Throughout the recession and recovery, market pundits have been closely watching the unemployment rates. Occasionally, the pundits will reference underemployment and household surveys. But what exactly are these numbers, and what do they really mean?
Unemployment is when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy, so naturally the most frequently cited measure of unemployment is the unemployment rate. The numbers you have likely seen in the news for June were 9.5% nationally and, 10.2% for Georgia. Our national unemployment declined from 9.7% to 9.5%—a calculation that accounts for the decrease in 225,000 temporary census workers.
Underemployment is a measure of employment and labor utilization that looks at how the labor force is being utilized in terms of skills and experience. For example, if a licensed C.P.A. is working as a pizza delivery man for his main source of income, he is considered to be underemployed.
While there was a decline in unemployment, if you look at the data carefully, we find that 842,000 individuals have fallen from the labor force, meaning they do not consider themselves unemployed. When we have more individuals who have given up seeking a job, the unemployment rate is going to fall. Likewise, if Wal-Mart were to announce they are opening several stores and expects to hire 10,000 workers, more individuals will claim to be seeking a job and unemployment would increase.
Week-to-week numbers do not matter as much. You need to look at three months of data to extrapolate a trend.
Underemployment, in our opinion, is near meaningless in concept. If you are a skilled laborer making $70 an hour with benefits and you are laid off, then you are unemployed. If the only job you can find is flipping burgers at $11 an hour, the implication is that you are underemployed. If it is the best job you can get in the current marketplace, then you are not unemployed. In our opinion that is what we feel counts.
Unemployment and underemployment rates are calculated by the Bureau of Labor Statistics, based on the Current Populations Survey (a household survey) and the Current Employment Statistics Survey (establishment survey). The household survey is a sample survey of about 60,000 households conducted by the U.S. Census Bureau. This survey provides information on the labor force, employment, and unemployment. The establishment survey gathers data from 160,000 businesses and government agencies covering 400,000 work sites, or about one-third of all payroll workers.
The household survey has a more expansive scope than the establishment survey because it includes the self-employed, unpaid family workers, agricultural workers, and private household workers, who are excluded by the establishment survey.
Still, the numbers can be staggering. In November 2007, we had employment of 147 million. In June 2010, we were down to 139 million. Of the 8 million jobs that were lost in the recession, we suspect many of them came from those who work in the real estate market and the ancillary jobs that are supported by real estate. We also suspect there are many who decided not to seek employment because they could collect unemployment benefits for 109 weeks.
While unemployment rates and Employment Situation Report are subject to major revisions well after the fact, these numbers remain a widely watched indicator of economic well being. Often, the report provides clues about the economy and corporate earnings and indirectly provides insight on interest rates and currency prices.