YOU DECIDE: How are jobs measured?

Date posted: September 28, 2011

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

Here’s a recent headline about North Carolina’s job market: “Despite Employment Gains, Unemployment Rate Edges Up.” Huh! Was this a misprint? How could the jobless rate increase when there were more jobs? Aren’t unemployment and jobs supposed to go in opposite directions?

Welcome to the sometimes confusing world of measuring the job market. Most people would think this is an easy task. Count the number of people working and count the number of people without a job but who want to work and — bingo — you should have the number of employed and unemployed and the unemployment rate. What’s so hard about this?

But — as you might expect, or I wouldn’t be writing this column — it’s not that simple. First, the government produces no fewer than six different unemployment rates each month. The rate typically reported by the media, called the “official” or “headline” rate, considers someone unemployed if they pass three tests: they don’t have a job; they want a job; and they have looked for a job in the past month, meaning they mailed resumes, contacted employers or had job interviews.

Someone who passes the first two tests but not the third is not officially considered unemployed. Economists call them “discouraged workers” because they have stopped looking for work. Also, people who are working part-time only because they can’t find full-time work, sometimes referred to as underemployed, are also not part of the official unemployment rate.

It’s important to realize the government doesn’t hide these alternative categories of unemployed folks. Along with the official jobless rate published each month, the government also produces alternative unemployment rates, which include discouraged workers and underemployed workers.

How much difference exists between these different unemployment rates? A lot! For example, in August the official U.S. unemployment rate was 9.1 percent. If those without a job who have given up looking for work are included, the rate rises to 10.6 percent. Then, if those working part-time only because they can’t find full-time work are added, the jobless rate zooms up to 16.2 percent.

Now let me try to explain the situation in the opening sentence, where the number of jobs can increase at the same time the unemployment rate rises. What’s going on here? The answer comes from the fact there are not one, but two job surveys done each month, and they don’t necessarily give the same results.

One survey, called the household survey, goes to people’s homes and asks questions about their employment status. The various unemployment rates mentioned above are derived from this survey.

The second survey, labeled the establishment survey, goes to non-farm businesses and counts the number of employees. Information is also collected about the types of businesses where people work. However, no unemployment rates are calculated from this survey.

The two surveys can give different results because they include slightly different groups. The establishment survey only counts workers at non-farm businesses. No farm workers or self-employed workers are included. Also, since the establishment survey counts jobs and not people, it can include multiple jobs held by the same person.

So on this basis it seems the household survey of employment is better because farm jobs are included, self-employed workers are included and multiple jobs held by the same person are excluded.

But a fact of life for both surveys is they are not 100 percent counts. They are based on samples, just like public opinion polls. And samples have errors. Usually, the larger the sample, the more accurate is the result.

It’s sample size where the establishment survey shines. Almost seven times more worksites are sampled for the establishment survey than are households for the household survey. This is why most economists like the establishment survey’s measure of jobs over the household survey’s count.

So what’s the take-away from all this? I think there are three important conclusions. First, put more weight on the establishment survey’s non-farm tally of jobs each month. The error in its estimate is lower than for the household survey.

Second, don’t be surprised if the unemployment rate and non-farm job count are not always consistent because they are derived from different surveys. When there is a discrepancy, I put more weight on the job count.

Third, track the other, broader, measures of the unemployment rate in addition to the official headline rate.

Make sense? Still confused? I hope, the answers are “yes” and “no,” but you decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

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