Measuring unemployment
Unemployment is a key indicator of economic health and of hardship. Measuring it requires precise definitions.
Who is unemployed?
In official statistics, a person is unemployed if they have no job, are available to work, and have actively looked for work in the past four weeks. People not working and not looking, such as full-time students, retirees, and full-time carers, are not in the labour force and are not counted as unemployed.
The labour force
The labour force is everyone employed plus everyone unemployed. The unemployment rate is the number unemployed divided by the labour force, times 100. The labour force participation rate is the labour force divided by the working-age population, times 100.
Worked example
A country has a working-age population of 250 million: 150 million employed, 10 million unemployed, and 90 million not in the labour force. The labour force is 160 million. The unemployment rate is 10/160 = 6.25%. The participation rate is 160/250 = 64%.
Data sources
In the US, the Bureau of Labor Statistics estimates unemployment from a monthly household survey of about 60,000 households, and separately counts jobs from employers' payroll records. Most countries use similar surveys following International Labour Organization definitions, allowing comparisons.
Discouraged workers
Discouraged workers want jobs but have stopped looking because they believe none are available. Because they are not searching, they are not counted as unemployed, so the official rate can understate labour market weakness in a downturn.
Underemployment
Some people work part-time but want full-time work, or work in jobs well below their skill level. Broader measures, such as the US U-6 rate, include part-time workers who want more hours and marginally attached workers, giving a fuller picture of slack in the labour market.
Costs of unemployment
Unemployment means lost output for the economy and lost income for individuals. It is also linked to worse physical and mental health, family stress, and lasting 'scarring': people unemployed for long periods often earn less for years afterward as skills erode and employers view gaps negatively.
Who is affected
Unemployment rates vary across groups: they are usually higher for young people, people with less education, and some minority groups, and rise faster for these groups in recessions. Regional differences can also be large within a country.
Key takeaways
To be unemployed, a person must be jobless, available, and actively looking. The unemployment rate is unemployed divided by the labour force; participation is the labour force over the working-age population. Discouraged workers and underemployment mean the headline rate can understate slack. Unemployment has economic, health, and long-term scarring costs.
Flashcard
Jobless, available, actively looking
Check your understanding
A worker gives up looking for a job after months of failure. How does this affect the official unemployment rate?