In economics, a person who is able and willing to work yet is unable to find a paying job is considered unemployed. The unemployment rate measures the number of unemployed workers as a proportion of the total civilian labor force, where the latter includes both the unemployed and those with jobs (all those willing and able to work for pay). In practice, measuring the number of unemployed workers really seeking work is notoriously difficult, each method having its own biases; this makes comparing unemployment statistics between countries difficult.
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Measuring unemployment
The U.S. Bureau of Labor Statistics (BLS) provides some definitions which are similar to, but not the same as, those of other countries.
BLS definitions
The BLS counts employment and unemployment (of those over 16 years of age) using a sample survey of households.[7] (http://www.bls.gov/cps/cps_faq.htm) In BLS definitions, people are considered employed if they did any work at all for pay or profit during the survey week. This includes not only regular full-time year-round employment but also all part-time and temporary work. Workers are also counted as “employed” if they have a job at which they did not work during the survey week because they were:
On vacation;
Ill;
Taking care of some other family or personal obligation (for example, due to child-care problems);
On maternity or paternity leave;
Involved in an industrial dispute (strike or lock-out); or
Prevented from working by bad weather.
Typically, employment and the labor force include only work done for economic gain. Hence, a homemaker is neither part of the labor force nor unemployed. Nor are full-time students nor prisoners considered to be part of the labor force or unemployment. The latter can be important. In 1999, economists Lawrence F. Katz and Alan B. Krueger estimated that increased incarceration lowered measured unemployment in the United States by 0.17 percentage points between 1985 and the late 1990s.
On the other hand, individuals are classified as “unemployed” if they do not have a job, have actively looked for work in the prior four weeks, and are currently available for work. The unemployed includes all individuals who were not working for pay but were waiting to be called back to a job from which they had been temporarily laid off.
Finally, it is possible to be neither employed nor unemployed by BLS definitions, i.e., to be outside of the “labor force.” These are people who have no job and are not looking for one. Many of these are going to school or are retired. Family responsibilities keep others out of the labor force. Still others have a physical or mental disability which prevents them from participating in labor force activities.
Children, the elderly, and some individuals with disabilities are typically not counted as part of the labor force in and are correspondingly not included in the unemployment statistics. However, some elderly and many disabled individuals are active in the labor market.
In the early stages of an economic boom, both employment and unemployment often rise. This is because people join the labor market (give up studying, start a job hunt, etc.) because of the improving job market, but until they have actually found a position they are counted as unemployed. Similarly, during a recession, the increase in the unemployment rate is moderated by people leaving the labor force.
The accuracy of unemployment statistics
The unemployment rate may be different from the impact of the economy on people. First, the unemployment figures indicate how many are not working for pay but seeking employment for pay. It is only indirectly connected with the number of people who are actually not working at all or working without pay. Second, in the United States those who work as little as one hour a week for payment are considered employed, even if they wish to work more. Therefore, critics believe that current methods of measuring unemployment are inaccurate in terms of the impact of unemployment on people as these methods do not take into account:
Those who have lost their jobs and have become discouraged over time from actively looking for work.
Those who are self-employed or wish to become self-employed, such as tradesmen or building contractors or IT consultants.
Those who have retired before the official retirement age but would still like to work.
Those on disability pensions who, while not possessing full health, still wish to work in occupations suitable for their medical conditions.
Those who work for payment for as little as one hour per week but would like to work full-time. These people are “involuntary part-time” workers.
Those who are underemployed, e.g., a computer programmer who is working in a retail store until he can find a permanent job.
On the other hand, the measures of unemployment may be “too high.” In some countries, the availability of unemployment benefits can inflate statistics since they give an incentive to register as unemployed. Homemakers and other people who do not really seek work may choose to declare themselves unemployed so as to get benefits; people with undeclared paid occupations may try to get unemployment benefits in addition to the money they earn from their work. Conversely, the absence of any tangible benefit for registering as unemployed discourages people from registering.
However, in the United States and several other countries this is not a problem, since unemployment is measured using a sample survey (akin to a Gallup poll). This method is also used by many countries besides the U.S., including Canada, Mexico, Australia, Japan, and all of the countries in the European Economic Community. According to the BLS, a number of Eastern European nations have instituted labor force surveys as well.
The sample survey has its own problems, because the total number of workers in the economy is based on guesses rather than a census. So many economists look to the survey of employers (http://www.bls.gov/ces) to get a better estimate of the number of jobs created or destroyed.
Due to these deficiencies, many labor market economists prefer to look at a range of economic statistics such as:
Labour market participation rate (the percentage of people aged between 15 and 64 who are currently employed or searching for employment)
The total number of full-time jobs in an economy
The number of people seeking work as a raw number and not a percentage
The total number of person-hours worked in a month compared to the total number of person-hours people would like to work
Situation in the United States
There are two permanent government projects conducted by the United States Census Bureau and or the Bureau of Labor Statistics for the United States Department of Labor that gather employment statistics monthly. One is the Current Population Survey (CPS) [8] (http://www.bls.gov/cps) which surveys 60,000 households: it is used in calculating the unemployment rate. The other is the Current Employment Statistics (CES) [9] (http://www.bls.gov/ces) which surveys 300,000 employers.
These two sources have different classification criteria, and usually produce differing results. As noted, most economists these days see the CES as a more accurate estimate of the state of the job market.
Though many people care about the number of unemployed (8.2 million in the U.S. in April 2004), economists typically focus on the unemployment rate (5.6 percent). This corrects for the normal increase in the number of people working for pay or seeking work due to population increases and increases in the paid labor force relative to the population — and thus the normal increase in the number of unemployed workers.
It’s important to note that these statistics are averages for the entire U.S. economy, hiding variations among groups. For April 2004 in the U.S., the unemployment rates for the major worker groups were as follows:
adult men: 5.0 percent;
adult women: 5.0 percent;
whites: 4.9 percent;
Asians: 4.4 percent.
Hispanics or Latinos: 7.2 percent;
blacks: 9.7 percent;
teenagers: 16.9 percent;
These percentages represent the usual rough ranking of these different groups’ unemployment rates, though the absolute numbers normally change over time, with the business cycle. They come from the Bureau of Labor Statistics (http://www.bls.gov/news.release/pdf/empsit.pdf). (Clicking on this link will give up-to-date numbers.)