How is the Unemployment Rate Determined in the United States
Unemployment is one of the most stressful things that a person can face. If a breadwinner in a family loses his or her job, it will likely have profound effects on everyone in the household. Although one could consult a dictionary to find the definition of unemployment, perhaps it is most informative to ask how the government defines it. In the Unites States, the unemployment rate is one of the key numbers contained in the monthly report released by the Department of Labor. This report is called the Employment Situation Report, although it is often referred to simply as the "jobs report." It is usually released on the first Friday of each month (occasionally on the second Friday). The unemployment rate is presented as a percent, and is designed to reflect the percentage of workers who are currently unemployed.
So how is the official unemployment rate determined? It is computed from a monthly survey called the Current Population Survey conducted by on behalf of the Bureau of Labor Statistics. It is conducted by calling 60,000 households each month and posing questions about all members of the household who are at least 16 years of age. Persons are classified as employed, unemployed, or not in the labor force. People are considered employed if they worked as a paid employee at any time in the previous week, worked in their own business or on their own farm, worked without pay at least 15 hours in a family business or farm, or were temporarily absent from a job due to sickness, weather, vacation, a strike, or a personal reason. People are considered unemployed if they did not meet the above criteria, were available for work, and made some effort to find work in the preceding four weeks. The unemployment rate is simply the percentage of those in the labor force who are unemployed. People who are not classified as employed or unemployed are not considered part of the labor force. People often believe that one has to b e receiving unemployment benefits to be considered unemployed. In reality, the rate is determined entirely from information obtained through the phone interviews.
There are, however, many potential problems with this number, and they fall into two categories. First is the problem with excluding people from the labor force. People who are not employed or are not actively seeking employment are not considered part of the labor force. In a poor economy, many people give up seeking employment. Some effort is made to further categorize such people, calling them "discouraged workers" or "marginally attached workers" depending on how they respond to the survey. The bottom line is that, especially during a bad economy, the number of people determined to be in the labor force is an underestimate of those who would truly like to have a job.
The second category of problems concerns those who are categorized as employed. If someone can't find a job and resorts to "volunteering" in a family business, they are considered employed. If a person is seeking full-time employment and yet can only find a few hours employment per week, they are nonetheless considered employed. If a person cannot find work and starts a home business, they are considered employed even if the business does not produce any income. While these people are not considered "unemployed", they are clearly not working to the extent that they would desire.
All of these problems suggest that the unemployment rate is an underestimate of what we think of when we hear the term. Further, this discrepancy is probably greater during poor economic times.
The DOL has a monthly historical record of the official unemployment rate from 1948 until the present posted online. During this time, it reached a high of 10.8% in 1982 and a low of 2.5% in 1953. In January of 2008, it stood at 7.6%.
