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What is the unemployment rate and how is it calculated?

The October unemployment figures have just been released by the labor department showed a rise in unemployment as interest rates continue to rise.

Te explicamos en qué consiste el proyecto de semana laboral de 4 días en Estados Unidos y que se necesita para que el Congreso lo apruebe.
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The Department of Labor has revealed the number of people joining payrolls in the US has risen by 261,000, exceeding expectations around the 200,000 number. However, the unemployment rate increased by two percentage points to 3.7% which could be the first inklings of the effects from interest rate rises initiated by the Federal Reserve since the turn of the year. The employment figure is a slight decrease on the number from September.

“The labor market is basically OK, but it does seem to be slowing,” said Guy Berger, principal economist at LinkedIn in San Francisco, “The Fed is going to try to thread the needle where they slow down the labor market enough to put downward pressure on wages and inflation, without causing a recession.”

Year-on-year inflation currently stands at 8.2%, four times higher than the Fed target of 2%. The bank sees its role as bringing down inflation and seems willing to cause a recession to do so. Larry Summers, a Clinton-era treasury secretary, said in October that unemployment may need to be as high as 6% to curb inflation.

“I’m pleased that we have moved as fast as we have. I don’t think we’ve overtightened,” said the Fed chair, Jerome Powell.

The bank hopes that forcing companies into layoffs with rising interest rates will “open up the labor market”, a sort of code for forcing people into jobs they would only do out of necessity.

How is the unemployment rate measured in the US?

There are multiple ways of measuring unemployment. It is fairly obvious that the data can be acquired by dividing the number of unemployed persons by the number of persons in the labor force (employed or unemployed) and multiplying that figure by 100. However, the variance comes into who is classed as unemployed or employed.

By the U-3 measure, used in the data acquired today, people are counted as unemployed if they do not have a full-time, part-time, or temporary job, is actively looking for a job. This means people who are without a job but not looking for work are ignored in the statistics.

Since the covid-19 pandemic began in March 2020, this group of people ignored in unemployment statistics has been growing. This would explain statistical oddities such as 5.7 million people unemployed but more than 10 million job vacancies. When the Federal Reserve talks about a “tight labor market” this is what they mean; there are jobs that people can decline as workers have a barganing tool with the amount of vacancies.