What is the REAL Unemployment Rate?, by Dave Kennelly, Summit Business Advisors

Have you ever wondered where the unemployment data comes from? What the process is for gathering information to determine the level of unemployed in the United States? Read the below, copied from the Bureau of Labor Statistics website and pasted here. I don’t know about any of you, but my household has never received a call – not once, in the 28 years I have been in the workforce. Have you ever been contacted? Ask people you know if they have ever been contacted. I have asked numerous people and not one of them have ever received a phone call. Makes you wonder about the numbers doesn’t it.


Where do the statistics come from?
Early each month, the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor announces the total number of employed and unemployed persons in the United States for the previous month, along with many characteristics of such persons. These figures, particularly the unemployment rate—which tells you the percent of the labor force that is unemployed—receive wide coverage in the media.

Some people think that to get these figures on unemployment, the Government uses the number of persons filing claims for unemployment insurance (UI) benefits under State or Federal Government programs. But some people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.

Other people think that the Government counts every unemployed person each month. To do this, every home in the country would have to be contacted—just as in the population census every 10 years. This procedure would cost way too much and take far too long. Besides, people would soon grow tired of having a census taker come to their homes every month, year after year, to ask about job-related activities.

Because unemployment insurance records relate only to persons who have applied for such benefits, and since it is impractical to actually count every unemployed person each month, the Government conducts a monthly sample survey called the Current Population Survey (CPS) to measure the extent of unemployment in the country. The CPS has been conducted in the United States every month since 1940, when it began as a Work Projects Administration project. It has been expanded and modified several times since then. For instance, beginning in 1994, the CPS estimates reflect the results of a major redesign of the survey. (For more information on the CPS redesign, see Chapter 1, “Labor Force Data Derived from the Current Population Survey,” in the BLS Handbook of Methods.)

There are about 60,000 households in the sample for this survey. This translates into approximately 110,000 individuals, a large sample compared to public opinion surveys which usually cover fewer than 2,000 people. The CPS sample is selected so as to be representative of the entire population of the United States. In order to select the sample, all of the counties and county-equivalent cities in the country first are grouped into 2,025 geographic areas (sampling units). The Census Bureau then designs and selects a sample consisting of 824 of these geographic areas to represent each State and the District of Columbia. The sample is a State-based design and reflects urban and rural areas, different types of industrial and farming areas, and the major geographic divisions of each State. (For a detailed explanation of CPS sampling methodology, see Chapter 1, of the BLS Handbook of Methods.)

Every month, one-fourth of the households in the sample are changed, so that no household is interviewed more than 4 consecutive months. This practice avoids placing too heavy a burden on the households selected for the sample. After a household is interviewed for 4 consecutive months, it leaves the sample for 8 months, and then is again interviewed for the same 4 calendar months a year later, before leaving the sample for good. This procedure results in approximately 75 percent of the sample remaining the same from month to month and 50 percent from year to year.

Each month, 2,200 highly trained and experienced Census Bureau employees interview persons in the 60,000 sample households for information on the labor force activities (jobholding and jobseeking) or non-labor force status of the members of these households during the survey reference week (usually the week that includes the 12th of the month). At the time of the first enumeration of a household, the interviewer prepares a roster of the household members, including their personal characteristics (date of birth, sex, race, Hispanic ethnicity, marital status, educational attainment, veteran status, and so on) and their relationships to the person maintaining the household. This information, relating to all household members 15 years of age and over, is entered by the interviewers into laptop computers; at the end of each day’s interviewing, the data collected are transmitted to the Census Bureau’s central computer in Washington, D.C. (The labor force measures in the CPS pertain to individuals 16 years and over.) In addition, a portion of the sample is interviewed by phone through three central data collection facilities. (Prior to 1994, the interviews were conducted using a paper questionnaire that had to be mailed in by the interviewers each month.)

Each person is classified according to the activities he or she engaged in during the reference week. Then, the total numbers are “weighted,” or adjusted to independent population estimates (based on updated decennial census results). The weighting takes into account the age, sex, race, Hispanic ethnicity, and State of residence of the person, so that these characteristics are reflected in the proper proportions in the final estimates.

A sample is not a total count, and the survey may not produce the same results that would be obtained from interviewing the entire population. But the chances are 90 out of 100 that the monthly estimate of unemployment from the sample is within about 290,000 of the figure obtainable from a total census. Since monthly unemployment totals have ranged between about 7 and 11 million in recent years, the possible error resulting from sampling is not large enough to distort the total unemployment picture.

Because these interviews are the basic source of data for total unemployment, information must be factual and correct. Respondents are never asked specifically if they are unemployed, nor are they given an opportunity to decide their own labor force status. Unless they already know how the Government defines unemployment, many of them may not be sure of their actual classification when the interview is completed.

Similarly, interviewers do not decide the respondents’ labor force classification. They simply ask the questions in the prescribed way and record the answers. Based on information collected in the survey and definitions programmed into the computer, individuals are then classified as employed, unemployed, or not in the labor force.

All interviews must follow the same procedures to obtain comparable results. Because of the crucial role interviewers have in the household survey, a great amount of time and effort is spent maintaining the quality of their work. Interviewers are given intensive training, including classroom lectures, discussion, practice, observation, home-study materials, and on-the-job training. At least once a year, they attend day-long training and review sessions. Also, at least once a year, they are accompanied by a supervisor during a full day of interviewing to determine how well they carry out their assignments.

A selected number of households are reinterviewed each month to determine whether the information obtained in the first interview was correct. The information gained from these reinterviews is used to improve the entire training program




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