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:

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

Two main ways to count the number unemployed:

The claimant count

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

Strengths:

• Cheap and quick. The data already exists from benefit-administration records.
• Available monthly with minimal lag.

Weaknesses:

• Excludes people who do not claim (they may not qualify, or may not want to claim).
• Includes some claimants who are not actively seeking work, depending on the benefit rules.
• Affected by political decisions about who is eligible for benefits, so it can be hard to compare across countries or over time.

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:

• More accurate measure of true unemployment because it asks people directly.
• Internationally comparable because countries use the same survey definitions (ILO standards).
• Captures details that benefit data cannot (e.g. demographic breakdowns, duration).

Weaknesses:

• Expensive to run.
• Sample-based, so subject to a margin of error.
• Available less frequently than the claimant count (quarterly or monthly with a lag).

The two measures usually give different numbers: the LFS typically reports more unemployment than the claimant count, because the LFS picks up people who are looking for work but not claiming benefits.