Author: Andrew Berger-Gross
When you get your economic news through a newspaper, over the radio, or from a website such as LEAD's, you are benefiting from the work performed by the United States’ federal statistical agencies. These organizations — including the Census Bureau, the Bureau of Economic Analysis, and the Bureau of Labor Statistics — produce the official indicators that market watchers rely on to track the state of the economy. Although these indicators are held to strong quality and reliability standards, some common misunderstandings about what the data do (or don’t) measure can create confusion about the story they are telling.
First, some background regarding the most cited and least understood official indicator of labor market conditions: the unemployment rate. Let's start with some mythbusting:
Myth #1: The unemployment rate only counts displaced workers who have filed for unemployment benefits.
This is a common assumption. In reality, the official measure of unemployment includes all persons without jobs who are able, available, and actively looking for work, regardless of benefit status. The unemployment rate is defined as the number of unemployed job seekers divided by the size of the labor force. The labor force itself is defined as the sum of employed and unemployed persons. Generally, a person is considered employed if they are currently working for pay or profit.
These indicators reflect only the "civilian noninstitutional population" — persons aged 16 and over, not on active duty in the military, and not confined to an institution (incarcerated or hospitalized.)
Myth #2: North Carolina's unemployment rate is measured by a survey.
Close, but not quite. The national unemployment rate is indeed derived from the Current Population Survey (CPS, or "household survey"), which is conducted by the Census Bureau in partnership with the Bureau of Labor Statistics (BLS).
However, because the CPS sample is too small to yield timely information below the national level, the BLS partners with state agencies (including LEAD) to develop better estimates for states and local areas. This cooperative effort — the Local Area Unemployment Statistics (LAUS) program — uses an estimation model to combine several data sources (including CPS, Current Employment Statistics, and unemployment insurance claims) to produce reliable monthly estimates of the unemployment rate.
Myth #3: North Carolina's unemployment rate is declining for the "wrong reason" — not because job seekers are finding work, but because they are discouraged and dropping out of the labor force.
North Carolina, like the rest of the country, has seen lower labor force participation in recent years. But are "discouraged" labor force dropouts causing the decline in unemployment? Or is this decline being driven by other factors, such as demographic changes or improved employment prospects?
A future post will look at some basic methods for analyzing labor force trends in order to determine whether the unemployment rate is adequately gauging the health of North Carolina’s labor market. (Spoiler alert: it is!)