Understanding Employment Reports

Making Sense of Unemployment, Underemployment, and Revised Data

Understanding Employment Reports
April 8, 2014

Three things are predictable about unemployment and jobs reports: the most important figures come out once a month, people of every political stripe use them to prove their point, and the numbers are revised later. Why do the numbers change so often, and how are they so open to interpretation?

Where Do The Numbers Come From?

Job and unemployment reports come from the Bureau of Labor Statistics (BLS), using two different monthly surveys. The Current Employment Statistics (CES) cover approximately 144,000 businesses, including government agencies, for employment and work-hours information. The most-watched reports on jobs and job creation are generated from this survey. The Current Population Survey (CPS) surveys approximately 60,000 households over time. The questions refer to one reference week during that month. Information on unemployment and job searching are generated from this survey.

There are a few other reports for comparison. ADP, a large payroll processor, issues a separate monthly jobs report based on payroll numbers a few days before the CES report is released. The Quarterly Census of Employment and Wages (QCEW) program issues quarterly reports based on unemployment insurance information. Both provide a complementary view of the job/unemployment picture, but the CES and CPS are the primary sources.

CES and CPS data are revised twice – one month and two months afterward. This is because it takes time to gather and process the information. Corporate numbers can take time to compile and are often revised, cascading through to the reports. Also, ask yourself: how eager are you to respond to surveys?

Unemployment

In the CPS survey, every person in the household is classified as employed, unemployed, or not in the labor force. Simple, isn't it? Not really.

For example, if you did any part-time or temporary work during the reference week, you are considered employed. You are considered unemployed if you do not have a job, are available for work, and have actively looked for work in the last four weeks. If you are essentially unemployed, but had a temporary job during that time, you are considered employed.

Similarly, if you are basically retired but took a temporary job or applied for any job during that time, you are considered in the work force because you were either employed or looking for work.

The standard definition of the unemployment rate is the number of employed compared to the size of the overall labor force. Thus, if you did not look for a job in the last four weeks, you have (at least temporarily) “dropped out” of the workforce and do not count in this calculation.

The bottom line: the definitions skew toward a perception of higher employment. Seasonal adjustments are essentially smoothing methods to take holiday employment into account, but everything else skews toward a rosier picture.

Underemployment

So how is underemployment measured? It isn't so much measured as inferred.

Underemployment could describe people in full-time jobs that are beneath their skills (such as the stereotypical Ph.D. barista), people employed full-time but capable of doing more than they are asked to do, or people who want to work full-time but have to temporarily settle for part-time or temporary jobs. Of these three reasons, only one has a partial measure – the last one.

Data from the CPS is processed into "Alternative Measures of Labor Utilization," a state-based measure that is adjusted quarterly. They include five other categories:

  • Long-Term Unemployed – Unemployed for at least 15 weeks.

  • Job Losers – Those who lost jobs or completed temporary jobs.

  • Marginally Attached Workers – You are marginally attached to the workforce if you want to work, and looked for work in the past year, but not within the last four weeks.

  • Discouraged Workers – The same as Marginally Attached Workers, with the addition that you did not look for work in the past four weeks because you assumed no jobs were available for you.

  • Involuntary Part-Time Workers – You desire full-time work but have to accept a part-time job for economic reasons.

These are combined into six alternate measures, known as U-1 through U-6, that give a larger picture. Underemployment assessments often rely on U-4 through U-6, which include discouraged, marginally attached, and/or involuntary part-time workers in the calculations.

The typically reported unemployment rate U-3 was 6.7% in March 2014. However, U-6, which includes all of the categories, is sometimes referred to as the true or real unemployment rate and runs much higher. For comparison, it was 12.7% for the same month, nearly twice as high as U-3.

You may have heard the old phrase, “figures lie and liars figure.” This frequently applies to how employment data is spun. Political operatives and other organizations search the deeper data for gems, publicize the components of the data they want to see, and obscure the others. To dig into these things yourself, check out the BLS and/or CPS websites. They can help you to cut through nonsense on both sides of the political spectrum when certain job numbers are reported and interpreted, and others are ignored or downplayed. We hope you are not one of the unemployed being counted!

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