So if you read my previous post, you were witness to a little careless analysis on my part regarding the reasons for the larger than average drop in the unemployment rate between August and September. My theory was that due to to a larger than average drop in the labor force, there was a possibility that discouraged workers might have been a real factor in the drop in the unemployment rate. This would make the drop a little artificial – an artifact of the methodology and not necessarily a good sign.
While I try very hard not to explicitly link data to real-world conditions (correlation does not imply causation), it is still sloppy because I was only looking at the denominator in the equation, not the numerator. If there were simply a drop in the labor force, it would have made unemployment go up, not down. Let’s take a little deeper look at what constitutes the unemployment rate.
The unemployment number reported monthly is from the LAUS or Local Area Unemployment Statistics. It is an offshoot of the CPS or Current Population Survey. The CPS essentially functions to place people into one of three groups on a monthly basis. So for the civilian (i.e., non-military) non-institutionalized (i.e., non-incarcerated/committed) population, you can be either employed, unemployed, or not in the labor force.
Employed means that during the week that includes the 12th day of the month being surveyed, you did any work as a paid employee, worked in your own business or on your farm, or worked 15 hours or more as an unpaid worker in a family business. You also qualify as being employed if you were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute job training, or other family or personal reasons, whether or not you were paid for the time off or were seeking other jobs. Oh, and if you have more than one job, you only have to be employed at one of them to count.
Many people assume that the remainder of people who aren