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Wednesday, February 1, 2012

The Unemployment Rate and the International Labor Organization

"The Bureau of Labor Statistics lies about unemployment."

"The Unemployment Rate is the result of Obama cooking the books."
"The U-3 rate is not 5.3% (as of June 2015)."


Let's take a step back:  Every month the media tout the newly released unemployment rate.  If the unemployment rate goes down, that is a good thing and the stock markets may go up.  If it goes up, that is not so good and the stock markets may go down.

Meanwhile many people, including some economists and political pundits,  complain that the monthly unemployment is either inaccurate, an out-and-out lie, just "not right", or "It doesn't count all of the unemployed."  The comments at the lead of this article are just some of the many complaints read monthly about the unemployment rate.

Who is Counted as Unemployed?

Now...  The Bureau of Labor Statistics bases its numbers on a statistical sample of  60,000 households surveyed monthly by the Census.  People are counted as unemployed if they:
  • Are 16 or over.
  • Are not institutionalized, which means the person is not in prison, in a mental facility, in a nursing home, or the like.
  • Are civilian, meaning not now in the military.
  • Do not now have a job or have any self-employment income.
  • Are able to work.
  • AND want a job AND have actively looked for employment within the past four weeks. 
  • (Note that high school and college students over 16 who want a part-time job and have actively looked for a part-time job in the past four weeks are counted among the unemployed.)
The unemployment rate is the percentage of people who are unemployed as described above as a total of the civilian labor force.

The civilian labor force includes:
  • All of the unemployed listed above.  
  • AND all of the employed.  The employed include:  
1.  People who are working full-time.
2. People who are working part-time, whether or not they want to work full-time.
3.  People who are working temporary jobs.
4.  People who are working seasonal jobs.
5. People who are self-employed, whether or not the business is incorporated, no matter how much the business makes as long as the business makes something.
6.  People who are working in agricultural occupations.
7.  Young people 16 and over who are in school full or part time and are working full or part time.
8. People in the military are NOT counted as employed OR unemployed by the BLS.  They are not included in any labor statistics, though one can find a count of people in the military at the Department of Defense website.  
The basic calculation:

So, if we add the unemployed as defined above and the employed as defined above, we get the "civilian labor force".  Divide that by the number of people unemployed and we get the BLS "U-3 unemployment rate".

How did the Bureau of Labor Statistics come up with this way of determining how the unemployment rate should be calculated?  Did they dream it up?  Does it change from Presidential administration to Presidential administration?

Who is the International Labour Organization?

The United States is a member of the International Labour Organization (ILO)), "a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in GenevaSwitzerland. Its secretariat — the people who are employed by it throughout the world — is known as the International Labour Office."  This group was actually formed before the advent of the United Nations; it was an agency of the League of Nations, which the United States did not join.  However, the United States made an entreaty to join the ILO after Franklin Roosevelt was elected to office.  The US became a member in 1934.  

This group sponsors many labor-related projects and endeavors, such as the reduction of child labor, eliminating the exploitation of domestic workers, etc.  The goals and aims are, as a whole, beyond the scope of this article, but you can find out more about this organization at Wikipedia, at the ILO website, and at the Labor Statistics (Laborsta) website maintained by ILO.

International Unemployment

One of the things that the ILO does do is to set up standards for various measures of labor through its Statistics department.  As the US is a member of ILO, it has adopted definitions for those who are unemployed that fit the ILO's critieria:  
Unemployment is defined as follows in the Resolution concerning statistics of the economically active population, employment, unemployment and underemployment, adopted by the Thirteenth International Conference of Labour Statisticians (Geneva, 1982):
(1) The "unemployed" comprise all persons above a specified age who during the reference period were: (a) "without work", i.e. were not in paid employment or self-employment, as defined in paragraph 9;(b)"currently available for work", i.e. were available for paid employment or self-employment during the reference period; and (c)"seeking work", i.e. had taken specific steps in a specified reference period to seek paid employment or self-employment. The specific steps may include registration at a public or private employment exchange; application to employers; checking at worksites, farms, factory gates, market or other assembly places; placing or answering newspaper advertisements; seeking assistance of friends or relatives; looking for land, building, machinery or equipment to establish own enterprise; arranging for financial resources; applying for permits and licences, etc.
As you can see, the international definition of the "unemployed" is very close to the definition that the Bureau of Labor Statistics uses to determine who is unemployed in this country.  There are many more details that one can read for oneself at the Laborsta website HERE.  For our purposes, however, it is best to say that the United States calculates the U-3 (most well known) unemployment rate based on the criteria used throughout the world.  It is not capricous; it doesn't change from year to year or from Presidential term to Presidential term.

Also, the term "U-3" was designated as the term to describe this basic unemployment rate many years ago.  It is what it is, and the BLS has decided that the basic unemployment rate is going to be called U-3.  There are U-1 through U-6 rates as well.  You can find all of these rates at the monthly Employment Situation report.

The U-3 does not present a perfect picture of employment and unemployment, as anyone associated with its calculations will admit.  But it does allow for several things:  

  • In its seasonally adjusted form, it allows for comparisons across months. 
  • In either form (seasonally adjusted or non-seasonally adjusted), it allows for comparisons across years.  
  • It also allows for comparisons with other countries as all countries use the same basic definition in determining unemployment.  Back in 2012, I read a comment that the Spanish unemployment rate, then officially exceeding 20%, was the same as ours because some people have come up with alternate unemployment calculations for the U.S. in the 20% range.  But, no, the 20%+ unemployment rate of Spain, a member of the ILO, is calculated using definitions of people who are unemployed that are equivalent to the U-3 here.. which at the time was 8.5%.  As members of the ILO, both countries use similar definitions to count the unemployed.   
  • As mentioned above, the BLS also provides other alternate unemployment ratios and other data (such as breaking up the unemployment situation by age, sex, education, ethnic origin, industry, etc.) that help to shine even more light on the employment/unemployment situation in this country.

Positives and negatives in unemployment counting

Here are some pluses and minuses about the way we compute unemployment and count employment:
  • Plus: The BLS DOES provide alternative counts including part-timers who want full-time work and people who are "discouraged" to better estimate the labor force.
  • Plus: The BLS DOES provide boatloads of information about how it collects data and calculates the employment, unemployment, and jobs numbers.  Most of this data is available online for people who want to check things out for themselves.
  • Minus:  The BLS DOES NOT do a good job finding out what happens to people who "drop out" of the labor force.  Did they retire?  Did they go to school full-time?  Did they decide to stay home with a child?  Did they become a full-time caretaker for an adult such as an aging parent or a disabled spouse?  Did they just decide to give up.. permanently.. or for awhile?  We just don't know.
  • Minus:  Kids 16 and 17 years old are counted among the employed/unemployed.  Should we really count young people in school full-time and looking for part-time jobs as unemployed?  If 16 and 17 year olds are dropped from the employment/unemployment statistics, the unemployment rate falls appreciably, perhaps as much as 3 or 4 tenths of a point.  4% of the currently unemployed are 16 and 17 year old kids.  (Some countries don't include young people in their unemployment calculations until they are 18.)   
In summary, the U-3 monthly unemployment rate isn't perfect in describing the number of people struggling with employment issues.  But it is a good estimate, and it is good for comparing one month, one year, one state, one country to the next. 


1 comment:

  1. Molly, Good stuff. You might want to check out Prof. Gordon H Hanson at Econ Dept UCSD. Great stuff on immigration and positive effect on economies.


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