4.8 - Measurement of Unemployment
Key definitions related to unemployment and the labour force
Unemployment refers to a situation where individuals who are willing and able to work are unable to find suitable employment.
Main terms in unemployment and labour force
- Unemployment - Occurs when people who are willing and able to work cannot find a job.
- Economically inactive - Refers to people who are not working and not seeking employment, so they are not part of the labour force.
- Economically active - Includes anyone who is part of the labour force.
- Labour force - The total number of workers available for work, encompassing all people who can contribute to producing goods and services.
- Labour force participation rate - The percentage of the working-age population who are classified as part of the labour force. This rate usually ranges from 50% to 70% in most economies.
- Level of unemployment - The total number of workers who are unemployed.
- Unemployment rate - The number of unemployed people expressed as a percentage of the labour force.
- Employment rate - The proportion of the working-age population who are in work. This does not add up to 100% with the unemployment rate because they use different bases (working-age population versus labour force).
- Stock - A measure taken at a specific point in time, such as the level of unemployment or the unemployment rate.
- Flow - A measure taken over a period of time.
- Discouraged workers - Individuals who stop looking for work because they believe no jobs are available and thus leave the labour force.
Low labour force participation rates can result from high numbers in further education, early retirement, or social and cultural barriers limiting women's involvement in the workforce.
Factors affecting the size of the labour force
The size of the labour force can change due to various demographic and policy-related influences.
Key factors influencing labour force size
- School leaving age - Raising the minimum age at which people can leave education reduces the immediate entry of young workers into the labour force.
- Number of people in full-time education beyond school leaving age - Higher participation in further or higher education keeps more individuals out of the labour force for longer periods.
- Retirement age - Increasing the official retirement age extends the time people remain in the labour force, while lowering it reduces the overall size.
- Proportion of women who join the labour force - Social, cultural, or policy changes that encourage more women to participate can expand the labour force.
Calculating unemployment and employment rates
The unemployment rate and employment rate are key indicators of economic health.
Formula for unemployment rate
Where:
- Number of people unemployed = Total individuals without work but seeking it
- Number of people in the labour force = Total economically active population
Worked example - Calculating unemployment rate
In a country with a labour force of 50 million workers, 3 million are unemployed. Calculate the unemployment rate.
Step 1: Identify the values
- Number of people unemployed = 3 million
- Number of people in the labour force = 50 million
Step 2: Apply the unemployment rate formula
Reasons for entering and leaving unemployment
Unemployment is dynamic, with people moving in and out for various reasons.
Reasons people enter unemployment
- Graduating from an educational institution - New entrants to the job market may struggle to find immediate employment.
- Company downsizing - Businesses reducing staff numbers can lead to job losses.
- Resigning from a position - Individuals may leave jobs voluntarily but then face delays in finding new ones.
- Recovering from health issues - People returning to the workforce after illness might enter unemployment temporarily.
- Returning to the workforce after family care - Those who paused careers for childcare or other family duties may re-enter as unemployed.
- Immigration - New arrivals to a country may initially be unemployed while seeking work.
Reasons people leave unemployment
- Enrolling in further education - Some may choose to study instead of continuing the job search.
- Securing employment - Finding a job removes individuals from the unemployed category.
- Health deterioration - Worsening health can force people out of the labour force.
- Family caregiving responsibilities - Taking on duties like childcare can lead to economic inactivity.
- Becoming discouraged about job prospects - Discouraged workers may stop looking for work altogether.
- Leaving the country - Emigration reduces the number in the domestic unemployed pool.
Measures of unemployment
Different methods are used to measure unemployment, each with its own approach and potential limitations.
Main measures of unemployment
- Claimant count measure - Counts individuals who register as unemployed to claim benefits. This method is straightforward but may undercount those not eligible for or claiming benefits.
- Labour force survey measure - Based on surveys asking people about their employment status, classifying them as employed, unemployed, or economically inactive. This can be subject to sampling error, which arises because it uses a sample rather than the entire population.
International Labour Organisation (ILO) definition of unemployment
The ILO defines unemployment as including all working-age people who, in a specified period, are without work but available for work in the next two weeks and actively seeking paid employment. This standard helps ensure consistency in international comparisons.
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