Aimee Cernik, a member of the TALX Unemployment Product Management team, is our guest blogger again today with some insight into how the insured unemployment rate is calculated. 

Last week I discussed what is involved with computing the national unemployment rate (NUR), an essential published monthly rate that helps determine the overall health of our economy.  Why is the NUR so important in projecting the health of the economy? Because a low rate of unemployment shows signs of economic prosperity, as well as the potential for inflation, and conversely a high rate of unemployment reveals signs of a recession or a depressed economy. 

Almost of equal importance is another unemployment number used as an economic health gauge is the insured unemployment rate (IUR), or the volume and length in which unemployment claims are filed.

What is insured unemployment? The unemployment insurance program was created to provide temporary financial assistance to those who became unemployed through no fault of their own (as determined by individual State law). This system was designed to hold significant funds during upswings in the economy, and to ultimately pay out in the downswings, and it is typically funded through a tax on employers.  It is important to note that each State has their own separate unemployment insurance programs, and each program may vary slightly, but all are designed within the Federal law guidelines.  

What does IUR mean to you? The IUR is often used as an indicator of labor market conditions across the Nation and within each State.  This rate is solely collected and calculated from the number of unemployment claims filed, across all states’ unemployment insurance programs, and is posted weekly by the Employment and Training Administration. 

There are two rate classifications for the IUR, initial claims and continued claims.  Those that file for unemployment for the very first time are counted as “initial”, which is treated as a notice that a person is starting a period of unemployment.  Since filing for unemployment is a weekly to biweekly process, those that continue to qualify and receive the benefits after the initial week are counted towards the insured unemployment figures as “continued”.

So why two rates?  The initial claims rate gives a snapshot of the emerging employment market.  A rise in the initial claim rate may signal a weakened economy, while the continued claims rate may expose how enduring the current state of the economy may last, as well as an overall lack of available employment.

Why is filed unemployment claims data not included in the national unemployment rate? Both the NUR and the IUR are important sources that help economists’ trend the economy as a whole and within States; however, the IUR exclusively focuses on filed unemployment claims, which results in the exclusion of several key groups to consider in the total unemployment rate such as:  self-employed workers, unpaid family workers, certain not-for-profit organizations, workers that have exhausted their unemployment benefits, and individuals that simply do not file for unemployment benefits.  Because of these limitations, data on IUR cannot be used towards total unemployment in the United States.  Although the IUR is not included in the NUR, it still lends itself quite readily in trending the state of the economy.

To learn more about the insured unemployment rate, please visit the Employment and Training Administration website at http://workforcesecurity.doleta.gov/unemploy/claims.asp.

Aimee Cernik