Measuring Unemployment

Unemployment definitions

Unemployment definitions

• Key terms to understand are:

• Employment

  • Refers to the economic use of labour as a factor of production

• Unemployment

  • Someone is considered to be unemployed if they are not working, but actively seeking work 

• Labour force

  • A country's population is divided into the labour force and non-labour force

    • The labour force consists of all workers actively working PLUS the unemployed (who are seeking work)

    • The non-labour force includes all those not seeking work, e.g. stay-at-home parents, pensioners, and schoolchildren (these people are economically inactive)

• Full employment

  • Describes the ideal situation when everyone in the economy who is willing and able to work has a job

Calculating the unemployment rate

Calculating the unemployment rate

• Three metrics are commonly used when analysing the labour market in an economy

1. The unemployment rate

$\mathrm{Unemployment} \mathrm{rate} = \frac{\mathrm{Number} \mathrm{actively} \mathrm{seeking} \mathrm{work}}{\mathrm{Total} \mathrm{labour} \mathrm{force}} \mathrm{x} 100$

• Unemployment rates do not capture the hidden unemployment that occurs in the long term

  • Workers look for a job but may eventually give up and become economically inactive

  • This actually improves the unemployment rate, as fewer people are actively seeking work

2. The employment rate

$\mathrm{Employment} \mathrm{rate} = \frac{\mathrm{Number} \mathrm{in} \mathrm{employment}}{\mathrm{Population} \mathrm{of} \mathrm{working} \mathrm{age}} \mathrm{x} 100$

• The employment rate could be increasing even as the unemployment rate is increasing:

  • This may be caused by increased immigration, which causes the working-age population to increase

  • This may be caused as people move from being economically inactive to employed

3. The labor force participation rate

$\mathrm{Labour} \mathrm{force} \mathrm{participation} \mathrm{rate} =\frac{\mathrm{Labour} \mathrm{force}}{\mathrm{Total} \mathrm{population}} \mathrm{x} 100$

• Countries that have a more conservative view on the role of women, tend to have a lower labour force participation rate, as there are fewer women in the workforce

Using the Labour Force Survey (LFS) to measure unemployment

Using the Labour Force Survey (LFS) to measure unemployment

• The Labour Force Survey is a regular survey of households, carried out to measure the number of unemployed people in a country

  • The survey was created by the International Labour Organisation (ILO)

How it works

• A sample of households is chosen to represent the whole population

• People aged 15–64 (or the official working-age range for that country) are asked questions about their work status

• A person is counted as unemployed if they:

  • Have not worked during the survey period

  • Are available to start work within the next two weeks

  • Have actively looked for work in the last four weeks