Assessing the Accuracy of Local Area Unemployment Rates
Fahndrich, Christine R.
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Accurate unemployment statistics are crucial to the equitable disbursement of federal and state funding and to the soundness of much public and private planning. Currently, the cornerstone of the system for developing state and sub-state employment and unemployment figures is a federally mandated procedure known formally as The Manual for Developing Local Area Unemployment Statistics, or simply, the Handbook. For many years this calculation process has been subject to considerable criticism due to its reliance on secondary sources-such as administrative records-and its imprecise use of national relationships for the standard estimation of labor force data for all regions in the country. Through critically analyzing the methodology undertaken in determining local area unemployment rates, this report confirms the presence of errors in the computation methods. Specifically, the present regression techniques utilized by state employment security agencies cannot reflect interstate variations or monthly changes in the economic structure of local labor markets. Hence, with the predictive capabilities of the Handbook dramatically impaired, there occurs systematic over-estimations and under-approximations in the number of unemployed, and accordingly the unemployment rate, at the county level. To verify this fact, a regression model, contrasting 1980 and 1990 Michigan Employment Security Commission and Census labor force information was constructed. This equation revealed not only an exaggeration in the unemployment totals, but also an increase in enumeration errors from 1980 to 1990. Recognizing the fallacies associated with the present system, as confirmed by the above findings, and the substantial importance of the unemployment rate at the local level, suggestions for possible improvements are then given. Without the implementation of some form of revision, inefficient allocation of government funding and misguided policy directives will continue to persist.