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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

How Does the Government Figure Unemployment?

This morning, the Labor Department released its grim December jobs report — 524,000 jobs were lost in December, bringing the 2008 total to 2.6 million and pushing the nation’s unemployment rate to 7.2 percent, the biggest since 1993.

But how exactly does the government figure unemployment?

Does it count unemployment claims?

Does it survey every person each month?

The answer to both is no. Like many government and private-sector reports, the Labor Department’s monthly jobs report is based on data that is extrapolated from a sample size much smaller than the total number it seeks to determine.

In the case of the monthly jobs report, the Labor Department contacts 60,000 households to determine the unemployment picture for the entire workforce, which consists of about 154 million Americans.

(This is how almost all big surveys are done. Statistically speaking, if you’re trying to get data out of a large population — like a national presidential poll — once you survey about 1,000 people, you can be 95 percent confident that the answers you get are within 3 percentage points of the actual number. If you count every person, it’s no longer a survey; it’s a census. And is very expensive and time-consuming.)

Each month, 15,000 of the sample’s households are switched out, so the 1,500 U.S. Census workers who take the labor data aren’t talking to the same people each month.

Interestingly, people who are interviewed for the monthly survey are never asked: Are you employed or unemployed? If that sounds silly — you know if you’re out of work or not — it’s because the Labor Department has criteria used to classify various kinds of employment: full, part-time, unemployed but looking, unemployed but not looking, and so forth.

Instead, the Census-takers ask questions such as: Last week, were you on layoff from a job? Last week, did you do any work for pay or profit?

Once the data are taken, they are weighted to take into account age, race, sex and so on, to make certain the sample numbers more closely represent the general population numbers. So, for instance, if a certain 60,000-household sample contains more residents of Hispanic origin than exist in the general population, the Hispanic sample numbers are weighted downward.

Given all this, how accurate are the monthly Labor Department reports?

“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,” reads the Labor Department’s Web site. “But the chances are 90 out of 100 that the monthly estimate of unemployment from the sample is within about 230,000 of the figure obtainable from a total census.

“Since monthly unemployment totals have ranged between about 5 and 8 million in recent years, the possible error resulting from sampling is not large enough to distort the total unemployment picture,” the site reads.

Note that December’s unemployment rate of 7.2 percent means that about 11.1 million Americans are out of work.

- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  January 9, 2009; 2:46 PM ET
Categories:  The Ticker  | Tags: Labor Department, unemployment  
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An almost informative article. However, the nature of the real questions is the kety to understanding the answers. For example: "Did you earn money last week?" A YES answer from a college student flipping bergers is a good indication of real employment but, a YES answer from a PHD doing the same work is not real employment.

As usual, survey questions are tailored to get the kind of answer desired and not confuse the people using the data with anything resenbling the real situation.

Posted by: mehrenst1 | January 9, 2009 4:06 PM | Report abuse

What would happen if our public policy encouraged outsourcing of jobs and insourcing of cheap labor? And what if our public officials frowned on this policy publicly but really thought privatedly that it is a really swell policy? Oh that's right. That's what we got now. Thank you Congress. Thank you President Bush.

Posted by: althusius | January 9, 2009 4:46 PM | Report abuse

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