Measuring Unemployment

Unemployment is a measure of the number of people who are out of work in the economy. The unemployment figure is usually expressed as a percentage of the total workforce. There are several measures of unemployment which vary between countries.

The United Kingdom traditionally counted the number of people who are claiming unemployment benefit – the so-called claimant count, to record levels of unemployment. The problem with this method of recording unemployment statistics is that it ignores those people who are not eligible for unemployment benefit, but who may actively be seeking work. The claimant count method also ignores those who are unemployed and are on special training schemes.

In April, 1998, the Labour administration decided to introduce a new method of recording unemployment data. The Labour Force Survey (LFS). The LFS gathers data on the size of the whole workforce. The survey then seeks to identify all those who are seeking work, not just in receipt of benefit. The method used by the LFI is endorsed by the International Labour Organisation (ILO) and allows for international comparisons of unemployment data to be made.

The LFS is felt to be more accurate be than the Claimant Count method. The Claimant Count method tended to under-report the number of people out of work and looking for employment.

Advantages and disadvantages of different methods

The Claimant Count method gives a more precise figure than the Labour Force Survey for the number of workers that are out of work due to the act that it is based on data collected by the government. This method has however been heavily criticised for being misleading, but it has been widely criticised for being misleading. The Claimant Count was changed thirty times over a period of twenty years. Each change led to a reduction in the number of people recorded as being out of work.

When the Labour was in opposition it criticised the Conservative government, saying they were cheating. They pointed to the fact that the Claimant Count system did not include those over 55 years of age and excluded teenagers. Unemployment statistics are a good example of how government can manipulate data for political gain. Both Labour and Conservative have used creative methods to massage date when in office.

The Labour Force Survey is more consistent over time. It major shortcoming is that it is based upon a statistical survey and subject to sampling error. It is partly due to this deficiency that the LFS is published on a three month rolling basis. The LFS excludes people who want jobs but are not actively seeking employment.

The Economic Activity Rate

The number of people entering the workforce provides an indication of the willingness of people of working age to take up employment. The economically active population is made up of those who are either employed or unemployed but willing to take up employment. It excludes those who are economically inactive. The data for economic activity rates are compiled from the Annual Population Survey (APS), produced by the Office for National Statistics.

Economic Activity Rate =                   Workforce

Working age population  x 100

Economic Activity (June 2015)

Is unemployment a problem?

Unemployment is a cost to society not just for the individual who cannot find work. Unemployment leads to skills being degraded and lost. Long term unemployment can also lead to health problems which increase costs for the NHS.

In order to minimise the social cost of unemployment the government has introduced a number of schemes intended to give training opportunities for young people and the long term unemployed.

Reducing unemployment can also give rise to problems for the economy. If unemployment levels fall to low it can create labour shortages, leading to upward pressure on wage levels which may in turn cause inflation because as labour markets become tighter, workers demand higher wages, pushing up the cost of goods.

Some economists believe that there is a limit to how low unemployment can fall without creating inflationary pressures; the non-accelerating inflation rate of unemployment, or NAIRU. Other economists suggest that the weakening of the power of trade unions may have altered this figure.

Task

Evaluate whether higher unemployment rates are more of a problem than higher inactivity rates