The Bureau of Labor Statistics uses the Current Population Survey Part of the Series Guide to Unemployment Know the Lingo
The unemployment rate is one of the most closely followed indicators used by businesses, investors, and others to gauge the state of the U.S. economy. Investor sentiment and consumer confidence have strong inverse relationships with the percentage of unemployed Americans.
When the unemployment rate rises, investors guard their money more closely, and consumers become reticent, fearing economic calamity. When the rate is low, people are more confident about the economy, and it shows in their investing and spending patterns.
The unemployment rate is one of the most widely followed economic indicators, It measures the percentage of the labor force that is unemployed but actively looking for work But how exactly is the unemployment rate calculated each month?
In this article, we’ll take a detailed look at the process used to come up with the official unemployment rate in the United States.
The Current Population Survey
The unemployment rate is not calculated based on the number of people collecting unemployment insurance benefits as some may believe. Rather, it is measured through a monthly survey called the Current Population Survey (CPS).
The CPS is conducted by the US. Census Bureau on behalf of the Bureau of Labor Statistics (BLS). It involves interviewing around 60,000 households, asking questions to determine the employment status of civilians aged 16 and older
The households surveyed are randomly selected to be representative of the entire U.S. population. The same households are interviewed each month for 4 consecutive months before rotating out of the survey sample.
Defining the Labor Force
When calculating the unemployment rate, the first step is to define the labor force. This includes only civilians aged 16 and over who are either:
- Employed
- Unemployed and actively looking for work
People who are not working and not looking for work are considered out of the labor force. For example, retirees, students, stay-at-home parents, and discouraged workers (those who have given up looking for work) are not counted.
So if the CPS interviews 100,000 people one month and 25,000 of them say they are not in the labor force, those 25,000 would not be included in the unemployment rate calculation.
Calculating the Unemployment Rate
Continuing the example above, let’s say 75,000 people interviewed are in the labor force. Of those:
- 70,000 are employed
- 5,000 are unemployed but looking for jobs
To calculate the unemployment rate:
Unemployment rate = (Unemployed / Total in labor force) x 100
Plugging in the numbers:
Unemployment rate = (5,000 / 75,000) x 100 = 6.7%
So the unemployment rate would be 6.7% for that month.
The Controversy
There is some controversy around how the unemployment rate is measured. Critics argue that excluding “discouraged workers” who have stopped looking for work understates the true level of unemployment.
For example, in the scenario above, 25,000 unemployed people are left out of the calculation because they are considered out of the labor force.
To address this, the BLS publishes alternative measures of unemployment that include discouraged workers and others marginally attached to the labor force. But the official unemployment rate remains limited to active job seekers.
Frequency of Entities:
Labor force: 12
Unemployed: 7
Employed: 5
Discouraged workers: 3
BLS: 3
CPS: 3
Key Takeaways:
- The unemployment rate is calculated monthly through the Current Population Survey.
- Only civilians aged 16+ in the labor force are counted.
- Labor force includes employed and unemployed people actively looking for jobs.
- Discouraged workers not seeking jobs are excluded from the calculation.
- Critics argue this understates true unemployment.
- BLS publishes broader measures but official rate stays limited to active job seekers.
How Does the U.S. Determine the Unemployment Rate?
The U.S. determines the unemployment rate by dividing the unemployed individuals by the total number of individuals in the labor force. This is then converted into a percentage. How the U.S. determines the labor force and unemployed varies. The labor force, for example, only includes those who are employed or unemployed and seeking employment.
Survey Controversy
Continuing with the example above, though there are an additional 25,000 unemployed people in the survey because they are considered out of the labor force, they do not count as jobless as far as the official unemployment rate is concerned.
This is a controversial issue, as many feel the unemployment rate excludes a large number of people who are out of the labor force, not because they do not want a job, but because they have simply given up looking. Therefore, some people argue the unemployment rate paints a brighter picture than reality.
There are actually six different unemployment rates that measure various levels of employment. These can be used to give a clearer assessment of the labor market from different perspectives.
How to Calculate the Unemployment Rate | Macroeconomics | Think Econ
How do you calculate unemployment rate?
The unemployment rate is not the percentage of the total adult population without jobs, but rather the percentage of adults who are in the labor force but who do not have jobs: Unemployment rate = Unemployed people Total labor force ×100 Unemployment rate = Unemployed people Total labor force × 100 Table 1. U.S. Employment and Unemployment, 2016
What are some statistics based on unemployment?
These statistics include: The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work. The national unemployment rate.
How does the United States determine the unemployment rate?
The U.S. determines the unemployment rate by dividing the unemployed individuals by the total number of individuals in the labor force. This is then converted into a percentage. How the U.S. determines the labor force and unemployed varies. The labor force, for example, only includes those who are employed or unemployed and seeking employment.
How is unemployment measured?
Unemployment is measured through the Current Population Survey, conducted monthly by the Bureau of Labor Statistics. Only residents who are in the labor force are counted in the unemployment rate; those who have given up looking for a job are not—a controversial position.
