Employment Situation Explanatory Note

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Explanatory Note


   This news release presents statistics from two major surveys, the Current
Population Survey (household survey) and the Current Employment Statistics
survey (establishment survey).  The household survey provides the
information on the labor force, employment, and unemployment that appears
in the A tables, marked HOUSEHOLD DATA.  It is a sample survey of about
60,000 households conducted by the U.S. Census Bureau for the Bureau of
Labor Statistics (BLS).
 
   The establishment survey provides the information on the employment,
hours, and earnings of workers on nonfarm payrolls that appears in the 
B tables, marked ESTABLISHMENT DATA.  This information is collected from
payroll records by BLS in cooperation with state agencies.  The sample 
includes about 160,000 businesses and government agencies covering ap-
proximately 400,000 individual worksites.  The active sample includes 
about one-third of all nonfarm payroll workers.  The sample is drawn 
from a sampling frame of unemployment insurance tax accounts.

   For both surveys, the data for a given month  relate to a particular week
or pay period.  In the household survey, the reference week is generally
the calendar week that contains the 12th day of the month.  In the
establishment survey, the reference  period is the pay period including the
12th, which may or may not correspond directly to the calendar week.

Coverage, definitions, and differences between surveys
 
   Household survey.  The sample is selected to reflect the entire
civilian noninstitutional population.  Based on responses to a series of
questions on work and job search activities, each person 16 years and over
in a sample household is classified as employed, unemployed, or not in the
labor force.
   
   People are classified as employed if they did any work at all as paid
employees during the reference week; worked in their own business,
profession, or on their own farm; or worked without pay at least 15 hours
in a family business or farm.  People are also counted as employed if they
were temporarily absent from their jobs because of illness, bad weather,
vacation, labor-management disputes, or personal reasons.
 
   People are classified as unemployed if they meet all of the following
criteria:  They had no employment during the  reference week; they were
available for work at that time; and they made specific efforts to find
employment sometime during the 4-week period ending with the reference
week.  Persons laid off from a job and expecting recall need not be
looking for work to be counted as unemployed.  The unemployment data
derived from the household survey in no way depend upon the eligibility
for or receipt of unemployment insurance benefits.
 
   The civilian labor force is the sum of employed and unemployed
persons.  Those not classified as employed or unemployed are not in the
labor force.  The unemployment rate is the number unemployed as a percent
of the  labor force.  The labor force participation rate is the labor force
as a percent of the population, and the employment-population ratio is the
employed as a percent of the population.
                                  
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   Establishment survey.  The sample establishments are drawn from private
nonfarm businesses such as factories, offices, and stores, as well as
federal, state, and local government entities.  Employees on nonfarm
payrolls are those who received pay for any part of the reference pay
period, including persons on paid leave.  Persons are counted in each job
they hold.  Hours and earnings data are for private businesses and relate
only to production workers in the goods-producing sector and nonsupervisory
workers in the service-providing sector.  Industries are classified on the
basis of their principal activity in accordance with the 2002 version of the
North American Industry Classification System.

   Differences in employment estimates.  The numerous conceptual and
methodological differences between the household and establishment surveys
result in important distinctions in the employment estimates derived from
the surveys.  Among these are:
 
   --The household survey includes agricultural workers, the self-employed,
unpaid family workers, and private household workers among the employed.
These groups are excluded from the establishment survey.

   --The household survey includes people on unpaid leave among the
employed.  The establishment survey does not.
 
   --The household survey is limited to  workers 16 years of age and older.
The establishment survey is not limited by age.
 
   --The  household survey has no duplication of individuals, because in-
dividuals  are counted only once, even if they hold more than one job. In
the establishment survey, employees working at more than one job and thus
appearing on more than one payroll would be counted separately for each
appearance.
 
Seasonal adjustment
 
   Over the course of a year, the size of the nation's labor force and the
levels of employment and unemployment undergo sharp fluctuations due to
such seasonal events as changes in weather, reduced or expanded production,
harvests, major holidays, and the opening and closing of schools.  The
effect of such seasonal variation can be very large; seasonal fluctua-
tions may account for as much as 95 percent of the month-to-month changes
in unemployment.
 
   Because these seasonal events follow a more or less regular pattern each
year, their influence on statistical trends can be eliminated by adjusting
the statistics from month to month.  These adjustments make nonseasonal
developments, such as declines in economic activity or increases in the
participation of women in the labor force, easier to spot.  For example,
the large number of youth entering the labor force each June is likely to
obscure any other changes that have taken place relative to May, making it
difficult to determine if the level of economic activity has risen or
declined.  However, because the effect of students finishing school in
previous years is known, the statistics for the current year can be
adjusted to allow for a comparable change.  Insofar as the seasonal
adjustment is made correctly, the adjusted figure provides a more useful
tool with which to analyze changes in economic activity.
 
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   Most seasonally adjusted series are independently adjusted in both the 
household and establishment surveys.  However, the adjusted series for many 
major estimates, such as total payroll employment, employment in most super-
sectors, total employment, and unemployment are computed by aggregating in-
dependently adjusted component series.  For example, total unemployment is 
derived by summing the adjusted series for four major age-sex components; 
this differs from the unemployment estimate that would be obtained by di-
rectly adjusting the total or by combining the duration, reasons, or more 
detailed age categories.

   For both the household and establishment surveys, a concurrent seasonal
adjustment methodology is used in which new seasonal factors are calculated 
each month, using all relevant data, up to and including the data for the 
current month.  In the household survey, new seasonal factors are used to
adjust only the current month's data.  In the establishment survey, however, 
new seasonal factors are used each month to adjust the three most recent 
monthly estimates.  In both surveys, revisions to historical data are made 
once a year.

Reliability of the estimates
 
   Statistics based on the household and establishment surveys are subject
to both sampling and nonsampling error.  When a sample rather than the
entire population is surveyed, there is a chance that the sample estimates
may differ from the "true" population values they represent.  The exact
difference, or sampling error, varies depending on the particular sample
selected, and this variability is measured by the standard error of the
estimate.  There is about a 90-percent chance, or level of confidence, that
an estimate based on a sample will differ by no more than 1.6 standard
errors from the "true" population value because of sampling error.  BLS
analyses are generally conducted at the 90-percent level of confidence.
 
   For example, the confidence interval for the monthly change in total
employment from the household survey is on the order of plus or minus
350,000.  Suppose the estimate of total employment increases by 100,000
from one month to the next.  The 90-percent confidence interval on the
monthly change would range from -250,000 to 450,000 (100,000 +/- 350,000).
These figures do not mean that the sample results are off by these
magnitudes, but rather that there is about a 90-percent chance that the
"true" over-the-month change lies within this interval.  Since this range
includes values of less than zero, we could not say with confidence that
employment had, in fact, increased.  If, however, the reported employment
rise was half a million, then all of the values within the 90-percent
confidence interval would be greater than zero.  In this case, it is likely
(at least a 90-percent chance) that an employment rise had, in fact, oc-
curred.  At an unemployment rate of around 5.5 percent, the 90-percent con-
fidence interval for the monthly change in unemployment is about +/- 320,000, 
and for the monthly change in the unemployment rate it is about +/- .22 
percentage point.
 
   In general, estimates involving many individuals or establishments have
lower standard errors (relative to the size of the estimate) than estimates
which are based on a small number of observations.  The precision of
estimates is also improved when the data are cumulated over time such as
for quarterly and annual averages.  The seasonal adjustment process can
also improve the stability of the monthly estimates.
 
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   The household and establishment surveys are also affected by nonsampling
error.  Nonsampling errors can occur for many reasons, including the
failure to sample a segment of the population, inability to obtain
information for all respondents in the sample, inability or unwillingness
of respondents to provide correct information on a timely basis, mistakes
made by respondents, and errors made in the collection or processing of the
data.
 
   For example, in the establishment survey, estimates for the most recent 
2 months are based on incomplete returns; for this reason, these estimates
are labeled preliminary in the tables.  It is only after two successive
revisions to a monthly estimate, when nearly all sample reports have been
received, that the estimate is considered final.
   
   Another major source of nonsampling error in the establishment survey is
the inability to capture, on a timely basis, employment generated by new
firms.  To correct for this systematic underestimation of employment growth, 
an estimation procedure with two components is used to account for business
births.  The first component uses business deaths to impute employment for
business births.  This is incorporated into the sample-based link relative
estimate procedure by simply not reflecting sample units going out of busi-
ness, but imputing to them the same trend as the other firms in the sample.  
The second component is an ARIMA time series model designed to estimate the 
residual net birth/death employment not accounted for by the imputation.  
The historical time series used to create and test the ARIMA model was de-
rived from the unemployment insurance universe micro-level database, and 
reflects the actual residual net of births and deaths over the past five 
years.
 
   The sample-based estimates from the establishment survey are adjusted
once a year (on a lagged basis) to universe counts of payroll employment
obtained from administrative records of the unemployment insurance program.
The difference between the March sample-based employment estimates and the
March universe counts is known as a benchmark revision, and serves as a
rough proxy for total survey error.  The new benchmarks also incorporate
changes in the classification of industries.  Over the past decade, the
benchmark revision for total nonfarm employment has averaged 0.3 percent,
ranging from zero to 0.7 percent.

Additional statistics and other information
 
   More comprehensive statistics are contained in Employment and Earnings,
published each month by BLS.  It is available for $27.00 per issue or
$53.00 per year from the U.S. Government Printing Office, Washington, DC
20402.  All orders must be prepaid by sending a check or money order
payable to the Superintendent of Documents, or by charging to Mastercard 
or Visa.
 
   Employment and Earnings also provides measures of sampling error for
the household and establishment survey data published in this release.  
For unemployment and other labor force categories, these measures appear 
in tables 1-B through 1-D of its "Explanatory Notes."  For the establish-
ment survey data, the sampling error measures and the actual size of re-
visions due to benchmark adjustments appear in tables 2-B through 2-F of 
Employment and Earnings.

   Information in this release will be made available to sensory impaired
individuals upon request.  Voice phone:  202-691-5200; TDD message referral
phone:  1-800-877-8339.