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The Unemployment Rate Myth
Posted by: Jon Henke on Thursday, May 18, 2006

Yesterday, for about the umpteenth time, I came across a common misconception about how the Unemployment Rate [UR] is calculated, so let's put this to rest. The misconception is that the unemployment rate is calculated using unemployment benefits, and when unemployment benefits expire — usually after 6 months — the person, though still unemployed, is no longer counted as part of the unemployment rate.

This is, of course, wrong.

Amusingly, when I contradicted the fellow laboring under this delusion, he responded that he was a "former president of [some State Employer's organization]" and a "close friend of [some high muckety-muck on some other business council]", so, he wrote, he spoke from "EXTREMELY knowledgable (sic) position. This is not opinion or hearsay - it IS fact."

Yeah, well, the Bureau of Labor Statistics — the organization that actually puts together the official Unemployment Rate — has a somewhat different version of the facts. In reality, the Unemployment rate is not calculated from unemployment benefits, but from the Current Population Survey. Each month, they contact about 60,000 households and if they "do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work", they are counted as unemployed.

In fact, the BLS specifically addresses this misunderstanding. From the BLS Website:
Where do the statistics come from?

Some people think that to get these figures on unemployment the Government uses the number of persons filing claims for unemployment insurance (UI) benefits under State or Federal Government programs. But some people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.
Unemployment insurance (i.e., state and federal unemployment benefits) statistics are reported by some areas, but "they are not used to measure total unemployment". The complete methodology is outlined here.

So, that's all cleared up. Please don't let your friends make that mistake again. It really annoys me.
 
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60,000 seems like a fairly small sample size, all things considered. Given my limited Statistical background, I’m also questioning the veracity of the respondant’s claims to mark the data as valid, in addition to the "...sought work actively in the past four weeks ..." portion. Which is to say, if they aren’t working, can work, and haven’t looked for a job ... they aren’t unemployeed?

Question: Why aren’t SSN’s used to determine unemployement rate? The Federal Government has all the information relevant to do such a study.

Question: Why isn’t the IRS involved in determining unemployment? They also would have access to all the information relevant to do such a study.

And on, and on, and on with other Government Bodies.

As every progeny of the Government Beast feeds upon Tax Dollars, you’d think they would have those numbers so close you could compare the number of decimal places to that of calculatable Pi.

-Abject.
 
Written By: Abject_Disappointment
URL: http://www.justinbuist.org/blog
Sometimes the MSM will report "new unemployment claims". Those should be the people who walk in to get their checks. That should be a solid, deterministic number.

A survey of 60,000 people is also a substantial sample. Assume half are not in the labor force, they would have 30,000 workers. At a 5% unemployment rate, they would expect 1,500 people to answers the questions in a way for them to be tallied as "unemployed."

Consider that national opinion polls might sample 1,500 to 2,000 US adults, this looks like a decent statistical practice.

Mr. AD’s point that there are other deterministic datasets available to the government, though, is well taken but not necessary.
 
Written By: Whitehall
URL: http://
Which is to say, if they aren’t working, can work, and haven’t looked for a job ... they aren’t unemployeed?
I used to work when I was in community college. I don’t now that I’m in university. I’m not looking for a job; I’m investing in my future, and twenty hours a week at a wage job making $9/hour when I could otherwise be studying and keeping my GPA up has much larger opportunity costs associated with it.
The unemployment metric isn’t interested in people who don’t want a job — people like me, stay-at-home parents, etc. They want to know if people who are looking for a job can get one.
 
Written By: OrneryWP
URL: http://
It almost does not really matter exactly how the unemployment rate is figured, what is more important is that they continue to use the same methodology. Otherwise it would become impossible to compare rates from one time period to the other.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
Kyle,

You are exactly correct!

I seem to always get these arguments about unemployment figures being "rigged" somehow by Democrats who want to show that we are in a "jobless recession that only benefits the fat cats."

The next statement is invariably: okay, there are jobs, but they are all McJobs.

Because employers only offer good jobs when Democrats are in office apparently.

(The good news is that with outsourcing to India, they can’t claim the jobs are all being created in telemarketing...)
 
Written By: Harun
URL: http://
60,000 seems like a fairly small sample size, all things considered.
It’s actually quite large. In any event, if it was too small, we’d see wider variations in monthly results. That repeated results are consistent lends credence to the idea that it is a sufficient sample size.
Question: Why aren’t SSN’s used to determine unemployement rate? The Federal Government has all the information relevant to do such a study.
It’s not broad enough.
Question: Why isn’t the IRS involved in determining unemployment? They also would have access to all the information relevant to do such a study.
Other issues aside, the fact is that the BLS already does the Current Population Survey, which collects far more information than merely working status. There’s little reason to duplicate that kind of survey.
The unemployment metric isn’t interested in people who don’t want a job — people like me, stay-at-home parents, etc. They want to know if people who are looking for a job can get one.
Yep. And for what it’s worth, the BLS also keeps statistics on the rest of the people, too. It’s called the "Labor Participation Rate" and it’s hovered around 66% for a long time. They also measured "discouraged workers" who’ve want work but have stopped looking for it.
It almost does not really matter exactly how the unemployment rate is figured, what is more important is that they continue to use the same methodology. Otherwise it would become impossible to compare rates from one time period to the other.
Absolutely. If I recall correctly, the last time the methodology was changed was in 1994. The change should not have significantly affected the rate, though.
 
Written By: Jon Henke
URL: http://www.QandO.net
Thank you so much for this thread — my husband and I have this argument more times than I care to count. He is of the opinion that the Unemployment rate is figured using the Unemployment Insurance information. I can’t convince him that this is an incorrect assumption. Maybe this discussion will help.

thanks again.
 
Written By: CherylC
URL: http://

 
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