Understanding Labor Force Statistics

Labor force estimates, including unemployment rates, are among the most frequently requested types of labor market information, but few understand how they are produced and what they actually describe. This document responds to technical questions on labor force methodology asked by our customers. We have attempted to simplify the subject matter as much as possible while still including the detail necessary to adequately describe the definitions and methods behind national, statewide and sub-state labor force estimates.

The labor force refers to all civilian, non-institutionalized, working-age individuals (age 16+) who were employed or without employment but available and actively looking for work during the week including the 12th of each month (also called the reference week).

The employed include those workers who:

• worked at least one hour for pay or profit,
• were temporarily away from work due to reasons such as labor disputes, vacation, or illnesses, or worked at least 15 unpaid hours in a family business.

No distinction is made among those who work full-time or part-time, are self-employed or receive government assistance while working.

The unemployed include those who:

• lost their jobs involuntarily,
• quit their jobs,
• entered the labor market for the first time or re-entered the labor market
• have been laid off but are expected to be recalled.

The unemployment rate is the number unemployed expressed as a percent of the total civilian labor force (unemployment rate=unemployed/labor force X 100)

Those not counted as either employed or unemployed are considered to be not in the labor force. This category includes people who want a job and those who don't want a job. Examples of people who are not in the labor force but aren't interested in working include students, homemakers, and retirees. People who want a job but have stopped looking for work include those who are discouraged over their job opportunities or who face barriers to entering the labor market, such as inadequate transportation or child care assistance.

Labor force estimates, including unemployment rates, are among the most frequently requested types of labor market information, but few understand how they are produced and what they actually describe. This document responds to technical questions on labor force methodology asked by our customers. We have attempted to simplify the subject matter as much as possible while still including the detail necessary to adequately describe the definitions and methods behind national, statewide and sub-state labor force estimates.

National labor force estimates are developed through a monthly household survey, known as the Current Population Survey (CPS), conducted by the U.S. Bureau of the Census for the U.S. Bureau of Labor Statistics (BLS). Approximately 60,000households across the nation are surveyed each month and all working age (16+) residents are asked a series of questions to elicit specific information regarding their employment status during the reference week. Based on their responses, individuals are then placed into three categories:

1. employed,
2. unemployed, and
3. not in the labor force

Additional steps are taken to adjust for population, non-respondents and sampling error. For more information on the CPS, please visit http://www.bls.gov/cps.

Labor force estimates for all states, including Illinois, are developed under a Federal-State cooperative program known as Local Area Unemployment Statistics (LAUS). Statewide labor force estimates are not measured directly from the CPS (as is the case with national labor force estimates) because the household sample at the state level is too small. Instead, statewide employment and unemployment estimates are derived indirectly through BLS-designed time series models.

The statewide employment and unemployment models rely on historical relationships among monthly data from the state portions of the CPS, as well as, state total non-agricultural payroll employment and Unemployment Insurance (UI) claims reported for the reference week. The primary objective of the statewide models is to remove error from the monthly CPS and arrive at "true" labor force estimates. Components in the statewide employment and unemployment models are allowed to change gradually over time to account for long-term and seasonal differences between the CPS and state non-agricultural and UI claims data.

In addition, monthly statewide employment and unemployment estimates are controlled to national CPS employment and unemployment levels. These controls ensure that the sum-of-states equals the nation and that large changes in the national economy are reflected in statewide estimates.

Monthly statewide labor force estimates are also smoothed each month to reduce volatility from the CPS that had not already been removed by the statewide models. The smoothing procedure incorporates information from model estimates for the data month as well as the six prior months.

At the beginning of each year, monthly statewide labor force estimates developed in prior years are updated to reflect revised statewide non-agricultural payroll employment, UI claims, non-institutional population estimates and new sum-of-states employment and unemployment controls. Statewide labor force estimates also undergo additional smoothing at this time, capturing information from model estimates reported before and after the data month.

The LAUS program is also responsible for developing labor force estimates for sub-state regions, such as metropolitan areas, counties and cities. Employment and unemployment estimates at the sub-state level are also prepared indirectly, using the steps described below.

Six states, including Illinois, use BLS time series models to develop monthly labor force estimates for their largest metropolitan area and the remaining portion of the state, also known as the balance of state or balance of Illinois. The Chicago-Naperville-Joliet Metropolitan Division and the balance of Illinois area models are similar to the statewide labor force model described earlier. However, they rely solely on current and historical CPS data relationships and do not use monthly non-agricultural employment or UI claims inputs. Employment and unemployment estimates developed in the Chicago and balance of Illinois area models are controlled to Illinois employment and unemployment, ensuring that they sum to statewide levels. Also, like statewide labor force estimates, Chicago and balance of Illinois labor force estimates are smoothed each month to reduce monthly volatility from the CPS. At the beginning of each year, historical labor force estimates for Chicago and the balance of Illinois are updated to include new statewide controls and additional smoothing.

The Handbook method, otherwise known as the building-block method, relies on a variety of data inputs. Chief among them are total monthly non-agricultural employment estimates; monthly state, federal, and railroad board Unemployment Insurance (UI) claims; decennial Census employment and population data; and monthly seasonal factors supplied by the BLS. There are a total of 16 Handbook steps which produce preliminary estimates of employment and unemployment for 72 separate Labor Market Areas (LMAs) in Illinois, including parts of seven interstate areas.

A Labor Market Area is an economically integrated area within which individuals can reside and find employment within a reasonable distance or can readily change jobs without changing their place of residence. LMAs include both the metropolitan and micropolitan areas defined by the U.S. Office of Management and Budget and the small labor market areas defined by the Bureau of Labor Statistics. Also, an LMA can be a single or multi-county area depending on the commuting patterns of its residents. For a detailed description of current Illinois metropolitan and micropolitan areas and definitions, please visit New Standards and Geographic Definitions for Metropolitan Statistical Areas.

Total Handbook employment is divided between employment covered and not covered by Unemployment Insurance. Employment covered by UI (about 98 percent of jobs) is estimated by converting total non-agricultural employment jobs to the number of people employed using residency adjustment factors; these factors adjust for commuting, multiple job holding and unpaid leaves of absence. Labor disputants are included in employment totals before residency adjustments are made. Non-covered employment (including agricultural workers, the self-employed, unpaid family workers and private household workers) is estimated by extrapolating decennial census employment totals for the respective groups using current monthly seasonal factors.

Handbook unemployment is also divided between UI covered and non-UI covered persons. UI claims are used to estimate those unemployed who are currently receiving UI benefits as well as those who have exhausted UI benefits but are still unemployed. The unemployed who are not covered, such as entrants to the labor force, are estimated separately. Labor force entrant unemployed is disaggregated from BLS produced statewide entrant totals using annual LMA-to-State ratios of population for youth (ages 16-19) and adults (age 20 and older).

Additivity controls address limitations in Handbook employment and unemployment data, especially for employed who are not covered by UI and unemployed who are not collecting UI benefits. In Illinois, employment and unemployment for the 71 LMAs located outside the Chicago-Naperville-Joliet Metropolitan Division are adjusted proportionally to sum to employment and unemployment totals produced from the balance of Illinois area model discussed earlier. In most other states, LMA employment and unemployment are controlled directly to statewide employment, unemployment levels. But since we use area models in Illinois, this approach is not possible. Chicago-Naperville-Joliet labor force estimates are independently produced in an area model and not used to adjust LMA employment and unemployment. LMA employment and unemployment adjusted for additivity are also known as LAUS estimates. The sum of LAUS employment and unemployment estimates for the 71 LMAs in the balance of Illinois plus Chicago-Naperville-Joliet Metropolitan Division equals Illinois statewide employment and unemployment LAUS estimates.

LAUS employment and unemployment estimates for LMAs including multiple counties must be sub-divided or disaggregated into separate county totals. Employment among counties is disaggregated based on county-to-LMA employment-to-population ratios. The employment-to-population disaggregation ratios are prepared using county employment and population data from the most recent decennial census, as well as the most recent county population estimates from the U.S. Census Bureau.

LAUS unemployment at the sub-LMA level includes two categories: job losers and leavers (some whom have received UI benefits) and labor force entrants. Unemployment among the job losers and leavers category is disaggregated based on county-to-LMA ratios of total UI claims. The labor force entrant component of the unemployed is disaggregated based on annual county-to-LMA ratios of population for youth (ages 16-19) and adults (ages 20 and older). Total unemployment equals the sum of job losers/leavers and labor force entrant unemployed.

LAUS employment and unemployment estimates for cities in most states, including Illinois, are developed in the same manner as county-to-LMA disaggregation. However, city employment and unemployment estimates are disaggregated based on city-to-county employment, population and UI claims relationships.

At the beginning of each year, monthly Handbook employment estimates are updated to incorporate revised non-agricultural employment estimates and BLS seasonal factors for agricultural workers, the self-employed, unpaid family workers and private household workers. Handbook unemployed is updated with revised monthly UI claims inputs and age group population ratios for allocating statewide labor force entrant unemployed to LMAs. Also, LMA LAUS estimates are updated with new balance of Illinois employment and unemployment additivity controls.

Monthly LAUS employment for counties within LMAs are updated with new county-to-LMA employment-population ratios, based on the latest annual population estimates. LAUS unemployment for disaggregated counties may be revised due to updates to monthly UI claims and annual county-to-LMA age-group population ratios. City LAUS estimates are also subject to revision for the same reasons described above for disaggregated counties, except that changes are reflected in city-to-county relationships.

In Illinois, we publish monthly and annual LAUS estimates for the State, metropolitan areas, combined areas, micropolitan areas, all 102 counties and cities with at least 25,000 residents. These data are available on-line on the Local Area Unemployment Statistics (LAUS) page.

In addition to publishing monthly national labor force estimates from the CPS, the BLS also publishes monthly LAUS estimates for approximately 7, 200 geographic areas: census regions and divisions, all states, metropolitan areas, combined areas, counties and cities with a population of 25,000 or more, as well as all cities and towns in New England regardless of population. Labor force estimates published by the BLS are available on-line at http://stats.bls.gov/lau.

No. Anyone who is without a job but available and actively looking for work during the reference week (the week of the 12th) is counted as unemployed. Since the level of UI benefits recipiency among the unemployed in most parts of the U.S. (including Illinois) is below 50 percent, UI claims can be only one component for measuring state and sub-state unemployment. Other monthly data sources, including the state CPS, are used to measure the unemployed who are not receiving UI benefits.

The official unemployment totals and rates are not intended as a measure of economic hardship but instead provide some indication of labor supply and demand. Nonetheless, the issue of workers who are discouraged or marginally attached to the labor force is important. Alternative or unofficial measures of unemployment that do incorporate marginally attached workers are published monthly by BLS in its Employment Situation news releases: http://www.bls.gov/bls/newsrels.htm.

Labor force estimates for the nation, all 50 states, the District of Columbia, Puerto Rico and seven metropolitan areas are seasonally adjusted to take into account predictable, non-economic events that impact the level of employment and unemployment. Seasonal adjustments allow one to examine the underlying economic trends in the labor force. Examples of seasonal events include changes in government employment due to the beginning and ending of the school year and declines in Construction industry employment in January because of cold weather.

Not seasonally adjusted estimates are used by policy makers to assess the overall level of unemployment and make decisions on how to allocate funds for a wide range of government services. LAUS estimates for most metropolitan areas and all counties and cities are not seasonally adjusted, primarily because their monthly time series date back to just the year 2000. Also, employment and unemployment controls used to sum areas to balance of state or statewide levels can distort local seasonal patterns.

For further information, please contact the manager of the Illinois LAUS program, Rich Reinhold at:

Phone: (312) 793-5896
E-mail: Richard.Reinhold@illinois.gov