Unemployment Questions

by Elaine Schwartz    •    Feb 6, 2011    •    575 Views

Friday’s employment report had good news and bad news. There was considerably less unemployment and considerably less job creation. Moving from 9.4% to 9%, the unemployment rate decreased more than most people expected. However, the job creation number, 36,000, was a disappointment.

Do we have a contradiction? We just do not know. The fuzziness has many reasons. Here are a few:

1) The unemployment rate is based on the Household Survey, a canvas of 60,000 households. The job creation numbers come from the Payroll Survey, collected from approximately 440,000 business and government establishments. You can look here to see how the 2 surveys differ.

2) Furthermore, the Household Survey data might have been skewed because it is collected during one week. What if that week was snowy? What if no one was home?

3) Previous job creation numbers from the Payroll Survey are revised each month as more data is collected. As a result, the Payroll Survey data becomes more accurate over time.

4) However, the unemployment rate is never revised.

Where are we? At the NY Times, Floyd Norris and David Leonhardt tried to work their way through the confusion. Their conclusions? The job market is definitely better than it was during October 2009 and the happier news comes from the Household Survey. 

The Economic Lesson

To complicate matters further, the unemployment rate looks only at those who are in the labor force (16 or older, have a job, looking for a job). For that reason, some suggest considering the U-6 rate, which includes the traditional numbers plus “marginally attached” workers and those who are not in the labor force. These workers have either stopped looking for a job or cannot find full time employment. The U-6 rate is a whopping 17.3%.

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