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INTRODUCTION

Each month, the 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.

What Happened to 2.4 million U.S. Jobs?

Newspaper headlines and television news reporters across the country asked this question after the BLS released its December 2008 "Employment Situation" report. That was the total number of jobs that the U.S. economy lost in 2008 as the unemployment rate increased from 4.9 percent in January to 7.2 percent in December. The U.S. has not experienced jobs losses of this magnitude since World War II and many economists see further losses ahead. Over 11 million people were unemployed in December. This lesson will focus on the employment and unemployment data and what they mean.

The January 9, 2009 BLS "Employment Situation" Announcement:

"Nonfarm payroll employment declined sharply in December, and the unemployment rate rose from 6.8 to 7.2 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment fell by 524,000 over the month and by 1.9 million over the last 4 months of 2008. In December, job losses were large and widespread across most major industry sectors."

"In December, the number of unemployed persons increased by 632,000 to 11.1 million and the unemployment rate rose to 7.2 percent. Since the start of the recession in December 2007, the number of unemployed persons has grown by 3.6 million, and the unemployment rate has risen by 2.3 percentage points.

"The unemployment rates for adult men (7.2 percent), adult women (5.9 percent), and whites (6.6 percent) increased in December. The jobless rates for teenagers (20.8 percent), blacks (11.9 percent), and Hispanics (9.2 percent) were little changed over the month. The unemployment rate for Asians was 5.1 percent in December, not seasonally adjusted."

"Among the unemployed, the number of job losers and persons who completed temporary jobs rose by 315,000 to 6.5 million in December. Over the past 12 months, the size of this group has increased by 2.7 million. The number of long-term unemployed (those jobless for 27 weeks or more) rose to 2.6 million in December and was up by 1.3 million in 2008."

TASK

  • Review the most recently reported U.S. employment and unemployment data.
  • Determine the changes in U.S. employment and unemployment rate from November to December, 2008.
  • Determine the factors that have influenced the change in employment and the unemployment rate.
  • Explain the implications of the employment and unemployment data for their local economy and the U.S. Economy.

PROCESS

There is little doubt that the recession that began in December 2007 deepened in 2008. Along with the record number of job losses, real gross domestic product has decreased and business failures have increased.

In his "American Recovery and Reinvestment" speech at George Mason University in Virginia, President-elect Barack Obama began with a comment on the historic nature of the current economic crisis. "Throughout America's history, there have been some years that simply rolled into the next without much notice or fanfare. Then there are the years that come along once in a generation - the kind that mark a clean break from a troubled past, and set a new course for our nation. This is one of those years."

The President-elect called for quick action as he takes office January 21, saying, "we need to act boldly and act now to reverse these cycles. That's why we need to put money in the pockets of the American people, create new jobs, and invest in our future. That's why we need to re-start the flow of credit and restore the rules of the road that will ensure a crisis like this never happens again."

President-elect Obama's "economic stimulus" plan calls for a variety of policies, such as:

  1. The creation of over 3 million new jobs.
  2. A tax credit for businesses who create new jobs.
  3. Tax incentives for small business' capital investments.
  4. Eliminate capital gains tax for small business investors.
  5. Create a jobs program with public works construction projects.
  6. Tax cuts and/or a tax rebate program for families

Will a tax rebate, maybe $1,000 per family, work? If this new income is spent on new consumption that creates more production, it has potential. The history of using one-time tax rebates to stimulate spending has not been very successful. Will a one-time rebate change long-term consumer confidence? Is this better than an income tax rate cut that increases people's disposable income over time? What would you like best, a one-time payment or lower taxes for several years?

Will tax breaks for businesses work? If the businesses invest their new spending to create new jobs that create new (increased) income, it may help. The key here is whether or not the new jobs adequately replace the jobs that have been lost. Can we replace manufacturing jobs? Should we? How do we make sure that the incentives create long-term, meaningful employment for some of the 11 million unemployed?

Will direct job creation by infrastructure spending work? There is no doubt that many of the nation's bridges, roads and schools badly need repair or replacement. Spending money on these projects will create jobs and result in more consumer income as long as the construction projects last. Will that be long enough to multiply into permanent jobs in the broader economy?

The key to all of these possible stimulus strategies is whether or not they will create new jobs that will create new output that will give consumers new income to demand new goods and services, which in turn, will create more new jobs.

A Job Creation Cycle

  1. New jobs provide new income for consumers.
  2. Increased income results in more consumer demand (spending).
  3. More demand (spending) will stimulate business investment.
  4. More business investment increases the demand for labor.
  5. Increased demand for labor results in jobs and fewer unemployed.
  6. The newly employed people have more income to spend.
  7. Repeat from #1.

To ensure that we make the best policy choices to stimulate the economy and create jobs, we depend on accurate measurements of the health of the economy. Much of that is the job of the BLS.

What is the Bureau of Labor Statistics?

From the BLS website mission statement, "The Bureau of Labor Statistics (BLS) is the principal fact-finding agency for the Federal Government in the broad field of labor economics and statistics. The BLS is an independent national statistical agency that collects, processes, analyzes, and disseminates essential statistical data to the American public, the U.S. Congress, other Federal agencies, State and local governments, business, and labor. The BLS also serves as a statistical resource to the Department of Labor."

"BLS data must satisfy a number of criteria, including relevance to current social and economic issues, timeliness in reflecting today’s rapidly changing economic conditions, accuracy and consistently high statistical quality, and impartiality in both subject matter and presentation." (Source: About BLS )

The BLS collects and reports on a wealth of economics data, primarily related to employment, productivity and prices. For more information on available BLS data, go to these sites:

The Unemployment Rate

The unemployment rate is the percentage of the U.S. labor force that is unemployed. It is calculated by dividing the number of unemployed individuals by the sum of the number of people unemployed and the number of people employed. The number of people unemployed and the number of people employed is defined as the number of individuals in the labor force. See the current calculation in Table 1.

An individual is counted as unemployed if the individual is over the age of 16 and is actively looking for a job, but cannot find one. Students, those individuals who choose to not work, and retirees are not in the labor force, and therefore not counted in the unemployment rate.

Unemployment announcements receive headline treatment almost every month. Changes are significant indicators of national economic conditions and have relevance to every local community as unemployment has significant costs to the individuals who are unemployed and to the entire community and the U.S. economy.

Changes in levels of employment are also included in the announcements and often receive less attention. However, the employment data are equally, perhaps even more, important indicators of the direction of the U.S. economy.

How is the unemployment rate determined?

Total civilian population (16 +) 235,035,000 (December 2008)

- Not in Labor force 80,588,000

= Labor force 154,447,000

- Employed 143,338,000

= Unemployed 11,108,000

divided by the labor force 154,447,000

= Unemployment Rate 7.2% (expressed as a percentage)

 

Figure 1 shows the historical pattern of U.S. unemployment rates. Note that the current rate of 7.2% is approaching the recent high level of 7.8 percent in mid-1992. Some economists predict that the unemployment rate will reach 10% in this business cycle downturn. The last time the unemployment rate reached 10% was in 1982-83.

Figure 1: Unemployment

Distribution of Unemployment

Unemployment varies significantly among groups of individuals and parts of the country. The December 2008 announcement included this breakdown by major demographic groups:

  • Total Labor Force 7.2 %
  • Adult Men 7.2%
  • Adult Women 5.9%
  • Whites 6.6%
  • Teenagers 20.8%
  • Blacks 11.9%
  • Hispanics 9.2%
  • Asians 5.1%

The BLS report added some comments on significant data on the type of increase and length of unemployment:

"Among the unemployed, the number of job losers and persons who completed temporary jobs rose by 315,000 to 6.5 million in December. Over the past 12 months, the size of this group has increased by 2.7 million. The number of long-term unemployed (those jobless for 27 weeks or more) rose to 2.6 million in December and was up by 1.3 million in 2008."

Unemployment in Industry Groups

The breakdown of the December 2008 job losses extended to almost all industry groups, as listed below (BLS preliminary estimates). Only education and health, and government gained in the number of industry jobs.

  • Non-farm employment (total unemployment) -524,000
  • Goods-producing -251,000
  • Construction -101,000
  • Manufacturing -149,000
  • Service-providing -273,000
  • Retail trade -67,000
  • Professional and business services -113,000
  • Education and health services +45,000
  • Leisure and hospitality -22,000
  • Government +7,000

Types of Unemployment

There are three types of unemployment, 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 shifts 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 marketable 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.

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.

Full Employment

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 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.

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. This past year, seasonally adjusted data for January 2008-November 2008 were subject to revision. For example, the unemployment rate in November 2008 was originally reported at 6.7 percent and revised to 6.8 percent by the time of the January 9 announcement.

What Do the BLS Employment and Unemployment Numbers Mean?

Employment: Each month the Current Employment Statistics (CES) program surveys 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 publishes a monthly "Current Employment Statistics Highlights ." This report identifies trends in key industry groups.

Unemployment: BLS conducts a monthly household survey, providing comprehensive information on the employment and unemployment of the population classified by age, sex, race, and other characteristics."

In BLS employment and unemployment data, there are basically three categories that all people, age sixteen and over fall into:

  1. People with jobs are employed.
  2. People who are jobless, looking for jobs, and available for work are unemployed.
  3. People who are neither employed nor unemployed are not in the labor force.

Key BLS Employment and unemployment rate definitions

Students: Go to the BLS Glossary to find the definitions of these employment and unemployment rate terms. Better understanding of these terms will be very helpful in understanding the meaning of BLS announcements and news reports.

  • Labor force
  • Civilian Non-institutional Population
  • Employed Persons
  • Unemployed Persons
  • Not in the Labor Force
  • Unemployment Rate
  • Duration of Unemployment
  • Full-time Workers
  • Hours Worked
  • Contingent Workers
  • Marginally Attached Workers
  • Discouraged Workers
  • Self-employed Persons
  • Job Leavers
  • Job Losers
  • Seasonally Adjusted
  • Supply of Workers
  • Wages and Salaries
  • Weekly Hours

CONCLUSION

The U.S. unemployment rate increased to 7.2 percent after the loss of 524,00 jobs in December 2008. Job losses extended across many industries and reflected a broad downturn in economic activity.

Many economists and government leaders anticipate that unemployment will continue to increase in the coming months, reflecting the true depth of the recession. Pay attention to the employment reports coming out on this schedule:

  • February 6, 2009 for the month of January 2009
  • March 6, 2009 for the month pf February 2009
  • April 3, 2009 for the month of March 2009
  • May 8, 2009 for the month of April 2009

All reports are released at 8:30 am.

ASSESSMENT ACTIVITY

Next, below answer the following question below on the interactive notepad.

 

  1. How is the unemployment rate determined?

ESSAY QUESTION:

What do you think is the best strategy for Barack Obama's administration to use to stimulate the economy? Why?

  • Tax cuts or rebates for individuals?
  • Direct government spending programs?
  • Tax incentives for businesses to create jobs?

EXTENSION ACTIVITY

The BLS Employment Situation report included comments on "persons not in the labor force" from the Household Survey Data. The BLS statement was:

"About 1.9 million persons (not seasonally adjusted) were marginally attached to the labor force in December, 564,000 more than 12 months earlier. These individuals 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 642,000 discouraged workers in December, up by 279,000 from a year earlier. Discouraged workers are persons not currently looking for work specifically because they believe no jobs are available for them. The other 1.3 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."

Discussion Question: Should the marginally attached and discouraged worker be considered as "unemployed"?