MERIC NEWS LETTER

Understanding Missouri's 
Unemployment Rate

Data for Missouri's unemployment rate are produced by MERIC's Local Area Unemployment Statistics (LAUS) program. The LAUS program is administered by MERIC for the state of Missouri in cooperation with the U.S. Department of Labor, Bureau of Labor Statistics. Monthly and annual data can be found on the MERIC website


How State Estimated are Calculated

Missouri's employment and unemployment data estimates are produced using a "signal-plus-noise" approach. The model of the signal is a time series model of the true labor force which consists of three components: A variable coefficient regression, a flexible trend, and a flexible seasonal component. The regression techniques are based on historical and current relationships found within each state's economy as reflected in the different sources of data that are available for each state--the CPS, the Current Employment Statistics (CES) survey, and the UI system. While all the state models have important components in common, they differ somewhat from one another to better reflect individual state labor force characteristics.

Seasonal adjustment occurs within the model structure through the removal of the seasonal component. The models also produce reliability measures on the adjusted and unadjusted series, and on over-the-month change.

The Redesign bivariate models incorporate a major change in the approach to benchmarking and the benchmarking process. Rather than continue with an annual average State benchmark applied retrospectively that reintroduces sampling error to the historical monthly estimates, the Redesign approach uses a reliable real-time monthly national benchmark for controlling current State model estimates of employment and unemployment. In this process, benchmarking is part of the monthly State model estimation process.


Definitions of Data Components

Labor Force 
The labor force includes all persons classified as employed or unemployed according to concepts used and data collected in the monthly Current Population Survey conducted by the U.S. Census Bureau for the Bureau of Labor Statistics. Persons under 16 years of age, all inmates of institutions and persons on active duty in the Armed Forces are excluded from the civilian labor force. Those who have no job and are not looking for one are not in the labor force. Common reasons for not being in the labor force include going to school, retirement, family responsibilities, and physical or mental disabilities.

Employment 
Number of persons 16 years and over in the civilian non-institutional population who, during the Current Population Survey reference week: 

· Did any work for pay or profit: 

· Did at least 15 hours of unpaid work in a family-operated enterprise; 

· Were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute, or various personal reasons, whether or not they were paid for the time off. 

Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, housework) or volunteer work for religious, charitable, and other organizations.

Unemployment 
Number of persons 16 years and over who: 

· Did not have a job at all during the survey week, made specific active efforts to find a job during the prior 4 weeks, and were available for work; 

· Were not working and were waiting to be called back to a job from which they had been laid off.

Unemployment Rate
The unemployment rate represents the number unemployed as a percent of the labor force. 


History of Employment/Unemployment Estimation Methods

Unemployment estimates have been developed for subnational areas for about 60 years. The program began during World War II under the War Manpower Commission to identify areas where labor market imbalance was created as a result of an inadequate labor supply, materials shortages, and transportation difficulties. After the war, emphasis was placed on identifying areas of labor surplus, and the program of classifying areas in accordance with severity of unemployment was established.

Since then, there has been a long history of changes and improvements in the way unemployment rates are calculated. In 1950, the Department of Labor's Bureau of Employment Security (now Employment and Training Administration) published a handbook, Techniques for Estimating Unemployment, so that comparable estimates of the unemployment rate could be produced among the states. This led to the formulation of the "Handbook" method during the late 1950s, a series of computational steps designed to produce local employment and unemployment estimates without the expense of a large survey. This method relied heavily on data derived from the unemployment insurance (UI) system.

In 1973, a new system for developing labor force estimates at the state and substate level was introduced. This system combined the Handbook method with concepts, definitions, and estimation controls from the Current Population Survey (CPS), the Bureau of Census survey sponsored by BLS.

In 1985, a state-based design for the CPS was fully implemented to incorporate the 1980 census information and to provide for improved reliability for each of the 50 states and the District of Columbia.

Seasonal adjustment of statewide estimates was introduced in 1992.

At the beginning of 1996, due to budgetary reductions, the CPS sample size was decreased from 56,000 to 50,000 households, affecting the estimation method used in several larger states. Since then, the estimates for all states have been produced by the same time series models.

The latest modifications, implemented in 2005, include a new, more sophisticated model used in estimating state employment and unemployment each month and "real-time benchmarking" that increases the reliability of monthly estimates and over-the-year comparisons while significantly reducing the amount of annual revisions.

"How State Estimates are Calculated" and the "History of Estimation Methods" portions of this article were taken from U.S. Bureau of Labor Statistics, LAUS Estimation Methodology. http://www.bls.gov/lau/laumthd.htm

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