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 January 6, 2012, BLS announcement, "Employment Situation: December 2011." This lesson will also look at the recent history of employment and unemployment data.
For this lesson you 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.
At the end of 2011, the "Misery Index" of the U.S. economy was 11.9. The Misery Index is a hybrid indicator, a combination of the unemployment rate and the rate of inflation. By the end of 2011, the increase in the CPI-U (annualized from November data) was about 3.4 percent and the U.S. unemployment rate was 8.5 percent. That made the Misery Index 11.9, slightly less than the past seven months, but somewhat higher than the average over the past twenty years. (Source: "U.S. Misery Index," URL: http://www.miseryindex.us )
The Misery Index was devised by Economist Arthur Okun, an advisor to President Johnson in the 1960s. The index is seen by many as a good measure of the health of the economy, combining two factors that impact people directly. The Misery Index is not "official" data, but it does reflect the BLS data in a larger sense.
The Misery Index reached a recent high of 21.98 in June, 1980, when the unemployment rate was 7.6 percent and the rate of inflation reached almost 14.4 percent. In contrast, the recent low was 5.74 in April, 1998, when the unemployment rate was4.3 percent and inflation was just 1.44 percent.
If you look at the history of the Misery Index, you will see times when there was very high unemployment and low inflation, times when there was high inflation and low unemployment, and every other combination. Can you find a time when there was both high unemployment and high inflation - so-called "stagflation"?
Following the Misery Index provides another way to look at the up and down cycles of the economy. Keeping the Misery Index in mind, take a look at the December, 2011, employment and unemployment data from the Bureau of Labor Statistics.
Is the Misery Index a good measure of the economy's well-being?
The Employment Situation – December 2011
U.S. Bureau of Labor Statistics
Released: January 6, 2012
"Nonfarm payroll employment rose by 200,000 in December, and the unemployment rate, at 8.5 percent, continued to trend down, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining."
According to the BLS report, total private sector employment increased by 212,000 jobs, but was slightly offset by a 12,000 job decrease in government payrolls. The report noted that, "Both the number of unemployed persons (13.1 million) and the unemployment rate (8.5 percent) continued to trend down in December. The unemployment rate has declined by 0.6 percentage point since August."
December was the sixth straight month that the U.S. economy has created at least 100,000 jobs. The conventional wisdom is that it takes growth of at least ,000 jobs each month just to keep pace with the natural growth of the labor force. Fewer new jobs than that will increase the unemployment rate.
The Misery index dropped to 11.9 in December, 2011, after a recent high of 12.97 in September. During the recent recession, the Misery Index has been somewhat lower due to very low inflation. This is unlike the 1980s when both the inflation rate and unemployment were high. From 2008 to now, most of the total Misery index has been from high unemployment.
Who are the Unemployed?
According to the BLS definition, unemployed persons are, "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." (BLS Glossary URL: http://www.bls.gov/bls/glossary.htm )
Those under age 16, in school, incarcerated, or somehow institutionalized are not included in the labor force and, thus, are not eligible to be counted as unemployed or employed. To be counted, you have to have not worked during the week of the BLS survey and must have been looking for a job.
Why are those under 16, in school, incarcerated or institutionalized not counted as part of the labor force?
What is the unemployment rate?
The unemployment rate is the number unemployed persons as a percent of the civilian labor force. For instance, if there are one million people in a nation's civilian labor force and 100,000 of them are unemployed, the nation's unemployment rate is 10 percent. 100,000 divided by 1,000,000 is .10 - expressed as 10 percent.
Given the following data, can you determine the unemployment rates for these nations?
- Labor force: 125,000,000; Unemployed: 6,000,000. What is the unemployment rate?
- Labor force: 230,000,000; Unemployed: 18,500,000. What is the unemployment rate?
- Labor force: 82,600,000; Employed: 80,100,000. What is the unemployment rate?
The U.S. unemployment rate in December, 2011, was 8.5 percent, 0.1 percent lower than the previous month, November, 2011. Figure 1, below, shows the recent history of the U.S. unemployment rate since 1990. Note the periods of increases and decreases that generally correspond with the business cycles. The higher levels of unemployment beginning in December, 2007, and reaching over 10 percent in 2009, represent the most recent recession.
Remember, the business cycles consist of periods of growth, peak, decline and trough. Can you see the patterns of the cycles in the employment data?
Determining the U.S. Unemployment Rate, December 2011
- Civilian Labor Force 153,887,000
- Employed 140,790,000
- Unemployed 13,079,000
13,079,000 divided by 153,887,000 equals 8.5 (8.5 percent)
Note: The totals may not add-up exactly, due to rounding.
Household Survey Data - Unemployment
As usual, the burden of unemployment was not evenly distributed among demographic groups or around the nation. Figure 2, below shows the unemployment rate by demographic group in December, 2011. If you look at the historical data, the pattern of unemployment rates for these demographic groups has remained somewhat constant over recent years.
Figure 3, below, shows the breakdown of unemployment rates in the U.S. by educational attainment.
BLS data tells us that "education pays" in more than one way. Those with higher educational attainment typically earn higher incomes and they are less likely to be unemployed. For more information on the relationship between educational attainment, median income, and unemployment rates, see the BLS "Education Pays" webpage, http://www.bls.gov/emp/ep_chart_001.htm.
How does education pay?
Who are the "employed"?
According to the BLS Glossary, employed persons are "persons 16 years and over in the civilian non-institutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs.”
Note: if you worked just one hour for pay during the survey week, you were "employed."
Is one hour of paid work in a week meaningful employment? Should someone who works for, say, just five hours in a week be counted as fully "employed"? What about a person who has given-up looking for a job? Is that person "unemployed." The BLS definition says no. What do you think?
What is payroll employment?
"Employment is the total number of persons on establishment payrolls employed full or part time who received pay for any part of the pay period which includes the 12th day of the month. Temporary and intermittent employees are included, as are any workers who are on paid sick leave, on paid holiday, or who work during only part of the specified pay period. A striking worker who only works a small portion of the survey period, and is paid, would be included as employed under the CES definitions. Persons on the payroll of more than one establishment are counted in each establishment. Data exclude proprietors, self-employed, unpaid family or volunteer workers, farm workers, and domestic workers. Persons on layoff the entire pay period, on leave without pay, on strike for the entire period or who have not yet reported for work are not counted as employed. Government employment covers only civilian workers."
Counting the number of jobs, workers, or employment is sometimes difficult. Some people have multiple jobs. Some people are not legally working. Some people are not paid, but do contribute to the nation's output of goods and services. Why aren't the owners of small businesses counted in the number of employed?
What do you think is a good definition of "employment"?
Types of Unemployment - BLS Definitions
There are generally three types of unemployment typically identified by economists, each of which describes the particular circumstances of the individual and their employment situation.
Frictional unemployment is temporary unemployment arising from the normal job search process. Frictional unemployment helps the economy function more efficiently as it simply refers to those people who are seeking better or more convenient jobs and those who are graduating and just entering the job market. Some frictional unemployment will always exist in any economy.
Structural unemployment is the result of changes in the economy caused by technological progress and changes in the demand for goods and services. Structural changes eliminate some jobs in certain sectors of the economy and create new jobs in faster growing areas. Persons who are structurally unemployed do not have appropriate job skills and may face prolonged periods of unemployment, as they must often be retrained or relocate in order to find employment.
- Cyclical unemployment is unemployment caused by a drop in economic activity. This type of unemployment can hit many different industries and is caused by a general downturn in the business cycle. Lower demand for goods and services reduces the demand for workers. Much of the increase in unemployment in 2008 was cyclical as a result of the economic downturn and recession.
The BLS publishes monthly data on "Unemployed Persons by Reason for Unemployment" as part of the Employment Situation report (Table A-11). This data does not distinguish between the "types" of unemployment listed above. Take a look: http://www.bls.gov/news.release/empsit.t11.htm.
Can you give examples of individuals who are unemployed and determine their category. For instance: Mary lost her job in the steel mill when the production of steel moved to regions with lower wage rates. What kind of unemployment did Mary experience?
At the levels of unemployment that economists consider to be the lowest possible sustainable levels (discussed below), the only unemployment that exists is due to friction in labor markets and structural changes in the economy.
Economists define the approximate unemployment rate that is 'full employment'. If unemployment falls to a very low rate, there will be upward pressure on prices. If unemployment rises to a very high rate, there will downward pressure on prices or prices will remain steady. In the middle is a level, or more likely a range, where there is not pressure on wages to rise or fall. That is, generally, the full employment rate of unemployment.
Economists do not agree or know for certain what that rate is and it does change over time. 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. Today, some economists suggest that, due to technology and business trends, the level of full employment has changed and the "natural rate of unemployment" may be somewhat higher. Evidence of this is that U.S. output has increased without a corresponding increase in employment.
Additional Unemployment Data - December 2011
The BLS also tracks the length of unemployment. In December, "The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 5.6 million and accounted for 42.5 percent of the unemployed." (See table A-12.) The length of unemployment during this recession has been especially long.
The labor force participation rate is the percentage of the total civilian noninstitutionalized population who are in the labor force (employed plus unemployed.) In December, "The civilian labor force participation rate (64.0 percent) and the employment-population ratio (58.5 percent) were both unchanged over the month." (See table A-1.)
The BLS tracks those who are not fully employed in several ways. "The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 371,000 to 8.1 million in December. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job." (See table A-8.)
"About 2.5 million persons were marginally attached to the labor force in December, little different from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey." (See table A-16.)
"Among the marginally attached, there were 945,000 discouraged workers in December, a decrease of 373,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.6 million persons marginally attached to the labor force in December had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities."
Is a discouraged worker unemployed? Not according to the BLS definition. What do you think?
Establishment Survey Data - Employment
“Total nonfarm payroll employment increased by 200,000 in December. Over the past 12 months, nonfarm payroll employment has risen by 1.6 million. Employment in the private sector rose by 212,000 in December and by 1.9 million over the year. Government employment changed little over the month but fell by 280,000 over the year.” (See table B-1.)
Employment Data by Industry Group, December, 2011
As usual, in December, there was growth in some industries and lob losses in others. The monthly changes in selected major industry groups are listed in Figure 4, below. The biggest job gains were in transportation and wholesale trade, common indicators of future growth.
What industries are important to your school's area. For instance, if manufacturing is a critical local industry, how has your region done in recent years as manufacturing employment has decreased?
The length of the average workweek or the amount that employees work overtime can be an indicator of economic growth or decline. As things get better, employers may choose to pay more overtime rather than fully commit to hiring more full-time workers. An increase in the average workweek is usually a positive sign. In August, the average workweek declined. In manufacturing, the amount of overtime increased.
In December, “The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.4 hours in December. The manufacturing workweek increased by 0.1 hour to 40.5 hours. Factory overtime decreased by 0.1 hour to 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.7 hours.” (See tables B-2 and B-7.)
Average Hourly Earnings
“In December, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents, or 0.2 percent, to $23.24. Over the past 12 months, average hourly earnings have increased by 2.1 percent. In December, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $19.54.” (See tables B-3 and B-8.)
Revisions of the June and July 2011 Employment Estimates
As is the usual practice, the BLS revised the employment data for the two most recent months, based on new or more complete. "The change in total nonfarm payroll employment for October was revised from +100,000 to +112,000, and the change for November was revised from +120,000 to +100,000." In this case, the upward revision in October was more than offset by a downward revision of the November numbers.
Between 2008 and 2011 federal laws extended eligibility for unemployment compensation for up to 99 weeks in states with persistently high unemployment rates. Some argue that longer eligibility for unemployment compensation may, in fact, discourage people from seriously seeking employment. Do you agree or disagree?
What About Part-time Workers?
According to the BLS, part-time "refers to those who worked 1 to 34 hours during the survey reference week and excludes employed persons who were absent from their jobs for the entire week." These people are counted in the labor market as employed.
Some people work part-time for economic reasons, "those who worked 1 to 34 hours during the reference week for an economic reason such as slack work or unfavorable business conditions, inability to find full-time work, or seasonal declines in demand."
Some people worked part-time for noneconomic reasons, "such as "persons who usually work part time for noneconomic reasons such as childcare problems, family or personal obligations, school or training, retirement or Social Security limits on earnings, and other reasons."
In December, 2011, about 87 million people in the United States were "not in the labor force," and not counted as employed or unemployed. Who were they?
The BLS explains: "Labor force measures are based on the civilian noninstitutional population 16 years old and over. Excluded are persons under 16 years of age, all persons confined to institutions such as nursing homes and prisons, and persons on active duty in the Armed Forces. As mentioned previously, the labor force is made up of the employed and the unemployed. The remainder—those who have no job and are not looking for one—are counted as "not in the labor force." Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force."
- Those under age 16 are not in the labor force.
- Those who are retired and not working are not in the labor force.
- Those in the military are not in the labor force.
- Those who are institutionalized (incarceration or hospitalized) are not in the labor force.
- Those who have not sought work in 4 weeks are not in the labor force.
- Those who simply do not have to or want to work are not in the labor force.
Alternative Measurements of Unemployment
The BLS explains, "there is only one official definition of unemployment, and that was discussed above (in the lesson). However, some have argued that this measure is too restricted, and that it does not adequately capture the breadth of labor market problems. For this reason, economists at BLS developed a set of alternative measures of labor underutilization . These measures are published every month in the Employment Situation news release. They range from a very limited measure that includes only those who have been unemployed (as officially defined) for 15 weeks or more to a very broad one that includes total unemployed (as officially defined), all persons marginally attached to the labor force, and all individuals employed part time for economic reasons."
- U-1 Persons unemployed 15 weeks or longer as a percent of the civilian labor force
- U-2 Job losers as a percent of the civilian labor force
- U-3 Unemployed persons 25 years and over as a percent of the civilian labor force 5.6 for persons 25
- years and over
- U-4 Unemployed full-time job seekers as a percent of the full-time civilian labor force
- U-5 Total unemployed as a percent of the civilian labor force (official unemployment rate)
- U-6 Total full-time job seekers plus 1/2 part-time job seekers plus 1/2 total on part-time for economic reasons as a percent of the civilian labor force less 1/2 of the part-time labor force
- U-7 Total full-time job seekers plus 1/2 part-time job seekers plus 1/2 total on part-time for economic reasons plus discouraged workers as a percent of the civilian labor force plus discouraged workers less ½ of the part-time labor force
Which of these do you think is the most meaningful measurement of unemployment in the economy?
January 6, 2012, Announcement Tables
- Employment Situation Summary Table A. Household data, seasonally adjusted
- Employment Situation Summary Table B. Establishment data, seasonally adjusted
- Table A-1. Employment status of the civilian population by sex and age
- Table A-2. Employment status of the civilian population by race, sex, and age
- Table A-3. Employment status of the Hispanic or Latino population by sex and age
- Table A-4. Employment status of the civilian population 25 years and over by educational attainment
- Table A-5. Employment status of the civilian population 18 years and over by veteran status, period of service, and sex, not seasonally adjusted
- Table A-6. Employment status of the civilian population by sex, age, and disability status, not seasonally adjusted
- Table A-7. Employment status of the civilian population by nativity and sex, not seasonally adjusted
- Table A-8. Employed persons by class of worker and part-time status
In December, 2011, the U.S. unemployment rate dropped to 8.5 percent, the lowest level since February, 2009, and after a high of 10 percent in October 2009.
The Misery Index continued the downward trend since mid-2011, primarily because unemployment has decreased and inflation has remained at low level. If growth or global issues put pressure on prices to rise in the coming months, the Misery Index may rise despite a lower unemployment rate. Keep an eye on the Misery Index.
The U.S. economy added 200,000 jobs in December 2011 and may be on the way to a significant recovery. Even at this rate, it will take years to replace the millions of jobs lost during the recession. Creating 200,000 jobs per month will still only create 2.4 million jobs in a year.
How is the U.S. economy doing? Is unemployment dropping enough to be a real sign of recovery?
Watch the Focus on Economic Data "Employment" and other lessons this spring for updates.
Next, answer the questions below on the interactive notepad.
Short Answer Questions:
1. How is the unemployment rate determined?
[The number of unemployed persons divided by the labor force expressed as a percentage equals the unemployment rate.]
2. What is a "marginally attached" worker?
[Marginally attached workers are persons “not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.”]
Extension: Youth Employment and Unemployment - Summer 2011
Students: In August, 2011, the BLS released data concerning youth employment and unemployment during the late Spring and Summer of 2011. Take a look at this data and compare it to your experiences and those of your friends.
Employment and Unemployment Among Youth - Summer 2011
Bureau of Labor Statistics
Released: August 24, 2011
"From April to July 2011, the number of employed youth 16 to 24 years old rose by 1.7 million to 18.6 million, the U.S. Bureau of Labor Statistics reported today. This year, the share of young people who were employed in July was 48.8 percent, the lowest July rate on record for the series, which began in 1948. (The month of July typically is the summertime peak in youth employment.) Unemployment among youth increased by 745,000 between April and July, more than last year’s increase of 571,000, but well below the levels seen in 2008 and 2009 (1.2 and 1.1 million, respectively). (Because this analysis focuses on the seasonal changes in youth employment and unemployment that occur each spring and summer, the data are not seasonally adjusted.)"
Youth Labor force
"The youth labor force—16- to 24-year-olds working or actively looking for work—grows sharply between April and July each year. During these months, large numbers of high school and college students search for or take summer jobs, and many graduates enter the labor market to look for or begin permanent employment. This summer, the youth labor force grew by 2.4 million, or 11.8 percent, to a total of 22.7 million in July. (See table 1.)"
"The labor force participation rate for all youth—the proportion of the population 16 to 24 years old working or looking for work—was 59.5 percent in July, the lowest July rate on record. The July 2011 rate was down by 1.0 percentage point from July 2010 and was 18.0 percentage points below the peak for that month in 1989 (77.5 percent)."
"The July 2011 labor force participation rate for 16- to 24-year-old men, at 61.4 percent, fell by 1.3 percentage points from a year earlier. The rate for women, at 57.6 percent, edged down over the year. For several decades prior to 1989, the July labor force participation rate for young men showed no clear trend, ranging from 81 to 86 percent. Since July 1989, however, their participation rate for the month declined, falling by about 21 percentage points. The July labor force participation rate for young women peaked in 1989 at 72.4 percent, following a long-term upward trend; their rate has since fallen by about 15 percentage points."
"The July 2011 labor force participation rate for Hispanic youth was 53.6 percent, down by 2.5
percentage points over the year. The rate for whites decreased by 1.0 percentage point to 62.2 percent. The participation rate for young blacks, at 50.2 percent, was down slightly, while the rate for Asian youth (47.9 percent) was little different from last year. (See table 2.)"
"In July 2011, 18.6 million 16- to 24-year-olds were employed, about the same as last year. This summer's increase in youth employment—from April to July—was 1.7 million, down slightly from last summer (1.8 million). The employment-population ratio for youth—the proportion of the 16- to 24-yearold civilian noninstitutional population that was employed—was 48.8 percent in July, a record low for the series, though only marginally lower than in July 2010. (See table 2.)"
"In July 2011, the employment-population ratios were little changed from a year earlier for all major demographic groups—young men (50.2 percent), women (47.3 percent), whites (52.3 percent), blacks (34.6 percent), Asians (40.5 percent), and Hispanics (42.9 percent)."
"Twenty-six percent of employed youth worked in the leisure and hospitality sector (which includes food services), about the same as in July 2010. Another 21 percent were employed in the retail trade industry, also about the same proportion as last year. (See table 3.)"
"The number of unemployed youth in July 2011 was 4.1 million, down from 4.4 million a year ago. The youth unemployment rate declined by 1.0 percentage point over the year to 18.1 percent in July 2011, after hitting a record high for July in 2010. Among major demographic groups, unemployment rates were lower than a year earlier for young men (18.3 percent) and Asians (15.3 percent), while jobless rates were little changed for young women (17.8 percent), whites (15.9 percent), blacks (31.0 percent), and Hispanics (20.1 percent). (See table 2.)"