Common Misconceptions About Unemployment

It's easy to think that the unemployment rate is just a measure of the unemployed. It's not.

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It's not like this stuff comes up in casual conversation. "So, Chuck, how do they calculate the unemployment rate each month? And, hey, pass the bottle of wine while you're thinking about it." But in the past 18 months, we've all started paying more attention to the Labor Department's monthly jobs report, so it's worth understanding what it represents. Here are a few common misconceptions:

Misconception: The unemployment rate is based on unemployment benefits data. Unemployment benefits are indeed collected by the unemployed, but the data for each month's much-quoted unemployment rate does not come from the same source as the data on benefits. After all, not all people out of work are collecting benefits. The unemployment rate is drawn from a monthly survey of about 60,000 households called the Current Population Survey. Misconception: The unemployment rate and the monthly jobs numbers are based on the same data. You might think that the data used to calculate that 345,000 jobs were lost in May would be the same data used to calculate the unemployment rate, but you'd be wrong. The Labor Department uses two different surveys for the monthly employment situation report. The Household Survey is used to calculate the unemployment rate. The Establishment Survey is used to calculate the monthly change in payrolls.

Misconception: The unemployment rate is the percentage of Americans who are unemployed. Well, for one thing, the unemployment rate is just a portion of Americans age 16 and older who are in the labor force. Also, it doesn't measure the merely unemployed, it measures those individuals who are unemployed and have recently looked for work. Part-timers and unemployed workers who haven't searched for work within the previous four weeks are not included among the official unemployed. This is a rather contentious point. Some economists believe that the unemployment rate should be expanded to include people who are out of work but have given up looking for a job because they don't think they'll find one, as well as people who want full-time work but are working part-time. A couple of additional interesting points:

  • "Discouraged" workers are not counted as unemployed. They are, rather, considered to be out of the workforce. That means that people who want jobs and have actually looked for work in the past year, but not in the last month because they think they're too young or too old to get hired, or they just don't think they'll find anything, particularly because they hadn't had success before--these individuals are not counted as unemployed.
    • You can be considered employed and not be getting a paycheck. People who work for family members at least 15 hours a week without pay are classified as employed.

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