It may come as a surprise that according to the federal government, an out-of-work person who put in an application at every place in town more than thirty days ago, who scours every available newspaper's want ads every morning, and who visits every job search website on the web with no luck is not counted as unemployed.  Indeed, he would not be considered member of the labor force because he is not actively searching for a job.

Each month, the media report unemployment figures for the previous month.  Much attention is paid to these figures, and many public and private decisions are based on them.  Often terms like public-sector jobs added, labor force participation rate, civilian labor force, and not in the labor force are used.  But what bearing do these terms have on the published rate, and how is the rate calculated?

Unemployment figures are calculated by a part of the department of labor called the Bureau of Labor Statistics (BLS).  The actual data on unemployment is gathered by the Census Bureau.  The calculation of unemployment rates using modern concepts dates back to the 1930s, but at that time, there was no standard for how the figures were calculated.  The first national survey of unemployment began in 1940 and was called the Monthly Report of Unemployment, which was later renamed the Current Population Survey (CPS), still in use today.

The unemployment rate is calculated not by adding up those who are on unemployment, nor by examining tax records to determine who is not working.  On the contrary, the information is gathered from the Current Population Survey (CPS), which interviews a probability sample of 60,000 households that vary by location, vocation, sex, race, etc.  The BLS has calculated that this specially selected sample of the population yields results that are close enough to the actual value "as not distort the total employment picture."  If 10% of the 60,000 respondents are unemployed, then the BLS will estimate that about 10% of the total workforce is unemployed (with some adjustments, such as seasonal).

Households are surveyed for four consecutive months and then are not surveyed for eight months.  They are then surveyed for one additional four-month period.  There are new households entering and old households leaving the survey at all times.

The CPS survey does not ask whether or not the person being interviewed is unemployed; it asks a series of questions regarding recent work-related activity, and the Bureau of Labor Statistics later classifies that person's employment status.

The civilian noninstitutional population consists of Americans aged 16 years or more who are not institutionalized and are not inmates.  Each American is classified as employed, unemployed, or not in the labor force.

The sum of the employed and unemployed persons is called the civilian labor force.  If people who do not have a job are reclassified from unemployed to not in the labor force, the advertised unemployment rate goes down.

The labor force participation rate is the percentage of employable Americans in the civilian labor force.  If people are reclassified from unemployed to not in the labor force, the participation rate goes down.

Those who would like to work but have not actively looked for a job in the last four weeks, but have looked within the last year, are called marginally attached to the labor force and are not counted in the unemployment rate.

Those who have given up looking for work because they feel it is futile are called discouraged workers and are not counted in the unemployment rate.

The unemployment rate is the number of unemployed persons as a percent of the civilian labor force.

Employed and unemployed are defined as you would imagine -- by contrast, it is the classification not in the labor force that is not intuitive.  

Those who are under 16, institutionalized in some form, students, retired persons, members of the armed forces, or not actively looking for work are not considered participants in the labor force and are not included in the unemployment rate.

A person is not considered actively looking for work unless he has taken direct action to seek employment in the last four weeks.  Direct action includes contacting an employer directly through filling out an application, sending a resume, going to interviews, contacting friends or relatives for leads, or using an employment agency of some kind.  A person who reads want-ads in the paper or checks online job search sites, even if he does so daily, is passively looking for work and is not counted as unemployed.

Reducing or increasing the number of people who are no longer in the labor force changes the unemployment rate accordingly.  If people are reclassified to not in the labor force, the unemployment rate will go down.

In a similar manner, a select number of businesses are surveyed using the Occupational Employment Statistics (OES) survey.  From this data, statistics on wages and occupations are calculated.  When you see data about the number of jobs added in the public sector, or the number added in retailing, and so on, the OES is the source.

In the future, when unemployment data is released, look at all of these figures in order to get the understandable information about employment that is hidden in the statistics.  The BLS issues a monthly report called "The Employment Situation" that contains all of the employment data.

(References: The BLS Handbook of Methods, Chapters 1 and 3, and How the Government Measures Unemployment)

Chris W. Bell is a freelance writer; he can be reached at chriswb2008@yahoo.com.