With a bit of fortuitous timing for the Obama administration, the U.S. unemployment rate dropped by four-tenths of one percent in September of this year, falling to 7.8% — the lowest rate since January, 2009. The brightening of the employment picture was credited to a government survey which showed that despite a relatively modest 114,000 jobs created in September, 873,000 more people were employed. The disparity in figures was attributed in part to a likely greater degree of job creation in previous months than previously indicated.
The decrease in the unemployment rate was the largest by percentage since a similar .4% drop in January, 2011.
The dramatic decline in the official unemployment rate bolsters the re-election prospects of President Obama just days after his soporific performance in the first debate against Republican challenger Mitt Romney. Conspiracy theories notwithstanding, the strong dose of good news for both Obama, and the U.S. economy as a whole, begets the following questions: how is the official unemployment rate determined and what are the significant factors involved?
Official Unemployment Rate Assumptions
In assembling its sample sizes, the Bureau of Labor Statistics performs monthly surveys of 60,000 households and 141,000 businesses and government agencies, covering approximately 486,000 establishments. Known as the U-3 population, the household survey consists of the “civilian noninstitutional population age 16 and over,” with the payroll survey including “nonfarm wage and salary jobs.”
Key to the calculation is that the statistics for underemployed people (those working below capacity) are not adjusted, and unemployed individuals not presently looking for work are not counted. Utilizing those measurements, peak employment reached nearly 147 million in December, 2007, before declining to a low of 138 million by August, 2009, nearly coinciding with the government’s official characterization of the recession lasting from December, 2007 through June, 2009.
Using the defined subsets, the calculation is straightforward: 16+ years old and looking for work divided by the total nonfarm labor pool, exclusive of the military. Under that measurement, unemployment has fallen from a peak of 10% in October, 2009 to the present rate. Approximately three million jobs have been created over the past three years.
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