During times of economic expansion, not many people pay close attention to the rate of unemployment. It is reported monthly, but when times are good, it doesn’t seem as relevant.
After the stock market plunge in 2008, and subsequent declaration of recession, the rate of Americans unemployed has steadily climbed.
Although it isn’t a complicated issue, how the unemployment rate is calculated has caused some confusion recently. This stems from the months when both the total non-farm payroll employment numbers and the unemployment rate decreased.
In other words, the percentage of people unemployed dropped even though more people lost jobs than found work.
While confusing, it is possible for that to happen (as well as the exact opposite). This can occur based on how the unemployment rate is calculated.
Every month, dating back to 1940, the Federal Government conducts a survey of about 60,000 households. The criteria for the survey is very simple:
- People with jobs are employed
- People who are jobless, looking for jobs, and available for work are unemployed
- People who are neither employed nor unemployed are not in the labor force
At first glance that sounds like a “no kidding” moment. However, the detail to pay attention to is that only those “looking for jobs” are counted as unemployed. Because of this, the total employment number for one month could drop, but the unemployment number may not rise.
The reason could be that someone who lost their job six months ago, may still not have a job, but if they’ve given up on finding a job, they are no longer counted as either employed or unemployed. The rationale behind this detail would be so a retired person wouldn’t be counted as unemployed.
You can read a full report on the survey and who is counted an why, on the Bureau of Labor Statistics website.
photo from Google public data
