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Improved September Jobs Numbers Fuel Discussion of How Unemployment Rate is Calculated, What it Means

When the announcement came last week that 114,000 workers were added to the nation’s employee payrolls  in September, just about everyone seemed to be caught off guard by the surprisingly good news. Officially, the U.S. unemployment rate fell below 8 percent for the first time in almost four years, going from 8.1 percent the month before down to 7.8 percent. Exactly three years ago, in October 2009, the official unemployment rate topped out at a whopping 10 percent.

Apart from some quickly dismissed allegations that the Department of Labor Statistics may have cooked the books to generate favorable news on behalf of the Administration, the monthly jobs figures raised some valid questions about how the numbers are to be interpreted.

For instance, there are actually two ways that the DLS calculates the unemployment rate. One is to survey businesses’ payroll processors, the other is to survey households directly about the employment situation of those living there. The catch is that the household survey always shows lower unemployment than the payroll survey. Not only that, the gap between the two varies, and it’s not insignificant – the difference between the surveys can be as much as high as one million jobs.

In September, the payroll survey showed modest job growth, while the household survey showed a much larger jump in employment. There are many theories as to why these two surveys differ and how they should be proportionally weighted in calculating the “true” unemployment rate, but suffice it to say that these figures will always be an estimate and at best will show general trends.

Another fact that calls unemployment rates into question is the federal government’s definition of “unemployed.” Only jobless people who are actively seeking work are classified as unemployed. In the past few years, some of the small monthly dips that have occurred in the unemployment rate have been attributed to discouraged workers dropping out of the job market, rather than actual job creation. That seems not to have been the reason behind September’s improvement, but some observers say that if these discouraged workers werecounted, the unemployment rate would have been well above  10 percent for the last few years, and would still be around 11 percent now.

Padgett Payroll Services is an experienced payroll management company that has served small business in North America through good economic times and bad.  We’re proud to be partners with small businesses across the United States and Canada – the kind of businesses that form the backbone of our continent’s economy.  Contact us via our website, or call a Padgett Payroll Services representative at (706) 548-1040.

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