Unemployment: Types & Effects

The unemployment rate is the percentage of the labour force that is unemployed.

The labour force = people in work + people actively seeking work. Children, retirees, full-time students and discouraged non-seekers are not part of it. So:

$\text{Unemployment rate (\%)} = \dfrac{\text{Number unemployed}}{\text{Labour force}} \times 100$

There are two main measures of unemployment: the claimant count and the Labour Force Survey.

The claimant count

The claimant count is the number of people claiming unemployment benefits from the state.

Strengths:

• Cheap and quick, because the data already exists from benefit records and is published monthly.

Weaknesses:

• Excludes unemployed people who do not claim benefits, and may include some claimants who are not genuinely seeking work.
• Distorted by policy, because changing who is eligible for benefits changes the count even when real unemployment has not.

The claimant count usually gives a lower figure than the Labour Force Survey, which also picks up people who are looking for work but not claiming benefits.

The Labour Force Survey (LFS)

The Labour Force Survey is a sample survey of households that asks people directly whether they are working, looking for work, or neither.

Strengths:

• Accurate measure of true unemployment because it asks people directly, picking up those who are looking for work but not registered with any benefit office.
• Internationally comparable because countries use the same survey definitions (ILO standards), so unemployment rates can be compared across borders.
• Captures details that administrative records cannot, such as demographic breakdowns and how long people have been out of work.

Weaknesses:

• Expensive to run, because it involves surveying a large sample of households regularly.
• Sample-based, so subject to a margin of error: the figure is an estimate, not a complete count.
• Available with a lag, because the survey results take time to collect and process.