June 22, 2001

Prof. Investor Fridays - Calculating Unemployment

As a follow-up to yesterday's commentary about Americans remaining on the unemployment rolls, one reader asks, "Does the unemployment number count only people who filed claims? What about the people who no longer file claims, but are still unemployed?"

The unemployment number counts those people who are unemployed and actively looking for work. So, even if a person's unemployment benefits have run out, that person is still considered unemployed if he is actively looking for work. But that doesn't mean that the government's unemployment figures paint an entirely accurate picture.

The government's definition of actively looking results in a lower figure than the number of Americans who are actually unemployed. For example, those who are unemployed and attending job training courses to learn new skills are not counted as unemployed. Instead, they are regarded by the government as "not part of the labor force." And those who, after months of fruitless searching, have become frustrated and given up their search for a job are also "not part of the labor force" and, thus, not counted among the unemployed.

Thousands of jobs have been dissolved in the last year, and hundreds of thousands have been laid off since the start of the year. Employers have stopped filling vacant seats. So it's not hard to see why those looking for jobs would give up. The number of Americans continuing to file for benefits remains quite high. But, there is a good chance that many of the "currently unemployed" will soon become "not part of the labor force" because they've abandoned the job hunt altogether.

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