Understanding Unemployment

Unemployment is the measure of how many people are out of work in the economy.

It is usually expressed as a percentage of the total workforce, on a monthly basis.

There are several ways to measure unemployment, and they vary from country to country.

In the United Kingdom, the government traditionally has counted the number of people who are claiming unemployment benefit – the so-called claimant count.

But this leaves out those people who are not eligible for unemployment benefit but who may also be looking for jobs. It also leaves out the unemployed who are on special training schemes.

So, in April l998, the Labour Government decided to also publish Labour Force Survey(LFI) unemployment. This measures the whole workforce, and then attempts to find all those who are seeking jobs, not just those receiving benefit.

This method is recommended by the International Labour Organisation (ILO) and gives a more internationally comparable figure for unemployment.

The new figures aren’t really new. The government has always collected them but now they will be issued monthly instead of four times a year. The new number will include anyone that is actively available to start work within the next two weeks and has looked for work in the last four weeks or already found a job but are waiting to start.

The previous figures counted only those out of work and claiming unemployment benefit. By using this definition of “unemployed”, the figures should show that unemployment is much higher than the previous monthly figures indicated – as much as half a million higher.

Advantages and disadvantages of different methods

The claimant count gives the more precise figure for monthly unemployment as it is based on numbers collected by the government. But it has been widely criticised for being misleading.

The old method had been changed thirty times in 20 years – and each time the change meant a lower total. The Labour Party, then in opposition, complained about what they say was cheating and promised to change the system once in power. For example, the old method excluded anyone over 55 years old and teenagers.

The Labour Force Survey will be more consistent over time, but it is based on a statistical survey, and therefore subject to sampling error.

Because of this, the LFS is published on a rolling 3-month basis. And it does not include all those who want jobs but are not actively seeking them (over 2 million in the winter of 1998).

Why should we worry about unemployment?

The cost of unemployment is not just individual. The loss of skills and the demoralisation of the long-term unemployed is a loss for the economy.

To help overcome these problems, the government introduced a so-called New Deal, providing jobs and training opportunities for the unemployed young people between 18-25 years old and for some of the older long-term unemployed.

On the other hand, many economists also worry that when unemployment goes too low it might fuel inflation. This might happen because as labour markets become tighter, workers demand higher wages, thus pushing up the cost of goods.

It is sometimes argued that there is a limit to how low unemployment can go without sparking inflationary pressures, the so-called non-accelerating inflation rate of unemployment, or NAIRU.

But others argue that recent changes in the economy, for example the weakening of trade union power, may have altered this figure.