But what is it? Let's uncover the truth behind this elusive "unemployment" number and decode the common ways it's interpreted.
Simply stated, the unemployment rate is the number of individuals in the labor force who are unemployed. The labor force is the total of individuals who are currently jobless, those looking for employment, and those presently employed.
If you consider these definitions, students and retirees would not be counted in the data set as they are classified as a non-labor force. It seems rather ambiguous in literal terms, leaving many potential oversights in the calculation.
For example, there are instances where individuals no longer count as unemployed, due to the extended period they are looking for employment. As they never found a job, despite still diligently looking, they simply get removed from the calculation due to technicality.
The U.S. jobless rate is measured using two workforce surveys.
The first is known as the current population survey (CPS). This is commonly called the "household survey," providing a sample of 60,000 households.
The second is the current employment statistics survey (CES). Commonly referred to as the U.S. payroll survey, it is based on 160,000 U.S. companies and government agencies. Collectively, it represents 400,000 individuals.
The phrase "non-farm payroll" is another phrase we commonly hear. This high-value segment we care a lot about isn't included in the BLS as it shows high fluctuation in data, thanks to the seasonal influx of temporary workers, making it a highly volatile input.
As such, it's removed entirely from the calculation. Removing this deep cyclical segment shows the strength of the underlying economy.
So what is the "real" unemployment rate we hear in the news when someone claims the rate we hear published being too low?
The current unemployment rate published by the BLS at the time of this column is 8.4%. However many feel it is much higher and not the "real" rate.
Generally speaking, the different metrics are correlated, meaning they move up and down together but vary in terms of the absolute amount.
When a politician says the real unemployment rate is much higher, that means that the definitions he or she is using are broader and include more individuals in the labor force.
In the chart above, see U-6, which is an example of a broader definition of unemployment that some consider closer to the "real" unemployment rate.
Mike Cioffi is founder of TireTalent.com, a boutique recruiting agency whose mission is to align top talent with top tire companies.
