52 Monthly Labor Review August 2006

Effect on Employment and Unemployment Effect on Employment and Unemployment

After BLS and its State partners made critical modifications

to estimation procedures, local area data show

that Hurricane Katrina depressed employment levels sharply

in Louisiana and Mississippi; the initial effect

on unemployment, though also strong, was temporary

The effect of Hurricane Katrina

on employment and unemployment

Sharon P. Brown,

Sandra L. Mason,

and

Richard B. Tiller

Sharon P. Brown is

Chief, Division of

Local Area

Unemployment

Statistics; Sandra L.

Mason is a supervisory

economist in the

Division of Research

and Methods; and

Richard B. Tiller is a

mathematical

statistician in the

Division of CPS and

LAUS, all in the Office

of Employment and

Unemployment

Statistics, Bureau of

Labor Statistics. Email:

brown.sharon@bls.gov

The Local Area Unemployment Statistics

(LAUS) estimates for the month of September 2005 were among the first subnational data to reflect the impact of Hurricane

Katrina, which struck the gulf coast on August 29

with catastrophic effects in parts of Louisiana,

Mississippi, and Alabama. Beginning in September

and continuing to the present, the Bureau of Labor

Statistics (BLS, the Bureau) and its State partners

made a number of critical modifications to standard

estimating procedures to better reflect the employment and unemployment situation in the affected

areas. The Bureau analyzed the subnational Current

Population Survey (CPS) estimates and verified that

they did not reflect the economic upheaval created

by the hurricane and its aftermath. The Bureau also

evaluated unemployment insurance statistics and

State and area nonfarm employment estimates. To

address estimating issues at the State level, models

were modified to allow the State-supplied inputs of

nonfarm employment and unemployment insurance claimants to have far greater weight in the

calculations of estimates. In addition, breaking with

longstanding practice, the Bureau introduced special intervention variables into the models in real

time in order to immediately reflect the effect of

Katrina. Area estimation procedures also were

modified. The identification and implementation

of revised estimation approaches at the State and

area levels and of model interventions necessary

each month in Louisiana and Mississippi required

innovation and risk taking, as standard methods

were adapted in an attempt to fully reflect the

impact of Katrina. This article describes the process of determining appropriate actions to take in

the areas affected by the hurricane, the implementation of those actions to date, and the

key labor market trends as measured by the LAUS

program.

Overview of the LAUS program

The LAUS program produces monthly estimates

of the labor force, employment, unemployment,

and the unemployment rate for more than 7,200

unique geographic areas through a Federal-State

cooperative effort that dates back to 1973, when

the Bureau was given responsibility for the program.1

 Labor force estimates are prepared for all

Census Regions and Divisions, States, metropolitan areas, metropolitan divisions, “micropolitan”2

 areas, small labor market areas, counties

and county equivalents, cities of 25,000 or more,

and all cities and towns in New England.

LAUS estimates are one of the most timely and

important subnational economic indicators. Data

on Census Regions and Divisions, States, and

selected major areas are issued about 2 weeks after

the release of the national employment situation

estimates. Data on the remaining metropolitan areas

are issued 2 weeks after that, and data on all other

areas are released about 1 week later. All LAUS data

for the month are issued by approximately the next

release of the national labor force estimates.

LAUS estimates are key indicators of local

economic conditions. In addition to being important

for labor market analysis, LAUS data are used by a

variety of Federal programs to allocate more than

$45 billion in funds to States and areas, as well as to
Monthly Labor Review August 2006 53

determine eligibility for assistance for a number of government

programs.

The Bureau is responsible for the concepts, definitions,

technical procedures, validation, and publication of the estimates

that State agencies prepare under BLS auspices. The estimates

are based on statistical models of varying degrees of complexity,

with the strongest models for Census Divisions, States, and

selected metropolitan areas. The concepts and definitions

underlying LAUS estimation come from the CPS, the household

survey that is the official measure of the labor force for the Nation.

Monthly State LAUS estimates are based on models that are

controlled in real time to sum to CPS national monthly labor force

estimates through modeled estimates at the Census Division

level. Estimates for eight large areas and the rest of their States

(including New Orleans through August 2005) are also model

based, while LAUS estimates for the remainder of substate labor

market areas are based on a less sophisticated method that uses

a building-block approach. Below the labor market area level,

monthly employment and unemployment estimates are prepared

with the use of disaggregation techniques.

Geographic scope of Katrina

Unlike other hurricanes, Katrina covered an unusually large area

of the gulf coast, with an especially severe impact on Louisiana

and Mississippi. Other affected States—Alabama, Florida, and

Texas—did not require special treatment in the development of

LAUS estimates.

For LAUS estimation purposes, Louisiana is part of the West

South Central Census Division, along with Texas, Oklahoma,

and Arkansas. Mississippi is part of the East South Central

Division, together with Alabama, Tennessee, and Kentucky.

The Bureau publishes data on the following metropolitan and

micropolitan areas in the two most heavily affected States:

• Louisiana:

Metropolitan areas: Baton Rouge, HoumaBayou Cane-Thibodaux, Lafayette, Lake

Charles, and New Orleans-Metairie-Kenner

Micropolitan areas: Abbeville, Bogalusa,

Crowley, Hammond, Jennings, Morgan City,

New Iberia, and Pierre Part

• Mississippi:

Metropolitan areas: Gulfport-Biloxi, Hattiesburg,

Jackson, and Pascagoula

Micropolitan areas: Brookhaven, Columbus,

Laurel, McComb, Meridian, Natchez (MS-LA, MS

county only), Picayune, Starkville, Vicksburg, and

Yazoo City

The impact of Katrina on local labor markets in the two States

was quite dramatic in the affected Louisiana parishes and

Mississippi counties in August and September 2005 and May

2006. (See maps 1–6.)

LAUS estimation and Hurricane Katrina

State and area estimates of employment, unemployment, and the

unemployment rate are not produced directly from a sample

survey; rather, they are developed through models that use

information on the labor force from a number of statistical

programs. Inputs to LAUS estimation include data from the CPS,

the Current Employment Statistics (CES) program, and the State

Unemployment Insurance (UI) program, all of which were affected

in various ways by Hurricane Katrina. The effect of Katrina on

each of these series is examined in this article, as are the changes

in methodology required to adequately reflect the impact of the

disaster on the labor forces of the affected States.

The CPS survey and LAUS estimation. As previously

mentioned, the concepts and definitions underlying LAUS data come

from the CPS, the household survey that yields the official measures

of the labor force for the Nation. Monthly CPS estimates are not

used directly in the LAUS program, because State samples are

too small to yield reliable estimates. For LAUS estimation of States

and eight substate areas (including the New Orleans metropolitan

area through August 2005), the monthly CPS estimates are inputs

to models. State models are controlled in real time to sum to CPSbased Census Division models that are based solely on current

and historical CPS estimates and to sum to national monthly labor

force estimates from the CPS. This real-time benchmarking of

State estimates to the national estimates of employment and

unemployment reduces the number of end-of-year revisions to

the series and ensures that national shocks to the economy are

reflected in States as they occur. However, the local nature of the

shock from Hurricane Katrina, and the decisions made regarding

CPS data collection and estimation from September forward

affected the relevant State and area CPS estimates.3

The most significant data limitation had to do with the nature

of the CPS, in which households are contacted by interviewers

each month during the week that includes the 19th day of the

month. Katrina made landfall the last few days of August. In

addition, Hurricane Rita came ashore near the Texas-Louisiana

border on September 24, during CPS data collection week. Thus,

the estimates made from the September sample were the first to

reflect the impact of the hurricanes. The magnitude of the

destruction caused by Katrina and, to a lesser extent, by Rita

severely restricted the ability of CPS interviewers to contact

persons in the hurricane-affected States. Every attempt was made

to contact households, except for those in Orleans and Jefferson

parishes, which were under mandatory evacuation orders. In

accordance with standard procedures, the survey was not

conducted in temporary shelters, hotels, or motels—structures

in which some respondents were staying during the reference
54 Monthly Labor Review August 2006

Effect on Employment and Unemployment

Map 1. Unemployment rates in Louisiana, by parish, August 2005, not seasonally adjusted

SOURCE: Bureau of Labor Statistics, Local Area Unemployment Statistics.

Overall unemployment rates (in percent):

 Louisiana................. 6.0

 United States ........... 4.9

10.0 or above

8.0–9.9

7.0–7.9

6.0–6.9

5.0–5.9

4.9 or below

Parish unemployment rates (in percent)
Monthly Labor Review August 2006 55

Map 2. Unemployment rates in Louisiana, by parish, September 2005, not seasonally adjusted

SOURCE: Bureau of Labor Statistics, Local Area Unemployment Statistics.

Overall unemployment rates (in percent):

 Louisiana ................. 11.4

 United States ............. 4.8

10.0 or above

8.0–9.9

7.0–7.9

6.0–6.9

5.0–5.9

4.9 or below

Parish unemployment rates (in percent)

NOTE: Dotted area indicates data not available.
56 Monthly Labor Review August 2006

Effect on Employment and Unemployment

Map 3. Unemployment rates in Mississippi, by county, August 2005, not seasonally adjusted

SOURCE: Bureau of Labor Statistics, Local Area Unemployment Statistics.

Overall unemployment rates (in percent):

 Mississippi ............... 7.0

 United States ........... 4.9

10.0 or above

8.0–9.9

7.0–7.9

6.0–6.9

5.0–5.9

4.9 or below

County unemployment rates (in percent)
Monthly Labor Review August 2006 57

Map 4. Unemployment rates in Mississippi, by county, September 2005, not seasonally adjusted

SOURCE: Bureau of Labor Statistics, Local Area Unemployment Statistics.

Overall unemployment rates (in percent):

 Mississippi ............... 9.1

 United States ........... 4.8

10.0 or above

8.0–9.9

7.0–7.9

6.0–6.9

5.0–5.9

4.9 or below

County unemployment rates (in percent)
58 Monthly Labor Review August 2006

Effect on Employment and Unemployment

Map 5. Unemployment rates in Louisiana, by parish, April 2006, not seasonally adjusted

SOURCE: Bureau of Labor Statistics, Local Area Unemployment Statistics.

Overall unemployment rates (in percent):

 Louisiana................. 4.1

 United States ........... 4.5

10.0 or above

8.0–9.9

7.0–7.9

6.0–6.9

5.0–5.9

4.9 or below

Parish unemployment rates (in percent)

NOTE: Dotted area indicates data not available.
Monthly Labor Review August 2006 59

Map 6. Unemployment rates in Mississippi, by county, April 2006, not seasonally adjusted

SOURCE: Bureau of Labor Statistics, Local Area Unemployment Statistics.

Overall unemployment rates (in percent):

 Mississippi ............... 7.3

 United States ........... 4.5

10.0 or above

8.0–9.9

7.0–7.9

6.0–6.9

5.0–5.9

4.9 or below

County unemployment rates (in percent)
60 Monthly Labor Review August 2006

Effect on Employment and Unemployment

week. Despite the effort, there was an unusually large drop in the

number of households interviewed from August to September in

Louisiana and Mississippi, as shown in the following tabulation:

 Number of households

interviewed in— Percent

State August September change

Louisiana ..................... 580 381 –34

Mississippi ................. 570 504 –12

This inability to maintain the sample introduces not only variability due to a reduced sample size, but also bias in the remaining

sample, and it is the latter effect that is of most concern: the labor

force behavior of persons displaced from areas affected by the

hurricanes was unlikely to be well represented by the sample in

the rest of the State.

In October, Census Bureau interviewers attempted to collect

data in all areas affected by the hurricane. As in the previous

month, nonresponse was higher than normal in both Louisiana

and Mississippi, because housing units in the sample were

destroyed or because people had not yet returned to their homes.

Again, in accordance with standard procedures, the survey was

not conducted in temporary shelters, hotels, or motels.

Many residents of Louisiana and Mississippi relocated or

were evacuated in the days and weeks following Katrina. Official

estimates of the population shifts associated with the evacuations and relocations were not available in the weeks immediately following the storm. Therefore, in September, the Census

Bureau was not able to incorporate the results of population

shifts due to the disaster. Explicit adjustment of the LAUS State

estimates aimed at reducing population estimates and, in turn,

labor force estimates in the directly affected States and at

increasing estimates in States such as Texas, Arkansas, and

Georgia, to which many evacuees relocated, also was not possible at that time.

In an effort to develop official statistics on the movement of

population, the Census Bureau obtained the National Change of

Address File (NCOA) from the U.S. Postal Service in late

September. This file includes the current (at the time) contact

addresses for individuals and families who lived within one of

the 21 areas designated by the Federal Emergency Management

Administration as affected by the hurricane and who notified

the Postal Service of their change of address after the onset of

Katrina.

The Census Bureau felt that the NCOA file was a good official

source of information for population shifts, even though it likely

included only a portion of residents who had changed their State

of address. From October onward, using the NCOA tabulations,

the Census Bureau was able to provide modified population

data that accounted for some of the movement of individuals as

a result of the hurricane. The LAUS program incorporated these

modified population data into the model estimates for all States.

The population control for Louisiana was adjusted downward

by 6.3 percent, and that for Mississippi was adjusted downward

by 0.7 percent. The Texas control was adjusted upward by 0.64

percent, while the controls for Georgia and Alabama each rose

0.31 percent. (There was little or no impact on the remaining

States.) It is important to note that, whereas these adjustments

had a proportionate impact on levels of employment and unemployment, they had no effect on the unemployment rate.

Although the Census Bureau undertook extraordinary efforts

to collect data in the months following Katrina, the usual monthly

CPS estimates for the Katrina-affected Census Divisions and

States were not as affected by the disaster as were other important

economic series—in particular, the nonfarm wage and salary

estimate and the count of unemployment insurance (UI) claimants. The sample in the affected States captured few Katrina

victims. Standard estimation procedures were followed for those

contacted, thus biasing the results.

Nonfarm wage and salary employment inputs to LAUS. The

nonagricultural wage and salary estimates from the CES program

are used as basic employment inputs for several LAUS estimating

procedures—most notably, as variables for the State employment

models. CES data also are used in adjusting place of employment

to place of residence and as current inputs to labor market area

employment, where available. Although the CES input typically

is not a major contributor to the LAUS State model employment

series, CES metropolitan area estimates are important in those

areas.

For the September 2005 CES estimates, the Bureau and its State

partners made several adjustments to the usual estimation

procedures. These adjustments, which were designed to help

the estimates reflect the employment situation more accurately

for September, can be summarized as follows:

• Imputation procedures for survey nonrespondents

were modified in the most heavily affected disaster

areas in order to recognize the likelihood of temporary

or permanent business deaths.

• Sample weights were adjusted as needed for sample

units in the more broadly defined disaster area to

compensate for lower-than-average survey response

rates.

• The business net birth-death model used for adjusting

sample-based employment estimates was left unchanged for national estimates, aside from its use in

reporting an employment of zero from affected

businesses, but was modified for States and metropolitan areas in recognition that the statistical relationship between business births and deaths may have

changed in the disaster areas.4

The net result of the changes made to CES estimating procedures

resulted in lower employment estimates for Louisiana than were
Monthly Labor Review August 2006 61

seen in the CPS employment estimates, but surprisingly, for

Mississippi, the impact on CES employment estimates was

relatively small and of much shorter duration than it was on CPS

employment estimates.

UI statistics and LAUS estimation. The Federal-State UI

program provides unemployment benefits to eligible workers

who are unemployed through no fault of their own and who meet

other eligibility requirements of State law. UI payments are intended to provide temporary financial assistance to unemployed

workers. Each State administers a separate program within

guidelines established by Federal law. The State law under which

UI claims are established determines a worker’s eligibility for insurance, benefit amounts, and the duration of benefits.

Statistics from the UI systems are the only current measure of

substate unemployment available at the county and city levels

and thus are important inputs into subnational labor force

estimation. As an administrative statistic, the UI data reflect not

only the economic fluctuations related to layoffs, but also

noneconomic elements of the State’s UI law and of the State’s

administrative practices. Each State has its own set of laws

defining both the individual’s eligibility for UI, based on

requirements on earnings and length of work, and his or her

qualification for benefits, based on the nature of the job loss and

continuing efforts to actively seek work. The State laws have

coalesced to a significant extent, but still, an insured unemployed

worker in one State may not qualify for benefits in another State,

and differing levels of earnings may be “forgiven.” States also

have the ability to affect the administration of the UI system.

Historically, this aspect was reflected in such decisions as how

often the individual had to report to the UI office and which local

office was visited. Over the years, the impact of administrative

factors such as frequency of reporting and place of filing has

diminished as more and more workers file claims over the Internet

or by telephone.

Because of these issues, rather than resorting to the raw

administrative UI data, the Bureau requires that States both

produce special tabulations of UI data that bring the statistics

closer to CPS concepts and use these data in LAUS estimation.

Each month, unduplicated counts of individuals certifying their

unemployment for the week that includes the 12th of the month

(the CPS reference week) are developed by keying on the Social

Security number of the claimants and the ending date of the

week of certification. Claimants are identified by place of

residence (State, county, and city) rather than place of filing. In

accordance with the CPS employment classification, claimants

with any earnings due to employment in the week of certification

are treated as employed and are removed from UI inputs to the

LAUS program.

At the State level, the UI claims count typically is not a major

contributor to the LAUS unemployment estimate, for the simple

reason that, for the Nation as a whole, the ratio of UI claims to

total unemployment is about 34 percent. At the substate level,

however, UI data are important to the unemployment estimates,

because the data are current and pertain to the place of residence

of the individual and because no other direct estimates of

unemployment are available. For labor market areas, the LAUS

program uses UI data on the basis of the State and county or

parish of residence, while county, parish, and city claims counts

are used to disaggregate labor market areas to smaller geographic

units.

When Katrina hit the gulf coast, States processed claims for

UI filed by affected individuals in accordance with procedures

established in cooperation with the Federal Department of Labor.

In the 5-week period following Katrina, Louisiana processed

224,200 new unemployment insurance claims under the State UI

program, compared with 193,000 initial claims for all of 2004. (The

State also provided disaster unemployment benefits to Katrinaaffected individuals who were not otherwise eligible for regular

UI benefits. Such individuals are not considered as being in the

labor market and thus are not included in LAUS estimates.)

To meet the challenge that the increased, and rising, claims

load put on State staff, Louisiana partnered with several States,

chiefly Texas, California, Montana, and Georgia, to help input

claims from Louisiana evacuees. The State also set up a call

center to take claims from customers, collected claims at job

centers throughout the State, and visited shelters to assist with

claims filed by evacuees. Louisiana also encouraged evacuees

to file claims over the Internet and issued instructions for

individuals to access the Louisiana Web site. The State indicated

that benefits would be paid by direct deposit or by debit cards

through automated teller machines and not with paper checks

sent through the mail.

Identifying claimants’ residences is important for both UI and

LAUS purposes and is part of the UI benefit application process.

UI staffs need to know where claimants reside in order not only

to pay benefits, but also to deliver appropriate employment and

training services. LAUS estimates relate to total resident unemployment, so counting claimants where they reside is a key

feature of estimation. Louisiana evacuees filing claims in other

States identified themselves as Louisiana residents if they

continued to consider themselves as living in Louisiana, but

temporarily domiciled elsewhere, and were treated as such by

the UI system and in LAUS estimation. Evacuees who considered

themselves residents of the State in which they relocated and

who indicated as much on their UI benefit application were

counted as unemployed in that State.

When Katrina hit in September, Louisiana waived a number of

key rules that normally apply for seeking and receiving UI

benefits. Because many individuals did not have complete documentation to prove where and how long they worked, the State

waived eligibility requirements for individuals who submitted

initial claims for benefits. Owing to communications issues after

the hurricane, the State waived the Federal requirement that
62 Monthly Labor Review August 2006

Effect on Employment and Unemployment

In August 2005, there were 31,797 continued claimants for

unemployment insurance (UI) in Louisiana. (The claims of

these persons are specifically extracted and processed for

LAUS requirements: they relate to individuals who have

claimed unemployment in the CPS reference week—the week

including August 12—and have no earnings associated with

employment.) Twenty-eight percent, or 9,011, of the total

claimants were residents of the New Orleans metropolitan

area.

Just over half of the statewide claimants for the month

were black, and half were women. Sixteen-to-nineteen-yearold claimants were less than 1 percent of the State total,

while 20-to-44-year-old claimants were three-fifths of the

total, and claimants 45 and older made up nearly two-fifths.

The demographic picture of claimants in New Orleans in

August was similar to the statewide distribution. Slightly

less than three-fifths were black (57 percent) and just over

one-half were female (53 percent). Less than one percent

were 16 to 19 years old, three-fifths were 20 to 44 years, and

two-fifths were 45 years and older.

After Katrina hit the gulf coast at the end of August,

claimant counts rose dramatically. September claims more

than tripled in Louisiana, to 147,126, while New Orleans

claims increased to 58,275, more than 5 times their August

level.

Women and young claimants posted the most dramatic

increases in September. Statewide, the number of women

claimants quadrupled, and the women’s share of total claimants

rose to 56 percent. In New Orleans, the number of women

claimants rose fivefold, and their share of the total claimant pool

increased to 58 percent. Young claimants (16-to-19-year-olds)

in Louisiana totaled 2,639 in September, up from 170 in August.

The ethnic composition of claimants shifted in September,

becoming less black. Blacks made up 42 percent of statewide

claimants in September, compared with 51 percent in August.

In New Orleans, the change was more dramatic: the proportion of black claimants fell to 29 percent in September, from

57 percent in August.

Claims levels continued to rise in Louisiana in October

(by 8 percent) and November (by 2 percent). The September

pattern of black and women claimants persisted through

November.

Claims levels fell dramatically in December as the State

reinstituted requirements for claimants to report their

unemployment weekly and to verify that they were actively

searching for work. Statewide claims fell 57 percent, to

70,103 from the 162,112 posted in November, while New

Orleans levels dropped to 25,027 from 61,538.

The number of black claimants decreased by almost half

in December, and the black proportion of total claimants

was again 50 percent, the August proportion. Women claimants fell by slightly more than half, but women were threefifths of total claimants, still above their August share.

Claimant levels in each of the three age categories dropped

substantially, but the proportions of claimants by age remained stable: 1 percent for 16-to-19-year-olds, nearly threefifths for 20-to-44-year-olds, and two-fifths for those aged

45 years and older.

April 2006 claimant levels were substantially below those

posted in December and also were below August levels,

both statewide and in New Orleans. The demographic

profile in April returned to the pre-Katrina August picture,

with blacks and women each slightly more than half of the

total claimants.

NOTE: Tabulations of demographic characteristics of

UI claimants are from the BLS Program to Measure Insured

Unemployment Statistics (PROMIS), designed to facilitate

State production of appropriate UI inputs for the LAUS and

Mass Layoff Statistics programs. State claimant files are

formatted according to established BLS specifications for

each program. The claimant data discussed in this box relate

to unduplicated counts of individuals who certified that

they were unemployed in the week including the 12th of

each month (the CPS reference week) and who have no

earnings from employment in that week. This article represents the first time that the Bureau is using the PROMIS

system to issue tabulations of demographic characteristics

of UI claimants. Special thanks are extended to Jamie Cross

Kennedy of the BLS Dallas-Kansas City regional office,

who provided the PROMIS databases to national office

staff, and to Brad Jensen, economist in the Office of Employment and Unemployment Statistics, who developed the

tabulations.

Who are the Louisiana unemployment insurance claimants?

A look at the demographic composition of Louisiana and New Orleans

unemployment insurance claimants before and after Katrina
Monthly Labor Review August 2006 63

claimants contact the State Department of Labor weekly to report

that they looked for work and that they were available for work.

The State felt that it was important to get benefits to displaced

workers as quickly as possible. As a result of the waiver, claims

counts rose dramatically in September, October, and November.

On November 27, Louisiana reimposed the requirement that

claimants call weekly to certify that they continue to look for

work and that they are available for work. Thereupon, the

December claims count for Louisiana fell dramatically, but not to

pre-Katrina levels, and it has remained at that slightly elevated

level to date.

The administrative actions of temporarily waiving and

subsequently restoring contact and reporting provisions by

Louisiana had a major impact on not only the UI claims data,

but also the decisions taken to adjust the State’s LAUS

unemployment estimate. Although the number of claims also

rose in Mississippi, there did not appear to be any clear administrative impact on the series.

The box on page 33 presents a profile of the Louisiana UI

claimants.

Adapting State labor force estimates to reflect Hurricane

Katrina. To produce monthly employment and unemployment

estimates for all 50 States and the District of Columbia, timeseries models are applied to CPS estimates. Time-series models

provide a way of reducing variability in the direct survey estimates related to small sample sizes. Each State has two separate

models, one for unemployment and the other for employment.

Each model uses an auxiliary series along with the CPS in a

bivariate framework to estimate the underlying trend. For

unemployment, CPS unemployment and UI claims are used, while

for employment, CPS and CES employment are used. In this

bivariate framework, the model of the CPS trend depends not

only on the past history of the CPS series, but also on correlations

of the CPS with the past history of the auxiliary series.

The importance of the non-CPS variable in explaining the trend

in the CPS depends on the strength of the correlation between

the two series, which, in the case of Louisiana and Mississippi,

the two States most affected by Katrina, is relatively low for both

employment and unemployment. As a result, the historical trend

and seasonal pattern in the CPS are given by far the most weight

in the estimation of total unemployment and employment. This

strong reliance on CPS data raised special problems in estimation

because, as mentioned earlier, the CPS sample-based estimate

did not reflect the impact of Katrina on the labor force.

Although the use of models produces estimators with much

smaller variances than those of the direct survey estimates,

models can break down. The most dramatic type of breakdown

occurs when an unexpected external shock that occurs in real

time results in a large shift in the level of the series. Because this

shift is unrelated to the historical past, the model will be slow to

adapt to the new level. Even when a large shift is detected, prior

information about its cause is rarely available, and it is difficult to

determine the appropriate action to take until additional data

become available.

In order to provide protection against nationwide shocks to

the economy, the LAUS State model estimates are constrained

through real-time benchmarking, so that the sum of the monthly

State model estimates equals the monthly national CPS values,

which are far more reliable than any State estimate. Thus, if there

is a nationwide shock that affects most States, the benchmarked

estimators will reflect this change much faster than the modeldependent estimators.

Benchmarking actually takes place in two stages. First, States

are grouped into nine Census Divisions, and the aggregate CPS

Division employment and unemployment series are modeled and

then constrained to add up to the monthly national CPS estimates.

These adjusted Division model estimates serve as benchmarks

for constraining the State estimates within each of the Divisions

to sum to their respective adjusted Division estimates. In this

way, all of the State model estimates sum to the national CPS

estimates and therefore will immediately reflect national disturbances.

Katrina challenged the LAUS State model-based methodology

in a number of respects. First, the CPS inputs—the core of the

estimation—did not reflect the labor market impact of Katrina.

Second, real-time benchmarking did not afford protection to the

LAUS estimates for Louisiana and Mississippi, because Katrina

was a local shock and not a national one. Third, with the CPS not

reflecting the effect of Katrina, reliance was shifted to the auxiliary

variables to provide information on the appropriate interventions.

Last, decisions had to be made each month as to the nature of

the actions to be taken.

Adapting to local shocks. While real-time benchmarking builds

protection against national shocks into the LAUS estimation

system, no such protection is afforded for shocks confined to a

small number of States with little, if any, impact on the national

economy. Information about local shocks is confined to each of

those States’ sample data, for which sampling variability is very

high. Therefore, adapting to local shocks is much more difficult

than adapting to national shocks. Special intervention is required

to modify the models so that they can adapt immediately to the

shock. Hurricane Katrina is an example of a local shock affecting

only a few States.

Shocks can affect a time series in many different ways,

changing its level, either abruptly or after some delay, changing

the growth rate of the series, or leading to other, more complicated

response patterns. Specifying a model to address a shock assumes that a lot is known about the shock, such as when the

disturbance first occurred, how long it will last, and how the

magnitude of the effect varies over time. When this information

is known, the model used is referred to as an “intervention”

model.

A common form of intervention is referred to as a level shift—

an abrupt shift in the level of a series at consecutive points in
64 Monthly Labor Review August 2006

Effect on Employment and Unemployment

time, with the shift assumed to be fixed over time. If the shift is

not permanent, it is referred to as a temporary level shift. If the

shift is for one period only and is followed by an immediate

return to the normal level of the series, the shift is referred to as

an additive outlier. The important issues having to do with the

intervention relate to its duration and the pattern of recovery of

the labor force to the initial damage from the hurricane.

Adjusting a model to respond immediately to an intervention

effect is equivalent to augmenting the model with a 0/1 regression

variable (dummy), where 1’s denote the times at which the

intervention is present and 0’s the times at which it is absent. The

regression coefficient for this variable is a measure of the effect

of the intervention.

In practice, interventions are rare in LAUS models. Outliers may

occur that require adjustment because they do not conform to

the behavior expected by the model, but, unlike the situation

with interventions, there is no prior information about their

occurrence and there may be no identifiable events to explain

them. Heavy reliance is placed on statistical testing to identify

outliers, given that visual inspection is often unreliable. Ignoring

these observations is not feasible if they seriously distort

diagnostic tests and weaken the model’s fit. The most effective

treatment of an outlier is when there is a large number of months

of data before and after the occurrence of the outlier; such data

aid in determining the appropriate intervention. Although

monitoring for outliers is ongoing, attempting to correct for

outliers in real time is not possible, and, in practice, at least 1 year

of data following the occurrence of the outlier is required for

adjustment.

Modeling the reaction to Katrina at the State and Division

levels. A “wait and see” approach to modeling the effect of

Katrina was not an option. Because the hurricane’s destructive

power had such an immediately large impact on the labor force in

the affected States, timely corrective action for the Louisiana and

Mississippi models was required. Katrina appeared to be a classic

intervention, because it was an identifiable exogenous disturbance with a known date of occurrence. However, there were

some unusual limitations in data, and the path of the recovery in

the labor force was not known.

As discussed earlier in relation to the CPS, the estimates for

the Nation and for Louisiana and Mississippi did not appear to

reflect the effect of Katrina between August and September. In

fact, Louisiana’s unemployment estimate from the CPS dropped

by a nonsignificant 4,000 in September. Mississippi’s employment

fell by 40,000, which also was not statistically significant.

In contrast, the CES and UI statistics clearly showed hurricanerelated effects. (See table 1.) Louisiana UI claims, as specially

processed for LAUS, reached a high of 147,000 in September, 5

times the August level of 32,000. The previous high for the series,

which begins in 1976, was 82,000, in March 1983. The Louisiana

CES payroll employment estimates fell by an unprecedented 11

percent. The previous largest monthly decline was 3 percent, in

January 1977. Mississippi’s UI claims also showed a dramatic

September increase, to 66,000, 3.5 times the August level. The

previous high of 45,555 occurred in February 1983. Surprisingly,

CES payroll employment in Mississippi showed only a modest

decline—a relative decrease of 1.5 percent.

To address the problem of estimating an effect that is largely

unobserved in the CPS sample with a model that puts relatively

little weight on the auxiliary variables—which, for the most part,

were strongly affected by Katrina—those variables and their

models were used to estimate the effect of Katrina. This was

done by adding intervention variables to the models for the

auxiliary variables, imputing the effects of those variables to the

CPS sample data, and then producing estimates of total employment and unemployment from the CPS models fitted to the

corrected sample data. Such an approach effectively puts much

more weight on the auxiliary variables than is normally allowed

by the structure of the bivariate model.

Two critical assumptions were required: that the UI and CES

estimates fully reflect the effect of Katrina and that the CPS

undercoverage bias is proportional to that effect in the auxiliary

variables. Thus, on a monthly basis, as the CPS and CES estimates

and the UI data were provided to the Bureau, the following steps

were taken to adjust the State labor force estimates developed

by the LAUS model: (1) the Katrina effect was estimated in the UI

and CES models; (2) the respective effect was then imputed to the

CPS proportionally at the State level and to the Division; (3) next,

the CPS models were estimated with the appropriate intervention;

and (4) finally, the State model estimates were benchmarked to

the adjusted Division controls and to the adjusted national levels.

Step 1 was a learning process that required respecification of

some of the auxiliary models as new data became available and

previous interventions had to be reestimated. For example, the

Louisiana UI model was initially specified as a fixed level shift in

September, and this specification was carried forward in October

Effects of Katrina on UI claims and CES payroll

employment, September 2005–June 2006

September 2005 .. 117,682 –225,600 49,630 –20,320

October 2005 ....... 130,639 –225,600 35,406 –10,963

November 2005 .... 129,839 –225,600 32,384 0

December 2005 .... 36,493 –225,600 16,730 0

January 2006 ....... 23,315 –206,604 9,172 0

February 2006 ...... 0 –200,152 5,484 0

March 2006 .......... 0 –201,867 0 0

April 2006 ............. 0 –217,095 0 0

May 2006 ............. 0 –217,095 0 0

June 2006 ............ 0 –221,494 0 0

UI

Claims

Change in

CES

employment

Change in

CES

employment

Table 1.

UI

claims

Month and year

Louisiana Mississippi
Monthly Labor Review August 2006 65

on the assumption that claims would remain at that level. Instead,

claims increased more in October, necessitating a respecification

of the September intervention as an additive outlier, with October

as a fixed level shift. The situation became further complicated

by the significant drop in UI claims in December as the administrative easing of filing requirements was lifted.

In addition, the LAUS State operating system was not designed to accommodate real-time interventions, so special fixes

had to be made to the core software each month to reflect the

peculiarities of the Katrina effect. The timing each month is very

tight. Regular processing occurs in about a 4-day period. Evaluating State inputs, determining the appropriate model intervention,

and then respecifying the State models was accommodated in

this tight timeframe.

Charts 1 through 4 show employment and unemployment

estimates for Louisiana and Mississippi from January 2006

through June 2006. For the unemployment estimates, the UI claims

series is provided, as are the CPS series before and after adjustment and the modeled estimates benchmarked to the Division.

These charts clearly display the nature of the two States’ adjustment to Katrina over the period.

Adjustments to CPS unemployment and employment to reflect

hurricane effects in Louisiana and Mississippi also were added

to their respective Census Division totals and to the national

totals, in order to have consistent controls for benchmarking.

The national CPS estimates released in official BLS publications

do not include these special adjustments, because they had a

marginal effect on the Nation as a whole.

The modifications for Louisiana were incorporated into the

West South Central Division, and interventions were made.

These effects were constrained to equal those in the Louisiana

models, in order to prevent adverse spillover effects in the other

States that also are benchmarked to the Division estimates. The

Mississippi modifications were reflected in the estimates for the

East South Central Division, but interventions were not needed

in these models.

Table 2 shows the estimated Katrina effect on the labor force

for Louisiana and Mississippi. For example, in September the

unemployment rate for Louisiana was increased by 6.4 percentage points and employment was reduced by 232,000. The

resultant estimates for Louisiana and Mississippi from August

2005 to June 2006 are given in table 3, which reflects the Katrina

effect presented in table 2.

With the Katrina effect incorporated into the model, the

Louisiana unemployment rate doubled from about 6 percent to

12 percent in September. In December, it fell back to 6 percent,

although the number of unemployed for the month remained

slightly above the prehurricane level. (See table 3.) By January

2006, the Katrina effect had disappeared.

The estimated loss in Louisiana employment was about

232,000 from September onward, 11 percent below the number

of persons employed in August. The failure of the employed to

recover to previous levels differs sharply from the recovery in

the number of unemployed. This difference, a reflection of the

contrasting behavior of payroll employment and UI claims,

reinforces the impression that the drop in claims, as well as the

unusual increase in September, was in part reflecting changes in

administrative rules to help provide relief to hurricane victims.

In Mississippi, the initial response to Katrina was a rise in

unemployment by about 30,000 and in the unemployment rate by

almost 3 percentage points. The normal September decline in the

rate was reversed with a net increase from 7.4 percent to 9.4

percent. The Katrina effect resulted in a persistent drop in

employment of about 58,000 persons lasting since September

2005. This behavior contrasts with the quick recovery in the CES

payroll employment.

In sum, the initial effect on unemployment was very strong,

but temporary, in both States. Employment, however, continues

to be depressed. This is so in Mississippi even though CES

employment returned to prehurricane levels 2 months after

Katrina hit the State.

Adapting substate labor force estimates to Hurricane

Katrina. A complex methodology is used to develop labor

force estimates for labor market areas and their components.

This methodology also had to be adjusted to reflect the impact

of Katrina. After evaluation of the September data, it was

determined that the adjustments were confined to selected

areas in Louisiana.

A number of improvements to the program, both in methodology and procedures, were introduced into LAUS estimation

beginning with January 2005. Two such improvements were

extending model-based estimation to six metropolitan areas,

including the New Orleans metropolitan area, and improving

the method of adjusting place of employment to place of residence. The modeling method in use for the New Orleans metropolitan area up to August 2005 is similar to the Division models

in that the models take only the CPS values into consideration

in developing labor force estimates.

Because of the devastating damage done to New Orleans by

Katrina, two parishes—Jefferson and Orleans—were under

mandatory evacuation orders, and CPS data collection was not

possible in those parishes in September. In response, modelbased estimation for New Orleans ceased with August estimation, and the area reverted to the estimation methodology

used for most of the labor market areas in the Nation and for New

Orleans prior to January 2005. The latter methodology utilizes a

building-block approach to estimation and incorporates data from

the CES and UI programs. This estimation methodology continues to be used to develop labor force estimates for the New

Orleans metropolitan area.

In the LAUS methodology, estimates of nonagricultural wage

and salary workers from either the CES survey or the Quarterly

Census of Employment and Wages (QCEW) are adjusted to
66 Monthly Labor Review August 2006

Effect on Employment and Unemployment

Chart 1. Lousiana unemployment, January 2005–June 2006

Thousands

300

CPS

CPS

(adjusted)

UI claims

Model

(benchmark)

300

225 225

150

0

75

0

150

75

January

2005

January

2006

May

2005

September

2005

May

2006

Thousands

Chart 2. Lousiana employment, January 2005–June 2006

Millions

2.10

CPS

CPS (adjusted)

CES

Model

(benchmark)

2.00

1.90

Millions

January

2005

January

2006

May

2005

September

2005

May

2006

2.05

1.95

1.80

1.85

1.70

1.75

2.10

2.00

1.90

2.05

1.95

1.80

1.85

1.70

1.75
Monthly Labor Review August 2006 67

Chart 3. Mississippi unemployment estimates, January 2005–June 2006

Thousands

150

CPS

CPS 

(adjusted)

UI claims

Model

(benchmark)

75

Thousands

January

2005

January

2006

May

2005

September

2005

May

2006

0

150

75

0

Chart 4. Mississippi employment estimates, January 2005–June 2006

Millions

1,350

CPS

CPS 

(adjusted)

CES

Model

(benchmark)

Millions

January

2005

January

2006

May

2005

September

2005

May

2006

1,300

1,250

1,200

1,100

1,150

1,350

1,300

1,250

1,200

1,100

1,150
68 Monthly Labor Review August 2006

Effect on Employment and Unemployment

reflect the household concept of the CPS. The method employed to adjust the payroll estimates, referred to as the dynamic residency adjustment, uses commuting patterns, both

into and out of metropolitan areas, to adjust the nonfarm estimates, on the basis of information from the 2000 census. New

Orleans was a model-based area, so no additional adjustment

for residency was required for the official estimate. However,

abandoning model estimation for New Orleans required a

consideration of the appropriate method of residency adjustment procedure, especially because the commuting patterns

described in the 2000 census were no longer appropriate.

Therefore, rather than the dynamic approach (which reflects

commuting that no longer exists), a single adjustment ratio

that does not rely on commuting patterns was put into use. In

consultation with the States of Louisiana, Alabama, and

Mississippi, the LAUS program reviewed the adjustment ratios

for the other labor market areas in the region affected by

Effects of Katrina on the labor force, September 2005–June 2006

September 2005 .................. 6.36 122,896 –232,027 –109,131 2.86 36,635 –58,137 –21,502

October 2005 ....................... 6.20 120,161 –232,485 –112,325 2.16 26,542 –58,183 –31,641

November 2005 ................... 6.32 122,747 –231,997 –109,250 2.07 25,247 –58,040 –32,793

December 2005 ................... .69 1,250 –232,363 –231,113 1.23 13,143 –58,042 –44,899

January 2006 ....................... 0 0 –232,253 –232,253 .86 7,124 –57,986 –50,863

February 2006 ..................... 0 0 –232,340 –232,340 .65 4,279 –57,970 –53,691

March 2006 .......................... 0 0 –232,239 –232,239 0 0 –58,053 –58,053

April 2006 ............................ 0 0 –232,147 –232,147 0 0 –58,000 –58,000

May 2006 ............................. 0 0 –232,106 –232,106 0 0 –58,002 –58,002

June 2006 ............................ 0 0 –232,055 –232,055 0 0 –58,021 –58,021

Change in

unemployment

rate

Louisiana

Table 2.

Change in

labor

force

Change in

employment

Month and year Change in

unemployment

Change in

unemployment

Change in

unemployment

rate

Change in

employment

Change in

labor

force

Mississippi

Effects of Katrina on total unemployment and employment, September 2005–June 2006

August 2005 ........................ 5.8 123,996 2,010,170 2,134,166 7.4 100,611 1,252,027 1,352,638

September 2005 .................. 11.8 239,469 1,785,458 2,024,927 9.4 125,856 1,206,092 1,331,948

October 2005....................... 11.3 230,284 1,800,566 2,030,850 9.1 120,961 1,212,044 1,333,005

November 2005 ................... 11.5 233,786 1,798,263 2,032,049 8.9 118,020 1,212,267 1,330,287

December 2005 ................... 5.8 109,857 1,787,137 1,896,994 8.3 109,289 1,214,347 1,323,636

January 2006....................... 5.5 102,723 1,759,230 1,861,953 9.1 120,051 1,195,409 1,315,460

February 2006 ..................... 4.2 77,592 1,781,372 1,858,964 8.6 113,600 1,208,849 1,322,449

March 2006 .......................... 4.4 81,880 1,771,828 1,853,708 8.0 104,698 1,208,433 1,313,131

April 2006 ............................ 4.1 76,683 1,785,879 1,862,562 7.3 94,931 1,211,088 1,306,019

May 2006 ............................. 4.8 90,481 1,784,516 1,874,997 7.4 97,443 1,223,777 1,321,220

June 2006............................ 5.8 110,923 1,802,977 1,913,900 8.0 106,443 1,227,600 1,334,043

Unemployment

rate

Louisiana

Table 3.

Labor

force Employment

Month and year

Unemployment Unemployment Unemployment

rate Employment Labor

force

Mississippi

Katrina to determine whether further modifications were

warranted. Even though it was likely that additional commuting patterns were interrupted by the storm, data to support

making a change to the residency adjustment mechanism did

not exist.

Also as part of regular data development, monthly labor force

estimates are prepared for individual parishes, including the

seven parishes of the New Orleans metropolitan area. Beginning

with September 2005, the Bureau ceased developing monthly

estimates for each parish in New Orleans. Parish estimates are

developed from the metropolitan area estimate by means of

disaggregation techniques that employ (1) current UI claims data

by parish of residence, (2) 2000 census data on population by

age and on employment, and (3) intercensal population estimates.

Although Louisiana has UI claims data by residence for the

parishes that New Orleans comprises, the Census Bureau has

not developed official statistics on the population of New Or-
Monthly Labor Review August 2006 69

leans, and 2000 census data and relationships clearly have

changed.

Communicating with States and the public

The unprecedented nature of Hurricane Katrina and its impact

on program operation and estimation resulted in heightened

communication with Louisiana and Mississippi staff and with

BLS regional staff working on the LAUS program. Obtaining

and understanding the State-developed UI and CES inputs,

and discussing the interventions planned for the model and

their impact on State and Division estimates, required monthly

conference calls with State and regional staff. Often, calls

were conducted with State and regional staff in all of the

States of the East South Central and West South Central

Divisions.

During this time, the Bureau made every effort to accommodate

States’ requests for assistance in understanding the intervention process and its impact on their estimates. State efforts to provide input data to the Bureau ahead of schedule

allowed BLS staff to develop and implement the model interventions with no significant impact on preannounced release

schedules.

The Bureau took pains to keep users informed of the actions

taken to ensure that the impact of Katrina was reflected in the

labor force statistics for all States. From the outset, information

about modifications being made to BLS programs, background

information for the affected region, and frequently asked questions were placed on the BLS Web site.

LAUS PROGRAM ESTIMATION IS COMPLEX AND INTERDEPENDENT: each month, State labor force estimates are

developed and controlled to Division estimates, which in turn

are controlled to national estimates of employment and

unemployment. The complexity of this approach and its

real-time benchmarking to monthly national labor force estimates was stretched in responding to the effects of Hurricane

Katrina.

Unusual circumstances limited the effect of Katrina on the

CPS. Acknowledging the fact that Katrina effects were not

evident in the State CPS estimates, but appeared in the State

CES and UI series, the LAUS program shifted the basic relationship of the State models to place more weight than normal

on these supporting variables. While that did give a depiction

of the impact of Katrina on employment and unemployment

that followed those other series, in Louisiana the UI claims

series was greatly affected by administrative decisions made

by the State regarding the payment of unemployment insurance. On the employment side, some employers continued to

issue checks to employees who might have been receiving UI

benefits. Despite the unusual circumstances, the UI and CES

series were the best indicators of the effect of Katrina at the

time. Major modifications to models for Louisiana and Mississippi were necessary to reflect the effect of the hurricane on

each State’s labor force. The modifications were carried up to

the Division models.

Identifying outliers in the data in real time and taking the

appropriate action is extremely difficult. Is the outlier a 1-

month phenomenon, or does it represent the start of a level

shift in the series? Will the series remain at the new level for

some time, or will it return to the old level after a certain

duration? Because of the nature of Hurricane Katrina, the

longstanding LAUS policy of not intervening in model estimation during the course of the current year was ignored, and

intervention occurred in real time. The form of the outlier was

determined initially by 1 month’s data, and the form changed

as more information was obtained with the passage of ensuing

months. The entire course of events resulted in significant

revisions to previous estimates.

Notes

ACKNOWLEDGMENTS: The authors thank Lisa Williamson for the

development of maps of Louisiana and Mississippi, and Jennifer Oh for

the preparation of the tables and charts, used in this article.

1 For a detailed discussion of the LAUS program, including its

methodology, visit the program on the Internet at http://www.

bls.gov/lau/home.htm. For a description of the modeling

methodology, see Richard Tiller, “Model-based labor force estimates

for sub-national areas with large survey errors” (Bureau of Labor

Statistics, March 2006), on the Internet at http://www.bls.gov/ore/

pdf/st060010.pdf.

2 According to the website http://geography.about.com/cs/

largecities/a/metromicro.htm, a Micropolitan Statistical Area has

at least one urban cluster of at least 10,000, but less than 50,000,

population.

3

 For a complete discussion of the impact of Katrina on the CPS, see

Sharon P. Brown and Patrick Carey, “Conducting the Mass Layoff Statistics

program: response and findings,” this issue, pages 70–75.

4

 For a complete discussion of the impact of Katrina on the CES

program, see “Hurricane Katrina's effects on industry employment

and wages,” this issue, pages 22–39.