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 7, 2012, announcement, "Employment Situation: August, 2012. This lesson will introduce the basics of the determination of the unemployment rate and 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.
As the 2012-2013 school year started and the presidential election was just two months away, the "Misery Index" of the U.S..economy was 8.1. The Misery Index is a hybrid economic indicator, a combination of the unemployment rate and the rate of inflation. At the beginning of September, the unemployment rate was 8.1 percent, but the rate of inflation, measured by the CPI-U was zero. The "misery" in August was all unemployment - except, maybe, somewhat volatile gasoline prices.
The Misery Index has decreased from 9.4 at the same time in 2011 - a 0.3 percent higher CPI-U and 9.6 percent unemployment. The index had steadily decreased as unemployment has slowly decreased and inflation has been practically non-existent. Still, the index remains somewhat higher than the average over the past twenty years.
Thus, the common campaign question: Are we better off than we were four years ago?
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 was 4.3 percent and inflation was just 1.44 percent.
Studentrs: 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 August, 2012, employment and unemployment data from the Bureau of Labor Statistics.
Students: Is the Misery Index a good measure of the economy's well-being?
The Employment Situation – August 2012
U.S.. Bureau of Labor Statistics
Released: September 7, 2012
"Total nonfarm payroll employment rose by 96,000 in August, and the unemployment rate edged down to 8.1 percent. Employment increased in food services and drinking places, professional and technical services, and health care."
According to the BLS report, total employment increased by just 96,000 jobs, far fewer than the consensus that it takes an average monthly growth of 100,000 to 125,000 new jobs to keep up with normal population and labor force growth.
The report noted that, "The unemployment rate edged down in August to 8.1 percent. Since the beginning of this year, the rate has held in a narrow range of 8.1 to 8.3 percent. The number of unemployed persons, at 12.5 million, was little changed in August."
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.
Students: 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.
Students: Can you determine a nation's unemployment rate. Try these examples:
- 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 August, 2012, was 8.1 percent. That is 0.2 percent point lower than the previous month of July, 2012. 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.
Students: Can you identify pattern of the "business cycles" in Figure?
Determining the U.S. Unemployment Rate, August, 2012
- Civilian Labor Force 154,645,000
- Employed 142,101,000
- Unemployed 12,544,000
12,544,000 divided by 154,645,000 equals 0.081 (8.1 percent)
The economy created far too few jobs in August, 2012, but the unemployment rate decreased. How can that happen? Determining the unemployment rate is more complicated than just counting the number of people who are unemployed.
250,000 fewer people were unemployed in August. 119,000 fewer people were employed in August. The labor force, employed plus unemployed, shrunk by 368,000 people. (The totals do not equal, due to rounding.) When the size of the labor force changes, it impacts the unemployment rate.
In this case, 368,000 people left the labor force - for a variety of reasons. The size of the population who are counted as "not in the labor force" increase by 581,000 in August.
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 August, 2012. If you look at the historical data, the relative pattern of unemployment rates for these demographic groups has remained somewhat constant over recent years.
Figure 3, below, shows the breakdown of the August, 2012, 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.
Students: 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."
Students: 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?
Students: 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.
Students: Can you give examples of individuals who are unemployed and determine their category. Example: Mary lost her job in the steel mill when the production of steel moved to regions with lower wage rates. (structural unemployment)
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 - August 2012
The BLS also tracks the length of unemployment. In December, "In August, the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 5.0 million. These individuals accounted for 40.0 percent of the unemployed." The average 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, "Both the civilian labor force (154.6 million) and the labor force participation rate (63.5 percent) declined in August. The employment-population ratio, at 58.3 percent, was little changed."
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) was little changed at 8.0 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job."
"In August, 2.6 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. (These 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."
"Among the marginally attached, there were 844,000 discouraged workers in August, a decline of 133,000 from a year earlier. (These 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 1.7 million persons marginally attached to the labor force in August had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities."
Students: Is a discouraged worker unemployed? Not according to the BLS definition. What do you think?
Employment Data - August, 2012
"Total nonfarm payroll employment rose by 96,000 in August. Since the beginning of this year, employment growth has averaged 139,000 per month, compared with an average monthly gain of 153,000 in 2011. In August, employment rose in food services and drinking places, in professional and technical services, and in health care."
Employment by Industry Group
As usual, in August, there was job 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 education and health services, and leisure and hospitality. The largest job loss in August was in manufacturing.
Students: Which industries are important in your school's area. 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 did not change.
In August, "The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in August. The manufacturing workweek declined by 0.2 hour to 40.5 hours, and factory overtime was unchanged at 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours."
Average Hourly Earnings
"In August, average hourly earnings for all employees on private nonfarm payrolls edged down by 1 cent to $23.52. Over the past 12 months, average hourly earnings rose by 1.7 percent. In August, average hourly earnings of private-sector production and nonsupervisory employees edged down by 1 cent to $19.75."
Revisions of the June and July 2012 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 June was revised from +64,000 to +45,000, and the change for July was revised from +163,000 to +141,000." In this case, the employment figures for the past two months were revised downward.
Students: 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?
"The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 8.0 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job."
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."
Those Not in the Labor Force
In December, 2011, almost 89 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 is the one 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
Students: Which of these do you think is the most meaningful measurement of unemployment in the economy?
In August, 2012, over 12.5 million people were unemployed in the United States. Unemployment remains the critical issue in the economy, as inflation is not a serious threat in the short term.
The question remains: Are we better off than we were four years ago?
In August, 2008, total employment in the U.S.. was 145.2 million and the number of unemployed was 9.5 million. It seems like things were much better in 2008.
But, by August of 2009, the number of employed had dropped to 139.5 million and the number of unemployed had increased to almost 14.9 million. The impact of the recession that began in 2008 had reached its peak.
Or, is the elctions question: Are we better off than we were three years ago?
Listen carefully to the presidential candidates. How will they interpret (spin) the employment and unemployment numbers?
Next, answer the questions below on the interactive notepad.
Youth Employment and Unemployment - Summer 2012
On August 21, 2012, the BLS released data concerning youth employment and unemployment during the late Spring and Summer of 2012. Take a look at this data and compare it to your experiences and those of your friends.
EMPLOYMENT AND UNEMPLOYMENT AMONG YOUTH -- SUMMER 2012
Bureau of Labor Statistics
Released: August 21, 2012
"From April to July 2012, the number of employed youth 16 to 24 years old rose 2.1 million to 19.5 million, the U.S. Bureau of Labor Statistics reported today. This year, the share of young people employed in July was 50.2 percent. (The month of July typically is the summertime peak in youth employment.) Unemployment among youth increased by 836,000 from April to July 2012, compared with an increase of 745,000 for the same period in 2011."
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 2.9 million, or 14.2 percent, to a total of 23.5 million in July."
"The labor force participation rate for all youth--the proportion of the population 16 to 24 years old working or looking for work--was 60.5 percent in July, up from July 2011. Taking a longer-term perspective, the July 2012 participation rate was 17.0 percentage points below the peak rate for that month in 1989.
For the full BLS report on youth employment, go to:http://www.bls.gov/news.release/youth.nr0.htm
- What was the job market like in your area in the Spring and Summer of 2012?
- Did you look for a Summer job? What was your experience?