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Unemployment Rate / Employment-Population Ratio (CongressionalGlossary.com)

From the Congressional Glossary – Including Legislative and Budget Terms

Unemployment Rate / Employment-Population Ratio

As defined by the Bureau of Labor Statistics (BLS), the number of people who do not have jobs but have actively looked for work in the prior 4 weeks and are currently available for work, expressed as a percentage of the civilian labor force.

The rate of unemployment in the United States has exceeded 8 percent since February 2009, making the past three years the longest stretch of high unemployment in this country since the Great Depression. CBO projects that the unemployment rate will remain above 8 percent until 2014. The share of unemployed people who have been looking for work for more than six months–referred to as the long-term unemployed–topped 40 percent in December 2009 and has remained above that level ever since.

“The United States is Experiencing the Longest Stretch of High Unemployment Since the Great Depression,” CBO, February 16, 2012

The simple way to think about unemployment numbers is that the joblessness rate can rise or fall for good reasons and bad reasons. If the unemployment rate drops because hundreds of thousands of jobs are being created each month, that’s obviously good news. But if the jobless rate falls because the government estimates that lots of people have become discouraged and dropped out of the labor force, then that’s not good news. In other words, sometimes the unemployment rate, by itself, doesn’t tell the full story. That’s why one of the best statistics to look at is the employment-population ratio, which measures the number of people who have jobs and compares it to the number of people who could have jobs.

“New Unemployment Numbers Are Good News for the White House, but the Silver Cloud Has a Dark Lining,” by Daniel Mitchell, Cato, January 6, 2012

We don’t know for certain how many people are employed because no one counts them. The Bureau of Labor Statistics estimates the number of unemployed based on a random sampling of the population. In itself, this isn’t a problem. Sampling is a well-established method of estimation when it is too time-consuming or expensive to count every single person. The problem arises when a politician pretends that the estimate is an exact measurement.
. . .
Each month, more people join the working age population than retire or die. Consequently, the economy needs to add about 180,000 jobs a month just to keep up with population growth.
. . .
The problem arises when a politician pretends that adding more jobs means there are fewer people out of work. The next time a politician crows about the economy adding thousands of jobs, subtract 180,000 to get the real jobs gained. This week, Business Insider estimated that the economy will add 130,000 jobs in May. Subtracting 180,000 for population growth means we’ll be left with 50,000 more unemployed Americans in May than we had in April.

Looking at our current labor market, the official unemployment rate was at a high of 10 percent in October 2009, and has fallen to 8.1 percent. Some politicians say this is evidence that their policies are bringing back jobs. But, much of the decline in the unemployment rate is due to people giving up looking for work. If we were to add back the people who have stopped looking for work since October 2009, the unemployment rate would be more than 11 percent. The official unemployment rate has fallen largely because we’ve stopped counting large numbers of jobless people.

“3 Lies About Jobs and the Unemployment Rate,” by Antony Davies, US News, May 29, 2012