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Chapter 4.
Measurement of Unemployment in States and Local Areas
Unemployment estimates for States and local areas are key indicators of local economic
conditions. These estimates, which are produced by State employment security agencies, are
used by State and local governments for planning and budgetary purposes and as
determinants of the need for local employment and training services and programs. Local
area unemployment estimates are also used to determine the eligibility of an area for
benefits in various Federal assistance programs.
Under the Federal-State cooperative program, the Bureau of Labor Statistics develops
the concepts, definitions, and technical procedures which are used by State agencies for
the preparation of labor force and unemployment estimates. Currently, monthly estimates of
employment and unemployment are prepared in State agencies for some 6,700 geographic
areas, which include all States, labor market areas (LMA's), counties, cities with a
population of 25,000 or more, and all cities and towns in New England regardless of
population.
Background
Unemployment estimates have been developed for sub-national areas for
approximately 50 years. The program began during World War II under the War Manpower
Commission to identify areas where labor market imbalance had been created as a result of
an inadequate labor supply, material 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.
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 for all States. This
led, during the late 1950s, to the formulation of the "Handbook method," a
series of computational steps designed to produce local employment and unemployment
estimates. This method relied heavily on data derived from the unemployment insurance (UI)
system. (See section on "Estimates for sub-State
areas—the Handbook method.")
In 1972, the Bureau of Labor Statistics assumed technical responsibility for the
program and began to refine the concepts and methods to be used by States to estimate
labor force, employment, and unemployment. In 1973, a new system for developing labor
force estimates was introduced which combined the Handbook method with the concepts,
definitions, and estimation controls from the Current Population Survey (CPS), the Bureau
of the Census survey sponsored by BLS and used to measure the labor force status of
individuals. The CPS estimates are based on data from a sample of households. The sample
is designed to provide reliable monthly unemployment estimates for the Nation and reliable
annual average estimates for the 50 States and the District of Columbia. (See chapter 1.)
Since 1976, the CPS has been increased in size several times and the design has been
modified to improve the quality of State labor force estimates. As a criterion for using
the monthly CPS data directly for official publication of labor force estimates, BLS
established a maximum expected coefficient of variation (CV) of 10 percent for
unemployment assuming an unemployment rate of 6 percent. (The coefficient of variation of
an estimate can be defined as the standard error of the estimate divided by the estimate
itself.) Based on this criterion, monthly CPS data were used, beginning in 1978, for
official statewide labor force estimates for 10 large States—California, Florida,
Illinois, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and
Texas—and for 2 sub-State areas—the Los Angeles-Long Beach metropolitan area and
New York City.
In 1985, a State-based design for the CPS was fully implemented to incorporate 1980
census information and to provide for improved reliability for each of the 50 States and
the District of Columbia. North Carolina was added as another "direct use"
State, and the CV requirement for monthly unemployment was reduced to 8 percent for these
11 large States. For each of the other 39 (non-direct use) States and the District of
Columbia, the reliability requirement was established at an 8-percent CV for annual
average unemployment, assuming a 6-percent unemployment rate.
Until 1989, official monthly estimates for the non-direct use States were based on the
Handbook method adjusted to CPS controls using a 6-month moving-average ratio adjustment.
Since 1989, estimates for these 39 States and the District of Columbia have been based on
time series models developed by BLS and tested by State employment security agencies,
using standardized procedures. Estimates for sub-State areas are based on the Handbook
method, adjusted to State control totals.
In 1996, the number of households in the CPS sample was reduced in response to budget
constraints, resulting in the elimination of direct use of the CPS for monthly estimation
in the 11 large States, the Los Angeles-Long Beach metropolitan area, and New York City.
Beginning with January 1996, labor force estimates for these sub-national areas have been
based on the time series modeling approach used since 1989 in the other 39 States and the
District of Columbia.
The State UI system provides a count of the insured unemployed, an integral input to
State and area estimation. Over the years, major improvements have been made to the UI
database. The UI database project, conducted in 1976-78, standardized all UI claims data
used in State and area labor force estimates, so that these data would be more consistent
with the conceptual underpinnings of unemployment used in the CPS. The result of this
project was the regular development, from computer files, of data on UI claimants
certifying to unemployment during the week including the 12th day of the month (the CPS
reference week). These data are based on the claimants' State/county/city of residence and
exclude those who had earnings from employment in the certification week.
Next: Estimation
Methodology
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Bureau of Labor Statistics
