One of the most gratifying things that you can hear is, “We like you, and you’re the right fit for this company. Congratulations, you’re hired!” One of the worst things you can hear is, “You’re fired.” Unemployment can make economics suddenly appear very relevant to your life. Economists define, measure, classify, evaluate, and seek to understand this all-too-common phenomenon. Many economists have made it their life’s work to minimize the problem of unemployment, and policymakers are under political pressure to do so as well.
According to the Census Bureau, the 2008 U.S. population was approximately 300 million, of which 145 million were employed. How many were unemployed? It might come as a surprise to you that the answer to that question cannot be determined from the information given. True, you can infer that 155 million did not work, but that does not necessarily mean that they were all unemployed. Are toddlers and kindergarteners unemployed? To determine the number of unemployed, you must first define the term unemployment.
Persons sixteen years of age or older are considered unemployed if they have actively searched for work in the last four weeks, but are not currently employed. The employed are those who have worked at least one hour in the previous two weeks. People who meet neither criterion are not considered in the labor force, which is the number of employed persons plus the number of unemployed persons. The unemployment rate that you hear quoted in the news is not a percentage of the population, but a percentage of the labor force that is not currently employed.
Does an increase in the unemployment rate mean that fewer people are employed? Not necessarily. It is possible for the unemployment rate to increase at the same time the number of employed is increasing. A demographic shift in the labor force like the entrance of women during World War II or the return to civilian life of members of the military can create a condition where the ratio of unemployed to the labor force increases even while overall employment is increasing.
There are many reasons for not participating in the labor force. Full-time students, retirees, stay-at-home parents, the disabled, and the institutionalized do not participate. Members of the military on active duty are not considered part of the labor force either. At any point in time there are people entering, exiting, and re-entering the labor force. Furthermore, people are forever getting hired, fired, and furloughed. They are also quitting, cutting back, and retiring. The labor force is in constant flux, which makes measuring unemployment a daunting task.
The U.S. Department of Labor’s Bureau of Labor Statistics (BLS) monitors unemployment in the United States. Once a month, the Census Bureau conducts the Current Population Survey. Approximately 60,000 sample households are briefly questioned about their participation in the labor force. The BLS uses the data from the survey to calculate the various employment statistics used by economists and policymakers.
The latest unemployment and labor force data can be found at www.bls.gov. The Bureau of Labor Statistics website allows you to access hundreds of tables, graphs, press releases, and research articles. In addition to unemployment data, the website also contains the latest information on inflation.
In addition to the population survey, economists look at payroll employment records, new claims for unemployment insurance, and other data to get a complete picture of the country’s unemployment. Non-farm payroll employment records give economists a good idea of how much hiring is taking place in the economy. New claims for unemployment insurance act as a verification of the Current Population Survey’s results. Policymakers also look at the weekly hours worked in manufacturing. Declines in the weekly hours worked indicates that factories are idling back and may be laying off workers. Increases in weekly hours worked may indicate that firms will hire in the future.
In addition to calculating unemployment, the BLS uses the survey data to calculate the labor force participation rate and the employment-to-population ratio. The labor force participation rate is the percentage of the working age population classified as either employed or unemployed. In the United States, the average labor force participation rate is about 65%. The employment-to-population ratio is the percentage of the working age population that is classified as employed. Both ratios have declined over the last ten years as numbers of young people have delayed entry into the labor force. This may be as a result of increased college or university enrollment and increases in military enlistment.