An attempt by the Department of Labor to "improve" its method of distributing federal job dollars to local governments has sparked a backfire of protest from organizations representing the nation's cities.

The department's Bureau of Labor Statistics (BLS) plans to change the method used by states to estimate unemployment rates for governmental jurisdictions within metropolitan areas, effective Jan. 1.

The change could result in a substantial shift in federal job money from the cities to the suburbs, or to other surrounding jurisdictions, according to the Washington-based United States Conference of mayors and National League of Cities.

In the past, the states were allowed to use 1970 census figures to show unemployment levels for various local jurisdictions. But many suburban and county officials complained, saying that method did not consider the growth in population, and the subsequent growth in unemployment, that has taken place in their areas in the last seven years.

Heeding those complaints, the BLS said it will no longer allow states to use only 1970 census figures to estimate local unemployment rates. Instead, the states must now base their fade [WORD ILLEGIBLE] funds requests partly on the proportion of individual unemployment insurance claims filed within each local jurisdiction.

In a joint letter sent yesterday to Labor Secretary Ray Marshall, the excutive directors of the two groups said they were "quite concerned about the new method of compiling unemployment data" and asked to meet with Marshall "preferably before Jan. 1 to discuss this most serious matter."

"According to the information we have received, this new method would cities' unemployment rates primarily on the proportion of claims filed within each city to the total number of claims filed within the [metropolitan] area in which the city lies.

"We are confident you realize that this change is potentially detrimental to cities in that minorities, most of whom reside in urban areas, do not for the most part, utilize the public employment and unemployment agcies," the letter said.

There was no official response from the Labor Department. However, economists within BLS said it would difficult to say exactly what effect the new unemployment computation formula would have on federal job dollars flowing to local governments.

A spokesman for the Washington-based National Association of Counties, whose members stand to benefit from the new formula, commented: "We welcome [the gathering of ] better unemployment data but I really can't say anything else. I've been in this business long enough to realize that your best guesses on [federal funds] distribution formulas almost always turn out wrong."