Q: How can the unemployment rate be accurate when it only includes people receiving unemployment insurance benefits and many people who are out of work don’t receive unemployment insurance benefits?
A: Many people assume that the unemployment rate is based only on unemployment insurance (UI) claims, but it actually is based on several elements and takes into consideration that many unemployed people do not receive unemployment benefits.
Unemployed people can be assigned to one of these four categories:
1) People who lost their most recent jobs, whether they were laid off due to economic conditions, fired for incompetence or insubordination, or lost their jobs when their own businesses failed;
2) People who voluntarily left their last jobs and immediately began seeking new jobs;
3) New entrants to the labor market who haven’t found jobs yet (people who are seeking work for the first time); and
4) Re-entrants who haven’t found jobs yet. This includes people who worked before, but stopped working and looking for work for a period of time, and now are looking for work again. Examples include: people who left the labor market to be full-time homemakers and now are looking for work; people who have been full-time students and start looking for work when school ends; people who retired and then decide to look for work; people who have been in prison and now are looking for work.
As a rule, only people who lost their jobs through no fault of their own would receive unemployment benefits. Job leavers generally are not eligible for UI benefits, because they voluntarily left their jobs. New entrants and re-entrants haven’t been working, so they would not be eligible for unemployment benefits.
So, only people who lost their jobs through no fault of their own show up in UI data. Admittedly, they make up the largest and most volatile of the four categories. Although all the categories will be influenced by economic conditions, they are the most influenced by the economic cycle.
When the economy is expanding, there will be many fewer people who lost their jobs through no fault. After the economy enters a recession, there usually is a sharp increase in this category. Unemployment insurance data provides valuable information about this volatile category of unemployed workers.
In addition to unemployment insurance claims, the economic model that creates Idaho’s unemployment rate relies on information from other sources to include unemployed from all four categories.
The most important source is the Current Population Survey (CPS), conducted each month by the U.S. Bureau of the Census for the U.S. Bureau of Labor Statistics. The CPS collect information from nearly 60,000 households throughout the United States each month. The CPS asks each household to answer questions about employment and job search activity for all household members 16 years and older. Their responses allow the CPS to classify each household member as employed, unemployed, or not in the labor force.
The U.S. unemployment rate comes directly from the CPS. Idaho’s unemployment rate is partly based on the responses of the more than 700 Idaho households answering the CPS each month.
Estimates of total employed residents in Idaho partially depend on estimates of nonfarm payroll jobs in Idaho, based on a monthly survey of approximately 1,200 Idaho employers. The estimate of employed residents, in turn, affects the unemployment rate.
The bottom line is that the Idaho Department of Labor and its partner—the U.S. Bureau of Labor Statistics—make every effort to include all categories of unemployed people. Although unemployment insurance claims play a role in developing Idaho’s unemployment rate, it is only one of many information sources used to prepare a meaningful estimate of unemployed Idaho residents.