2011
U-1 Persons unemployed 15 weeks or longer 5.8 5.7 5.5
U-2 Job losers + persons who completed temporary jobs 6.1 6.2 5.6
U-3 Total unemployed (officially reported unemployment rate) 9.7 9.8 9.0
U-4 Total unemployed + discouraged workers 10.3 10.5 9.6
U-5 Total unemployed + discouraged + marginally attached 11.1 11.2 10.7
U-6 Total unemployed + marginally attached + part time 16.5 17.0 16.1
*November 2010 was the highest reported U.S. unemployment rate in 2010. 

 

[Note: For more information about this issue and the unemployment measurement process, go to: How the Government Measures Unemployment (BLS).]

[Teacher Note:  Ask your students if involuntary part time workers , marginally attached workers, and discouraged workers should be counted as unemployed.  For instance, is a person who can only find half-time employment really unemployed half-time?]

Who were the unemployed in January?

Figure 3, below, breaks down the January 2011 unemployment rates by race or ethnicity, by age, and by educational attainment.  Take a look at the January numbers.
 

Figure 3:  U.S. Unemployment Rates by Age, Ethnicity, and Educational Attainment
January 2011
Category Unemployment Rate
January 2011
Age:
All workers (age 16 years and over) 9.0%
   Adult men (age 20 years and over) 8.8%
   Adult women (age 20 years and over) 7.9%
   Teenagers (age 16-19 years) 25.7%
Ethnicity: 
Whites 8.0%
   Adult Men 9.2%
   Adult Women 7.2%
   Teenages (16-19 years) 23.5%
Black/African Americans - All 15.7%
   Adult Men 18.4%
   Adult Women 12.9%
   Teenagers (16-19 years) 46.9%
Hispanic/Latinos- All 11.9%
   Adult Men 13.0%
   Adult Women 11.5%
   Teenagers (16-19 years) 32.9%
Asians 6.9%
Educational Attainment:
Total (age 25 years and over) 7.6%
Less than a high school diploma 14.2%
High school graduates, no college 9.4%
Some college or associate degree 8.0%
Bachelor's degree and higher 4.2%

 

[Note to teachers:  Ask your students to identify any patterns they see in the January, 2011, 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 and unemployment rates, go to the BLS page,  "Education Pays ."]

Figure 4, below, shows the recent history of the U.S. monthly unemployment rates.  Note the highest level, 10.1 percent, in October, 2009.  The periods of increases and decreases in the unemployment rate over the years correlate with the business cycles.

Unemployment Figure 4

[Note to teachers:  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?

Total nonfarm payroll employment changed little in January (+36,000). Manufacturing and retail trade added jobs over the month, while employment declined in construction and in transportation and warehousing. Since a recent low in February 2010, total payroll employment has increased by an average of 93,000 per month. (See table B-1.)

Construction jobs declined by 32,999 in January?  Was it the bad weather in the Northeast? Keith Hall, Commissioner of the Bureau of Labor Statistics commented on the impact of the weather, "“Severe weather in some parts of the country may have impacted employment and hours in this industry. Nonresidential specialty trade contracting accounted for much of the over-the-month employment decline in construction.”  http://www.bls.gov/news.release/jec.htm
 

[Note: For a more complete breakdown of industry employment in January, 2010, go to the BLS page, Economic News Release http://www.bls.gov/news.release/empsit.t14.htm Economic News Release .]

[Note to Teachers:  Students can discuss the validity and reliability of the current BLS method of measuring unemployment.  Should the unemployment rate somehow include the underemployed?]


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."

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, BLS updates the seasonal adjustment factors for the labor force data derived from the Current Population Survey (CPS), or household survey.

[Note to teachers: 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

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 complied 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.

  1. 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.
  2. 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.
     
  3. 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

[Note to teachers:  The Wall Street Journal (WSJ.com) blog asked economists to post their resonses to the January, 2010, Employment Summary.  To read some of their opinions, go to: http://blogs.wsj.com/economics/2011/02/04/economists-react-ton-of-noise-in-jobs-report/

The economist's responses to the employment report may generate some interesting student discussion.]

ASSESSMENT ACTIVITY


Short Answer Question: 


1. What people are considered to be "not in the labor force"?

["Not in the labor force" includes persons aged 16 years and older in the civilian noninstitutional population who are neither employed nor unemployed in accordance with the BLS definitions. (Those under sixteen, retired, not working or looking for work, institutionalized, in school full time, etc.)]

2. What is a "discouraged worker"?

[Discouraged workers: "Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify."]

CONCLUSION

Once again...

  • The number of unemployed people dropped by 622,000 in January.  Where did they go?
  • The size of the labor force decreased by 504,000 in January.  Where did they go?
  • The number of people "not in the labor force" increased by 319,000. Where did they go?
  • The number of employed persons increased by 117,000, but the number of new jobs created in January was only 36,000. Where are they working?

The simple number of the unemployment rate and the number of "employed" do not tell the whole employment story.  The numbers are derived from two 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 define "employed" and "unemployed"?

[Note to Teachers: Have your students take a look at the seven BLS definitions of the "unemployment rate" in the lesson process.  Which do they think is the best measure of the health of the economy?] 

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.