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THE JOBLESS RATE, THE TRUE UNEMPLOYMENT RATE

News reporters never tell you what words define before they say them. Quite often, they don't know themselves what words mean. That doesn't stop them from talking though.

Many don't understand unemployment as reported by the Bureau of Labor Statistics of the Department of Labor. To help clear up any confusion caused by them, I have done this for you.

The Class of Worker

The BLS minions define persons in three ways based on their relationships to firms:
  1. wage and salary workers —  those who get paid by private firms or by government agencies 
  2. self-employed — those who sell work under contract
  3. unpaid family workers — those who work for firms owned by their families

The Employed

The BLS minions define the employed as the count of those working who meet one of three tests:
  1. those who did any work for pay or profit during the survey reference week
  2. those who did at least 15 hours of unpaid work in a family-operated firm
  3. those who were absent from their regular jobs temporarily because of illness, vacation, bad weather, industrial dispute, or personal reasons

The Unemployed

The BLS minions define the unemployed as the count of those not working who meet this test:

  1. those without jobs 
  2. those who have have looked for work in the 4 weeks before they were surveyed 
  3. those available for work on the day of the survey

    Added to those who meet the test are these: 
  4. those who were not working but who were waiting to be recalled to a job from which they had been temporarily laid off

The Labor Force

The BLS minions define the labor force as the sum of the counts of those employed and those unemployed.

The First Ratios

Here are the ratios published by the BLS minions, which get talked about by news media talking heads.

The Employment-Population Ratio

Employed head count ÷ Civilian noninstitutional population

The Labor Force Participation Rate 

Labor force head count  ÷ Civilian noninstitutional population

The Unemployment Rate 

Unemployed head count ÷ Labor force

Not in the Labor Force

Those who fail to meet the BLS tests for the employed or the unemployed get categorized as those not in the labor force. In short, those who are not working nor who have sought work in the last four weeks are not in the labor force.

Of these defined as not in the labor force, there are some who get defined as discouraged workers. The discouraged worker are those who meet this test:

1) those who want work
2) those who are available for work
3) those who have looked for jobs within the last 12 months but not in the last four weeks

What the Unemployment Rate Truly Means

The unemployment rate doesn't tell how many don't have jobs but who would like to work. The prefix un is an means not. Employment means the state of being employed. The BLS concept of unemployment misses many who are not employed but who would like to be.

In truth, the unemployment rate is the measure of competition for jobs firms make available. Thus, in truth, it's the jobs competition rate.

When you think about it, employers could fire all those workers who are lazy or disgruntled and replace them with all active job seekers. The more active job seekers there are relative to the labor force (the sum of employed and active job seekers), the bigger the pool of immediate potential workers there is from which employers can draw to fulfill existing jobs.

Clearing Up The Mess Of The BLS

Ordinary words such as employed and unemployed as used by the minions of the BLS fail to match the meaning expected by most. Because of their mess, I have sorted out their data to give you a true picture of the economy.

First. It is unclear whether for those who meet the third test of being employed are being paid. Ask yourself what good is a job without pay? Can a person not being paid buy things with pay?

Those not on payroll ought not to be included as employed, even if  their employers would put to them to work and pay them for it.

Second. The unemployment rate really mixes two unalike concepts — those who have jobs but who are laid off with those actively seeking work. Those who have jobs but who are laid off (Unemployed, Test #4) are more alike to those who those who were absent from their regular jobs temporarily because of illness, vacation, bad weather, industrial dispute, or personal reasons and who are not being paid (Employed, Test #3). The latter two ought to be in its own category, perhaps called Idled Workers.

As the unemployed rate mixes active job seekers and those on temporary layoff, the rate fails to be useful as a descriptor of reality. If those workers on temporary layoff are not working but receiving a paycheck, they are not unemployed.

Merely they are not producing immediate work. Their pay gets apportioned to both work days and idle days.

The Jobless Rate, the True Unemployment Rate

Clearly, if someone could work and would work if offered a job regardless of having looked for work in last four weeks, five weeks, six weeks, six months and so on, that one is unemployed. That one might not be an active job seeker, but that one is truly not employed.

I give you two rates, the jobless rate and the strict jobless rate. Here is how I do it.

First, I calculate the count of True Free Americans taken from the count of civilian non-institutional population, 16 and older, less those those not in the labor force owing to disability, 16 and older. In spite of the potential of some disabled persons to work, they can't do so without changing their legal status.

Next, I calculate the Straightaway Working Potential, which is the sum of the unemployed and those not in the labor force who want a job now. The figure of those who want a job now comes from the BLS.

The BLS defines those who want a job now as the sum of those who searched for a job within the last 12 months, but not in the last four weeks, whether or not they held a job within that 12 months,  added with those who have not searched in the last 12 months and added with those who have not searched since the end of their last job.

To calculate the Jobless Rate, I calculate the the ratio of the Straightaway Working Potential to True Free Americans. 

Also, calculate the Strict Jobless Rate. To do so, first, I calculate the Strict Straightaway Working Potential, which consists of a subset of those not in the labor force who want a job now — those who have searched in last 12 months or since the end of their last jobs when those jobs were held in past 12 months — added to the unemployed as counted by the BLS. Next, I take the ratio of the Strict Straightaway Working Potential to True Free Americans.