Posted on 01 January, 2011 | 68 Comments
The US unemployment rate attracts a great deal of media attention, especially during recessions and tough economic times. Generally, the national unemployment rate is defined as the percentage of unemployed workers in the total labor force. It is widely recognized as a key indicator of labor market performance.
One misconception about the unemployment rate is that it is derived from the number of people filing claims for unemployment insurance (UI) benefits. But the number of UI claimants does not provide accurate information on the extent of unemployment, since people may still be jobless after their benefits run out, while others may not be eligible for benefits or may not even have applied for them.
Counting each and every unemployed person on a monthly basis is also be a very expensive, time-consuming and impractical exercise.
Therefore, the U.S. government conducts a monthly sample survey – known as the Current Population Survey (CPS) – to measure the extent of unemployment in the nation. The CPS has been conducted monthly in the U.S. since 1940. The CPS sample survey targets approximately 60,000 households, or about 110,000 individuals. This sample size is deemed to be representative of the entire US population. A typical household that is included in the survey is interviewed monthly for four consecutive months and then again for the same four calendar months a year later.
The basic definitions used for compiling labor statistics are quite straightforward:
* 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
The definition of “workforce” is meant to include all those who are either employed or unemployed. Those who are not in the labor force – comprises of people who have no job and are not looking for one, such as students, retirees and homemakers.
The criteria for being considered to be unemployed are rigorous and well-defined. For example, actively looking for work includes such measures as contacting prospective employers, attending job interviews, visiting an employment agency, sending out resumes, responding to job advertisements and so on.
Hence, out of work people who only partake in passive methods of job searching such as attending a training course or scanning the job advertisements in newspapers, would not necessarily be considered unemployed by the US government.
By now, you can begin to see the emerging controversy around the definition of unemployed. The following situations are examples of individuals who would not fit the official definition of “unemployed” as they would be deemed “not in the labour force”.
A single mother who has been unemployed for three months, but is unavailable for work for the past two weeks in order to care for her sick child, would be classified as “not in the labor force.
On the flip side, a sales executive with a family to support and bills to pay has been unable to find full-time work after six months of unemployment. He finally takes up a three-month contract that entails only six hours of work a week. Even though this person is only working temporarily in a position that under utilizes his skill set, he would be considered “employed” by the government.
The strict definition of unemployment more often than not results in understating the magnitude of the actual unemployment situation. It is therefore advisable to look beyond the headline unemployment number, as it may not convey the whole story.
January 7th, 2011 at 3:05 pm
Such a clear picture on what happening on the other side of the fens!
Thank you!
Fouad
February 13th, 2011 at 11:53 am
Thanks Fouad…Please check out our latest article to be released today: Conflicts of Interest In The Canadian Investment Industry – An Insider’s View
Regards,
Jeff Kaminker
President, Frontwater Capital
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