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This lesson examines the February 3, 2012, U.S. Department of Labor, Bureau of Labor Statistics (BLS), announcement of employment data and the unemployment rate for the month of January, 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 November 10, 2014

Inflation

The Consumer Price Index for All Urban Consumers increased 0.1 percent in October on a seasonally adjusted basis. The core inflation rate increased the same amount. For the previous 12 months, the index increased 1.7%, the same rate as reported in the September report.

Employment and Unemployment

According to the October report of the Bureau of Labor Statistics, the unemployment rate fell from 5.9% to 5.8%, and the number of individuals unemployed also decreased. Total nonfarm employment rose by 214,000 in October. Employment gains were concentrated in retail trade, food services and health care.

Real GDP

The advance estimate for real GDP growth in the third quarter of 2014 was 3.5%, a decrease from the revised second quarter growth of 4.6%. Inventory investment reduced third quarter growth, while it added to second quarter growth. In addition, consumer spending increased at a lower rate in the third quarter, compared to the second. Finally, business investment increased in the third quarter, but at a lower rate than in the second quarter.

Federal Reserve

The FOMC believes that the labor market has shown considerable improvement and the risks of inflation rising above its 2% target are low. Therefore, the Federal Reserve announced plans to end its purchase of financial assets. In addition, the federal funds rate will remain at its current low level. However, the FOMC has signaled its willingness to increase the federal funds rate if inflation shows signs of rising above the 2% target.

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 3, 2012, BLS announcement of the "Employment Situation" for the month of January, 2012.

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

During the second semester of the 2011-2012 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 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?
  • February 2012: details and issues about the measurement and meaning of employment and unemployment, adding concepts such as underemployment, full employment, etc. [THIS LESSON]
  • March 2012: detailed breakdown of the data by region and industry (trends, identifying trends and comparisons of regions and demographic groups.
  • April 2012: the relationships of employment and unemployment data to other economic data, such as GDP, CPI, etc., and the business cycle.
  • May 2012: Year-end review.

RESOURCES


Key Economic Indicators

as of February 3, 2012

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers was unchanged in December, as it was in November. The index for all items less food and energy rose 0.1 percent in December after increasing 0.2 percent in November.

Employment and Unemployment

Nonfarm payroll employment rose by 243,000 in January, and the unemployment rate decreased to 8.3 percent. Job growth was widespread, with large gains in professional and business services, leisure and hospitality, and manufacturing.

Real GDP

Real gross domestic product increased at an annual rate of 2.8 percent in the fourth quarter of 2011 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 1.8 percent.

Federal Reserve

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

PROCESS

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.

[Teacher Note:  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.

figure 1

[Teacher Note: Be sure the students can define 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).

[Teacher Note:  Remind students of the 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.  Stimulatory government policies are most often aimed at this group.] 

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.

figure 2

[Teacher Note:  To see the history of the U.S. monthly unemployment rates, go to this BLS webpage: http://data.bls.gov/timeseries/LNS14000000 .]

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.

[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.  Also, the currently reported data reflects the annual adjustments made by the BLS.  See the notes after the announcement language and "Table A. Revisions in total nonfarm employment, January-December 2011, seasonally adjusted." ]

Details of the Employment and Unemployment Data for January, 2012


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:

[Teacher Note: Students discussion question: 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.

[Teacher note: See "Table A-15. Alternative measures of labor underutilization." http://www.bls.gov/news.release/empsit.t15.htm .  For the BLS definitions use in the above categories, see the BLS "Glossary," http://www.bls.gov/bls/glossary.htm .] 

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.

figure 3

[Teacher Note: Student discussion question: Can you 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, 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 "EconEdLink lessons for the past few months.)  The Business Cycle model is illustrated below.

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 2012?

[Note: This data is from the Establishment Survey and Table B (http://www.bls.gov/news.release/empsit.b.htm )]

"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.

figure 5

[To see a complete breakdown of industry employment in January, 2012, go to the BLS announcement Table B-1. http://www.bls.gov/news.release/empsit.b.htm ]

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

[Teacher Note:  Students should be able to identify industry groups that have been increasing employment or decreasing during the recovery.   The link above to the industry breakdown may be helpful.  Assign an industry group to individual or small groups of students.  They can summarize the recent trend in that industry group.]

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.  

[Teacher Note: Students discussion question: 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.

[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 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.

  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

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.]

ASSESSMENT ACTIVITY

Have your students complete this interactive quiz on the GDP lesson.

1. What was the U.S. non-farm unemployment rate reported on February 3, 2012, for the month of January, 2012?

a. 7.9 percent
b. 8.3 percent [CORRECT]
c. 9.1 percent

[See the BLS announcement: "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."]

2. How does the January, 2012, reported unemployment rate compare to the rate reported for the previous month of December, 2011?

a. The rate was the same in January as it was in December.
b. The rate was lower in January than it was in December. [CORRECT]
c. The rate was higher in January than it was in December. 

[See the BLS announcement: "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."]

3. What was the change in non-farm employment in the U.S. between December, 2011, and January, 2012?

a.  increased by 115,000 jobs
b.  increased by about 243,000 jobs [CORRECT]
d.  decreased by 20,000 jobs.

[See the BLS announcement: "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." ]

4. Which of these groups had the lowest unemployment rate in January 2012?

a. adult women [CORRECT]
b. Hispanics
c. teenagers

[See the BLS announcement: "Among the major worker groups, the unemployment rates for adult men (7.7 percent) and blacks (13.6 percent) declined in January. The unemployment rates for adult women (7.7 percent), teenagers (23.2 percent), whites (7.4 percent), and Hispanics (10.5 percent) were little changed. The jobless rate for Asians was 6.7 percent, not seasonally adjusted."]

5. In January 2012, which of these industry groups experienced the largest number of job losses? 

a. construction
b. government [CORRECT]
c. manufacturing 

[Government employment decreased in January.  Manufacturing and construction employment grew in January. See the lesson, Figure 5: Change in Employment, Major Industry Groups, January 2012.]

6. Are marginally attached workers counted as employed, unemployed or not in the labor force?

a. Employed
b. Unemployed
c. Not in the labor force [CORRECT]

[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."]

7. What is the percentage of the labor force that is unemployed called?

a. Unemployment rate [CORRECT]
b. Employment population ratio
c. Labor force participation rate

[The unemployment rate represents the number unemployed as a percent of the labor force.]

8. What is the general consensus estimate of the unemployment rate of full employment? 

a. 3.0 to 4.5 percent
b. 4.5 to 5.0 percent [CORRECT]
c. 5.0 to 6.5 percent 

[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.]

9. Given the following data, what is the unemployment rate?

   Civilian population: 144,350,000
   Civilian labor force: 120,400,000
   Number of employed: 112,100,000
   Number of unemployed: 8,300,000
   Number not in labor force: 23,950,000

a. 5.7 percent
b. 7.4 percent
c. 6.9 percent [CORRECT]

[The unemployment rate is the percentage of the labor force who are unemployed.]

10.  Is an unincorporated self-employed person counted as employed in the Establishment Survey data?

a.  Yes
b.  No [CORRECT]

[The Establishment Survey data is collected from business establishments through a survey.  An unincorporated self-employed person is not involved, and thus, not counted as one of the employed.]

Short Answer Questions: 


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

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? 

[Teacher Note: Ask students:  What do you think will be the best sign that the economy is really recovering?]

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.

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.