22 Monthly Labor Review

Alternative Unemployment Indicators

ally worked part-time or full-time. Therefore, persons
who worked part time for economic reasons and who
usually work part time are included among part-time
workers. An adjustment is made to include these per-
sons in the full-time labor force, for comparability with
the U.S. concept.

The European Community surveys do not specify a
cutoff in the number of hours worked to be classified as
a full-time versus a part-time employee. Rather, full-
time or part-time status is recorded according to the
respondent's own designation. To provide data that
conform more closely to U.S. concepts, the figures
have been adjusted to a 35-hour cutoff, based on pub-
lished information on distributions of hours.

Canada diverges from the practices used in other
countries with regard to who counts as a full-time
worker. In Canada, a full-time employee is a person
who usually works 30 or more hours per week, or a
person who usually works fewer than 30 hours per
week, but considers him- or herself to be employed full
time. (An airline pilot would be in the latter category.)
A part-time employee would then be anyone else who
usually works fewer than 30 hours per week. No ad-
justment was made to increase Canada’s cutoff to 35
hours, However, Statistics Canada provided unpub-
lished data on the number of full-time workers usually
working fewer than 30 hours, and these persons have
been reclassified as part-time workers.

Persons working part time for economic reasons. The
number of persons in this category enters into the cal-
culations of U-4, U-6, and U-7, In the United States,
the following reasons are regarded as economic rea-
sons: (1) slack work; (2) material shortages or repairs to
plant and equipment; (3) started a new job during the
week; (4) terminated a job during the week; (5) could
only find part-time work. Data for other countries
could usually be found in a similar form. As indicated
earlier, in all countries except the United States and
Canada, persons on full layoff and, therefore, working
zero hours for economic reasons are included among
persons working part time for economic reasons. In the
calculation of U-6, the persons on zero hours are given
full rather than half weight, because they did no work at
all in the reference week, Such persons are included in
U-S in the United States and Canada as persons on
temporary layoff.

Data for the European Community countries,
‘Canada, and Sweden are published in terms of persons
working reduced hours, regardless of the total number
of hours worked. Therefore, some persons who worked
reduced hours, but still worked 35 hours or more (30
hours or more in Canada), are included in the original
data as persons working part time for economic rea-
sons. The Bureau obtained unpublished tabulations
from eurostar, Statistics Canada, and Statistics Swe-
den in order to omit such persons from the count of
those working part time for economic reasons.

For Germany, the number of persons working re-
duced or zero hours (20,000) for economic reasons (as
defined in this study) seems low, compared with ad-
ministrative data on kurzarbeiter, or workers receiving
short-term compensation. In April 1989, the month of
the European Community survey, there were 200,000
kurzarheiter. However, this is the cumulative total of

March 1993

all persons receiving short-term compensation over
the course of the month; therefore, it should be higher
than a figure for | survey week. Furthermore, the
kurzarbeiter include persons working more than 35
hours who were on reduced hours, and they also in-
clude persons on reduced hours due to labor disputes
and bad weather, which are not regarded as economic
reasons in this study.

The Italian Statistical Office informed the Bureau
that persons working part time for economic reasons
might respond to the relevant survey question in either
of two ways listed on the survey questionnaire: reduced
economic activity of the firm for technical or economic
reasons; or lack of work opportunities, seasonal slack,
and the like. The difference between these two replies is
not always clear to the respondents. Those responding
in the manner of the second response were not included
in the EURosTAT tabulations of persons on slack work.
The Bureau has adjusted the Eurostat data upward,
based on the Italian Statistical Office's recommenda-
tion to include them. Their inclusion raises the propor-
tion of the labor force in Italy working part time for eco-
nomic reasons from 2.6 percent to 3.3 percent.

Discouraged workers. U7 brings into consideration
the number of discouraged workers. In the United
States, these are persons who want a job now, but are
not looking because they believe that they would be un-
successful if they did look for a job.

Measuring the number of discouraged workers is a
difficult task because it involves the measurement of
subjective phenomena—specifically, one’s desire for
work and one’s perceptions of the chances of finding a
job. These are essentially states of mind, rather than cri-
teria that can be objectively determined. Measuring dis-
couraged workers is very sensitive to the wording of the
questions and the degree of probing involved in the in-
terview.

The United States, Canada, and Sweden all have
concepts signifying discouragement with the labor
market. Japan and the European Community countries
do not. However, in both the Japanese special survey
and the European Community survey, questions are
asked of persons who are not in the labor force as to
why they are not seeking work, and a figure for discour-
aged workers can be estimated from these responses.
For the European Community countries, 1989 data on
discouraged workers are not available for France and
Germany. Data for France were collected in 1990 and
are used to estimate a figure for 1989. Germany is ex-
cluded altogether from the analysis of U-7.

In the United States and Canada, there is more pre-
cision to the questioning concerning discouragement
with the labor market than there is in the other countries
studied. In the U.S. Current Population Survey, the
questioning procedure is careful to determine first
whether the person wants a job now; those who respond
“yes” or “maybe, it depends” are then asked why they
are not looking for work. Respondents are never asked
directly whether they believe that they can find work,
and their current availability for work is not tested.

With regard to discouraged workers, Canada has the
stipulation that they must have looked for work in the
past 6 months, and their current availability for work is
tested. Therefore, the Canadian method is more restric-



Alternative Unemployment Indicators

There is also a third group in Japan: those re-
ported as unemployed in the Japanese survey,
but who did not seek work in the past month.
These persons, amounting to 360,000 in Febru-
ary 1990, were excluded from U-S. They were
not asked any questions as to why they were not
seeking work, because they were already classi-
fied as unemployed in the survey. (Only persons
not in the labor force were asked the questions
that led to the response “no prospect of finding a
job.”) Thus, some of them may have been truly
discouraged, but others may have simply been
awaiting the results of previous job applications.
The Bureau’s compromise solution for calculat-
ing U~7 for Japan was to take the midpoint be-
tween the definitely discouraged (2 million) and
the broader count including the two additional
groups (3.6 million). In the analysis that follows,
the midpoint figure is presented, along with
the figure derived from the narrow definition
of discouraged workers, which encompasses
only the 2 million persons clearly identified as
discouraged.

For Italy, the total number of persons re-
ported as not seeking work because they be-
lieved that no jobs were available was 621,000
in 1989. To this number, the Bureau has added
833,000 persons who said they were seeking
work, but who did not take any active steps in
the past 30 days. These individuals were ex-
cluded from U-5 under the U.S. definition,
which requires active seeking of work in the past
4 weeks. Some may well have been discouraged,
but many were also simply awaiting the re-
sponse to previous job applications or were reg-
istered at an Employment Office but had not
checked on their prospects within the past
month. The Italian survey classifies all of these
persons as unemployed. Again, under U.S. defi-
nitions, they were somewhere between unem-
ployed and discouraged, and the Bureau has
chosen to add them to the U~7 figure. Because
of this distinction, similar to that for Japan, the
Italian data that follow are also presented in
terms of the narrow definition of discouraged
workers, so that the impact of the distinction
may be assessed.

With the preceding considerations in mind, the
proportion of discouraged workers in the labor
force varied widely across countries. (Recall that
no data were available for Germany.) The follow-
ing tabulation shows the proportion of discour-
aged workers as a percent of the labor force plus
the number of discouraged workers and the pro-
Portion of unemployed persons as a percent of the
labor force (the proportion of discouraged work-
ers according to the narrow definition of the term
is given for Japan and Italy in parentheses after the
figure derived from the broader definition):

16 Monthly Labor Review March 1993

Discouraged — Unemployed

United States. .... 07 53
Canada .. 5 75
Japan. . 44 (3.2) 22
Sweden . . 4 14
European Community:

France . » 2 97
6.1 (2.7) 78

1 88

5 TA

Whether a narrow or broad definition is used,
Japan and Italy were the countries with the largest
contingents of discouraged workers. In Italy, dis-
couraged workers accounted for about 6 percent of
the work force plus discouraged workers, but the
figure would have been only 2.7 percent on the
narrow definition. In Japan, 4.4 percent of the
combined work force plus discouraged workers
were discouraged, or 3.2 percent narrowly de-
fined. No other country had a proportion of dis-
couraged workers above | percent,

France, with only 0.2 percent of its work force
in the discouraged category, had the smallest pro-
portion. However, France just began measuring
discouraged workers in 1990, and the figure for
that year has been used here to estimate the 1989
proportions. Because of the newness of France in
this field, it is better not to make much of its low
figure, especially in view of the country’s high
jobless rate, as conventionally defined.

The United States and the Netherlands had 0.7
percent of their work forces in the discouraged
group. Canada, Sweden, and the United Kingdom
were a bit lower still. Another way to view the fig-
ures is to look at them in terms of the percent distri-
bution of the sum of workers who are discouraged
and workers who are unemployed, as shown in the
following tabulation (the proportion of discour-
aged workers according to the narrow definition of
the term is given for Japan and Italy in parentheses
after the figure derived from the broader defini-
tion):

Discouraged — Unemployed
United States . 12 88
Canada . 6 94
Japan. 67 (60) 33 (40)
21 79
98
55 (74)
92
United Kingdom... 7 93

In this comparison, Japan and Italy also had
higher proportions of discouraged workers than
the rest of the countries had. However, Sweden


Table 2. Alternative unemployment indicators as a ratio of the conventional measure (U-5), nine countries,
1989"
[US = 100)
European Community
Indicator | United States | Canada dapan Sweden
France Germany ftaly | Netherlands | United Kingdom

23 4 50 36 84 79 94 78 70

45 52 18 50 42 29 8 13 20

5 88 7 71 a4 100 55 86 89

92 99 73 100 107 91 103 78 108

100 100 100 100 100 100 100 100 100

136 127 127 243 412 103 128 134 8

149 132 7327 an 114 © 203 143 126

27 42 58 43 81 80 94 80 7

56 60 26 43 49 35 1 7 26

75 a4 68 71 82 98 54 83 87

92 96 84 93 107 400 102 93 103

100 100 100 100 100 100 100 100 100

131 112 416 150 109 104 131 119 108

140 118 7200 171 109 °) 185 123 114

19 39 43 33 85 80 95 76 62

33 41 7 47 38 25 5 9 13

78 92 ” 73 84 105 58 93 92

94 100 61 93 115 1 110 66 14

100 100 100 100 100 100 100 100 100

146 141 132 340 118 109 132 161 132

161 148 2439 373 121 ro) 218 174 139
* February 1990 for Japan. unemployment rate; U-4, full-time unemployment rate; U-5, conventional
? Midpoint of range of estimates. measure; U-6, rate encompassing persons working part time for economic

> Not available, reasons; U-7, U-6 plus discouraged workers. (See box on page 4.)

Nore: U-t, long-term unemployment rate; U-2, job loser rate; U-3, adult Source: Table 1.

Italy also experienced a large increase in its
U-7 rate, but the rise was not as great as the in-
crease in U-7 for Japan or Sweden, because
Italy’s U-5 rate was much higher than Japan's
and Sweden’s. In Italy, U-7 was twice as high as
the conventional rate and ranked highest among
the countries studied.

With some differences in degree, the foregoing
relationships held for both men and women. (See
table 2.) For the narrower indicators, U—1 through
U4, the differences between the rates for men
and women in relation to U-5 were not large.
Women tended to have lower U-1 rates, com-
pared with U-S, than did men in those countries
that were not members of the European Commu-
nity. Within the Community, except for the United
Kingdom, the differences between U-1 and U-5
were about the same for men as for women. In all
of the countries studied except Sweden, the job
loser rate (U-2) was more favorable for women
than for men, compared with U-5. With few ex-
ceptions, adult unemployment (U-3) and full-time
unemployment (U-4) rates had similar relation-

ships to U-5 for both men and women,

In every country studied, unemployment, as
measured by U—6 and U-7, increased to a greater
extent for women than it did for men, and in Swe-
den and Japan in particular, the difference was
very large. (See table 2.) In Sweden, the U-7 rate
increased nearly twofold for men, but almost four-
fold for women, over the U-S rate. In Japan, U-7
for men was double their U-5 rate, but for women,
it was more than 4 times as great as U-5.

Table 3 ranks the nine countries examined in
terms of each of the seven indicators, from lowest
(best) to highest (worst). Sweden's labor market
outperformed the others with regard to every indi-
cator except for U-2, the job loser rate, where Ja-
pan and Italy barely displaced Sweden with the
lowest rates, and U-6, where Japan also outranked
Sweden.

The United States ranked from second to
fourth best in every indicator except job losers
(U-2). At 2.4 percent of the civilian labor force,
this rate was relatively high. Only Canada’s and
France’s U~2 rates were higher.

Monthly Labor Review

March 1993 7



Table A-1, Coverage and reliability of household surveys used for calculating alternative unemployment

indicators, 1989
One Two
Number of | Number of | Total Sampling | Originof / Unemploy- | standard | standard
Country households | persons in| house- ratio sampling | ment rate, error errors
in sample sample holds {percent) frame 1989 (68-percent | (85-percent
confidence) | confidence)
United States 60,000 115,000 92,830,000 0.07 Population 53 5.25-5.35 5.2-5.4
‘census
Canada... ee 48,000 | 100,000 | 8,200,000 6 Population 75 TAT6 73-7.7
‘census
Japan’ 42,000 | 100,000 | 40,100,000 a Population 23 22-24 21-25
‘census
SC ) 18,000 G) 3 Population 14 1.35-1.45 1345
register
European Community
Francs... 0.20. eee eee 65,472 | 137,000 | 21,420,000 3 Population 96 9.45-9.75 93-99
census
Germany ...... 00. occ eee 95,341 221,000 | 27,800,000 3 Population 57 558-582 | 5.46-5.94
‘census
Waly oo. eee eee eee] 140,749 ° 20,000,000 7 Municipal Wt o) °
registers
Netherlands 30,467 80,000 | 5,960,000 5 Postal 88 87-89 8.6-9.0
register
United Kingdom 65,274 | 166,000 | 22,598,000 3 Postal 74 73-75 72-76
register

‘ Information relates to February 1990 special survey.
? Sweden surveys individuals rather than households.
* Not available.

Sources: Technical notes to surveys and correspondence with national

statistical offices.

tive than that used in the United States and the other
countries studied. (The U.S. method will change in
1994, when a job search during the past 12 months will
be required for classification as a discouraged worker.)

In Canada, supplemental surveys taken each March
indicate that about twice as many discouraged workers
would be counted if it were not for the job search crite-
rion used in the regular survey. The Bureau has used
the March 1989 supplemental survey to estimate the
number of discouraged workers in Canada.

In Sweden, the concept that corresponds to
couraged worker” is latent arbetssokande, or “poten-
tially looking for a job.” Falting into this category are
Persons who wanted work and were available for work
in the reference week, but who were not seeking work
because of various personal reasons or reasons related
to the labor market. One of the reasons listed is “never
got around to looking for work.” In addition, full-time
students who were actively seeking work during the
school term are included in the /atent arbetssokande.
Both of these groups have been excluded from the
count of discouraged workers in Sweden, for compara-
bility with U.S. concepts. The students have been re-
classified as unemployed under the definition U-5,
while the people who never got around to looking for
work remain outside the labor force.

In the European Community surveys, the option,
“belief that work is not available or lack of knowledge
of where to get work,” is addressed to persons outside
the labor force in a question about why they were not
looking for work. This simple criterion does not consti-

tute a precisely conceived method of measuring the
number of discouraged workers, because the persons
outside the labor force are not asked whether they actu-
ally want work or are available for work. It is impos-
sible to determine whether the European Community
method would result in more or fewer discouraged
workers being enumerated than if a U.S. questioning
procedure were used. Nevertheless, the eurostaT data
can be used to provide some broad illustration of the
extent of discouragement in the European Community
countries. For Italy, the number of discouraged work-
ers enumerated by the European Community survey is
augmented by the “inactive” jobseekers eliminated
from U-5. This adjustment is discussed fully in the ar-
ticle, and data are presented both including and exclud-
ing the “inactive” jobseekers.

The Special Labor Force Surveys of Japan do not
allow for a precise calculation of discouraged workers
according to U.S. concepts. However, a range can be
determined because of the many probing questions
asked in these surveys. A discussion of the Japanese
data is included in the article.*

For purposes of convenience of presentation, the
midpoint of the range of discouraged workers has been
used for Japan, The range of the U-7 rate is 6.0 percent
to 8.4 percent, with the midpoint 7.2 percent. In the dis-
cussion of U-7, distinctions are made as to the different
categories included among discouraged workers.

Statistical reliability. All of the data used in this
study are derived from sample surveys of households,

Monthly Labor Review March 1993 23

a


Alternative Unemployment Indicators

associated with some seasonality, because March is the
end of both the school year and the fiscal year. A great
deal of Japan’s job turnover occurs in March and April,
but some begins to take place in February, slightly el-
evating the conventional unemployment rate for that
month, in comparison with the annual average. For Ja-
Pan, some components of U-I through U-7 may be
slightly overstated because February data, rather than
annual data, had to be used. In particular, the youth un-
employment rates, analyzed in comparison with the
adult rates given by U-4, are probably overstated.

Although the European Community surveys are
subject to common concepts and definitions, there is no
common survey questionnaire, and the wording and
ordering of questions vary from country to country.
The Community's linguistic and cultural diversity
would pose problems for any standard questionnaire.
Therefore, there are some differences in the surveys
across countries; however, the differences are mini-
ized by close cooperation between the various na-
tional statistical offices and EUROsTAT.

Some adjustments were made by the Bureau to the
Community labor force survey data for greater compa-
rability with U.S. concepts. Most of these adjustments
‘were minor, such as excluding from the labor force ca-
reer military personnel living in private households.
However, for Italy, the Bureau has made some signifi-
cant adjustments to the Eurostat figures on unem-
ployment, employees working part time for economic
reasons, and discouraged workers, for better compara-
bility with U.S. definitions. These adjustments are
summarized below.

The following discussion recapitulates the major
points relating to U-5, the conventional definition of
unemployment, because it is the base rate from which
the other six indicators are derived by additions or sub-
tractions of various groups. The main issues relating to
these six indicators are then presented. A more detailed
account of the discrepancies among the definitions
used by each country and the adjustments made to
account for these differences is available upon request.

The conventional definition (U-S). In this article,
U-S5 represents unemployment as a percent of the ci-
vilian labor force. Therefore, career military person-
net have been omitted from the labor force in the
countries that include them, that is, most of the Euro-
pean countries and Japan.

The International Labour Office definition of un-
employment, as amended in 1982, sets three separate
criteria for classification as unemployed. With certain
exceptions, unemployed persons must be (1) without
work; (2) currently available for work during the refer-
ence period; and (3) seeking work, that is, must have
taken specific steps in quest of a job during a specified
recent period, Exceptions to (3) are allowed for persons
waiting to begin a new job and for some persons on
temporary layoff, namely, those with a strong attach-
ment to their former jobs (as indicated by a specific re-
call date or continued receipt of wages or a salary);
those with a weak attachment to their job are to be clas-
sified as unemployed.

The U.S. and Canadian surveys follow the Interna-
tional Labour Office guidelines on unemployment, and
both use 4 weeks as the specified period of jobseeking

20 Monthly Labor Review March 1993

required for classification as unemployed. Sweden
changed to a standard of 4 weeks also, in 1987.

The European Community surveys follow the first
International Labour Office criterion; however, differ-
ences in the EuRosTAT interpretation of the second and
third criteria cause the surveys to diverge somewhat
from the International Labour Office definition.

As regards the second criterion, relating to current
availability, the European Community surveys require
that an unemployed person be able to start work within
2 weeks of the reference week. This is not in strict ac-
cord with the International Labour Office guidelines,
which require availability specifically during the refer-
ence period.

Conceming the third criterion, which requires that
the individual seek work during a specified recent pe-
tiod, EuROSTAT uses the 4-week specification in the Eu-
ropean Community surveys, However, EuROsTAT al-
lows four exceptions beyond the two permitted under
the International Labour Office guidelines. The follow-
ing persons are counted as unemployed, without any
inquiry into their job search in the previous 4 weeks:

1. Persons registered or claiming benefits at an of-
ficial employment exchan;

2. Persons on a register at a private employment of-
fice;

3. Persons awaiting the results of a competition for
recruitment in the public sector;

4. Persons seeking self-employment.

No adjustment was made to the EUROSTAT surveys to
account for these divergences, except for Italy; there-
fore, the unemployment figures for the European
Community countries are overstated somewhat in com-
parison with the corresponding figures for the non-
European Community countries. The overstatement is
believed to be minor in all cases except Italy, where a
substantial number of persons reported as unemployed
do not take active steps to find work within the previous
month. This is because the Italian system does not re-
quire monthly appearance at the employment office.
Registrations may remain valid for a period of about 60
days, or even longer in some provinces in which there is
a shortage of personnel in the employment offices.
Also, in Italy, numerous individuals spend a consider-
able amount of time awaiting the results of public sec-
tor recruitment competitions.>

EUROSTAT’S reported Italian unemployment rate of
11.1 percent in April 1989 has been adjusted downward
to 7.8 percent for closer comparability with U.S. con-
cepts. The adjustment is based upon detailed data on the
time of the last job search from the Italian national sur-
vey for April 1989. These data indicate that about one-
third of those reported as unemployed did not seek
work in the previous 30 days. These “inactive unem-
ployed” have been treated as discouraged workers and
allocated to U-7,

Sweden diverges from the International Labour Of-
fice in its treatment of full-time students seeking part-
time jobs during the school term. Such students, even if
currently available for work, are classified as not in the
labor force. An adjustment has been made in this article
to include them among the unemployed. Because data
‘on these students are not readily available every year,
the Bureau has not made this adjustment to the Swedish



12. Monthly Labor Review

Alternative Unemployment Indicators

Table 4, Unemployment rates by

former status, 1989"

[Percent of civilian labor force]

Job | Jon | New | Reon

Country | losers | leavers | entrants | trants
24 | 08 os | 15
39 16 2 19
“4 8 e) e
7 2 2 3
France . . 44 20 1.0 26
Germany 17 20 ‘4 16
ftaly ... 20. 6 1 54 16
Netherlands . 1 23 15 38

United

Kingdom. . 156 24 6 29

1 February 1990 for Japan
? Not available separately; combined rate for new
entrants and reentrants is 1 percent.

Source: Compiled by Bureau of Labor Statistics from
labor force surveys for each county.

Full-time jobseekers (U-4)

Unemployment was lower for full-time workers
than for part-time workers in the United States,
Canada, Japan, Sweden, the Netherlands, and Ger-
many. The situation was reversed in France, how-
ever, where full-time workers bore the brunt of
unemployment. In Italy and the United Kingdom,
jobless rates were also higher for full-time work-
ers, but the differentials were not as large. The
following tabulation shows the full-time and part-
time unemployment rates, as well as the ratio of
part-time to full-time unemployment, for each of
the countries studied:

Unemployment rate Part-time
Full Part — to full-time
time time ratio
United States... 4.9 73 1.5
Canada . . 74 8.5 Li
Japan . 1.6 103 6.4
Sweden ... 14 17 1.2
European Community:
France ........ 10.4 6.5 6
Germany 53 86 16
Italy... 8.0 6.2 8
Netherlands .... 6.9 13.5 2.0
United Kingdom 8.0 6.0 8

Full-time work was most prevalent in Italy,
where 9 of 10 workers were so employed. It was
least prevalent in the Netherlands, where about 7
of 10 were employed at full-time jobs. This high
representation of the part-time employment sec-
tor, combined with the relatively high part-time

March 1993

jobless rate, in the Netherlands explains why the
Dutch full-time unemployment rate (U-4) was so
much lower than the conventional U—S rate.

The differential between these two rates was
higher in Japan than in any other country, with the
unemployment rate for part-time workers 6 times
the rate for full-time workers. This reflects the fact
that full-time, regular workers in Japan are gener-
ally shielded from unemployment by the “lifetime
employment” system there, while part-time work-
ers provide flexibility to employers.

During the period since 1979, full-time jobs
have lost ground in their share of total employment
in all countries studied except Sweden. Based on
data compiled by the Organisation for Economic
Co-operation and Development for the period 1979
to 1990, the largest decrease occurred in the Neth-
erlands, where the proportion of full-time workers
in total employment fell by 16 percentage points,
from 83 percent to 67 percent. Full-time workers
in Canada and the United Kingdom lost 5 per-
centage points in share of employment, and lesser
declines occurred in the other countries. In the
United States and Italy, the decrease in share was
marginal (less than I percentage point).'?

Accounting for part-time workers (U-6)

To obtain U-6, the unemployed under the defini-
tion of U-S are adjusted to include only half of
those seeking part-time jobs. Then, subject to the
modification noted below, half of all persons
working part time for economic reasons are added
to the numbers of the newly determined unem-
ployed. The resulting figure is divided by the civil-
ian labor force less half of the part-time labor
force.

Thus, U-6 brings into consideration persons
working part time for economic reasons. This
category includes a variety of workers: persons
working reduced hours for economic reasons
(for example, slack work, shortages of materials,
or a plant breakdown), persons who could find
only part-time positions, and persons who lost
hours because they started or ended a job in the
survey week.

For all countries except the United States and
Canada, the Bureau has added another group to
the economic part-time category: persons on lay-
off the entire survey week who were waiting to
return to their jobs. Such persons are already
counted in the unemployment figures (U-5) in
the United States and Canada. However, in Eu-
rope and Japan, because they are employed un-
der work contracts and often remain on the pay-
roll, they are classified as employed. Therefore,
in BLS comparisons of U-S across countries,
strict application of the U.S. definition is not
made regarding this point.'* For Europe and Ja-



In contrast, U-1 was significantly lower than U-2
in the United States and Canada and slightly lower
in Sweden.

The following tabulation shows U-1 (13
weeks or over), along with two additional meas-
ures of unemployment duration: unemployment
tates for durations of 6 months or longer and | year
or longer.

13 weeks 6 months 12 months

At the two much longer durations, unemploy-
ment virtually disappeared in the United States
and the other non-European Community coun-
tries, but it remained fairly visible in the five Euro-
pean Community nations, particularly in France,
the Netherlands, and Italy. It is noteworthy that,
although the conventional unemployment rate,
U-S, was significantly higher in the United States
than in Japan, the latter country had proportionally
more of its labor force unemployed 6 months or

orover — orover or over
United States ... 1.2 0s 03. «longer. ; .
Canada 31 1.6 6 North American workers tend to move into and
Japan . Ll 8 3 out of employment and unemployment, whereas
Sweden . 5 3 A European joblessness tends to reflect a much
European Community: larger group of long-term unemployed. In North
France ........ 81 66 47 America, most people have relatively short spells
Germany 46 38 28 of unemployment, frequently interspersed with
Italy... 73 67 56 periods of employment or of inactive labor force
Netherlands .... 6.9 5.7 43 status. In fact, if we compare the group of people
United Kingdom = 5.2 42 3.0 who were unemployed in a given month with the
Table 3. Rankings of nine countries from lowest to highest rate in 1989, by alternative unemployment
indicators"
U2 (=) us Us U-6 u7
te. 05 | Japan 04 | Sweden 1.0 | Sweden 1.4 | Sweden 1.4 | Japan 2.8 | Sweden 38
2. 11 | Italy 6 | Japan 17 | Japan 1.6 | Japan 22 | Sweden 3.4 | Japan 72
3... 12 | Sweden 7 [US 40 | Us. 49 | US. 53 | Germany 60] US. 79
4. as | Netherlands 1.1 | Italy 43 | Germany 53 | Germany 58 | U.S. 72] UK. 93
5. 46 | UK. 15 | Germany 58 | Netherlands 69 | UK. 74 | UK 87|Canada 9.9
6. 52 | Germany 17 | Canada? 66 | Canada 74 | Canada = 75 | Canada = 9S] France 11.1
7. 69 | US. 24 | UK? 66 | Italy? 80 | Italy 78 | Italy 10.0 | Netherlands 126
8. 73 | Canada 39 | Netherlands 76 | U.K? 80 | Netherlands 86 | France 10.9 Italy 158
a. at | Francs 41 | France a1 | France 104 | France 87 | Netherlands 11.8 | — -
1. 6 | Japan 5 | Sweden 1.0 | Sweden 13 | Sweden 1.4 | Sweden 2.1 | Sweden 24
2. 11 | Sweden? | Japan 13. | Japan 16 | Japan 19 | Japan 22 | Japan 38
3. 14 | Italy? 6 | Italy 29 | Germany 46 | Germany 46 | Germany 48} US. 73
4. 31 | Netherlands 12 | US. a9 | US. 48 | US. s2 | US. 68 | France at
5. 37 | Germany 1.6 | Germany 45 | Italy SS | Italy 54 | Italy 7.1 | Netherlands 6.5
6 B41 | UK 20 | Netherlands 5.7 | Netherlands 64 | Netherlands 69 | France 81] Canada 8.6
7. 55 | US. 29 | Canada? 61 | Canada = 7.0 | Canada 73 LK as
8. 59 | France as | France? et | UK? 79 | France 74 10.0
9. 60 | Canada 4a | UK. 67 | France? 79 | UK 77 -
Women
1. 5 | Japan 2 | Sweden 1.1. | Sweden 14 | Sweden 1.5 | Japan 37| Sweden 56
2. Us. 1.0 | ttaly 6 | Japan 20 | Japan 17 | Japan 28 | Sweden 5.1 US. a7
3. Japan 12 | Sweden 7 | US. 42 | US. 51 | US. 54] US. 79/ UK. 99
4. Canada 31 | UK, 9 | UK. 85 | Germany 68 | UK. 7.1 | Germany 8.2 | Canada W7
5. UK. 44 | Netherlands 1.1 | Italy 70 | Canada? 79 | Germany 7.5 | U.K. 94 | Japan 123
6. Germany 6.0 | US. 18 | Canada 73 {| Netherlands? 7.9 | Canada 79 | Canada 11.1 | France 183
7. Netherlands 90 | Germany 19 | Germany 7.9 | U.K. 8.1 | Netherlands 11.9 | France 14.9 | Nethertands 20.7
8. France 10,7 | Canada 32 | France 106 | Italy 132 12.0 | Italy 15.8 | Italy 26.1
9. ttaly 114 | France 48 | Netherlands 11.1 | France 145 | Franca 126 | Netherlands 19.1 |— =
' February 1990 for Japan.
? Tied in rank.
Nore: U.S. = United States; U.K. = United Kingdom. Dash indicates no data available to rank Germany.
‘Source: Table 1.

Monthly Labor Review March 1993 9

YD


Alternative Unemployment Indicators

France had the highest rates for U-1 through
U-S. This was partly because 1989 was a year of
high unemployment in France, but a year of low or
average unemployment in most of the other coun-
tries studied. In the 1984 investigation, France
typically placed in the middle of the ranking for
each indicator. The Netherlands had the highest
U- rate, while Italy had, by far, the highest U-7
rate.
The rankings changed somewhat by sex. (See
table 3.) The most significant change was for
Japanese women, who experienced a very large
increase in their U-7 rate. Ranking best among all
the countries studied in their figure for U-6, Japa-
nese women fell behind women in four other
countries when discouraged workers were added.

Canadian men displaced French men with the
highest U-2 rate, and British men had higher U-3
and U—S rates than did French men. Italian women
had the highest incidence of long-duration unem-
ployment (U-1), whereas the rate for Italian men
was toward the middle of the rankings. Dutch
women had the highest rates of adult unemploy-
ment (U-3) and also the highest rate including
persons who worked part time for economic rea-
sons (U-6).

The following sections of this article take a
more indepth look at each of the seven indicators
and the reasons behind the international differ-
ences noted. The discussion begins with U-5, be-
cause it is the rate from which all of the others are
derived.

Conventional measure (U-5)

Among the countries studied, Sweden and Japan
had the lowest unemployment rates (between |
and 3 percent), in terms of persons who were with-
out work, seeking work, and currently available
for work. The United States placed in the next tier
of the range, along with Germany, with a rate be-
tween 5 and 6 percent. Canada, Italy, and the
United Kingdom followed, with rates between 7
and 8 percent. The Netherlands recorded a rate of
almost 9 percent, while France was at the high end
of the spectrum, with a jobless rate of 9.7 percent.

Compared with the average for the 1980’s, the
year 1989 was one of exceptionally low unem-
ployment for the United States, Sweden, and the
United Kingdom. That year, the official U.S. job-
less rate stood at 5.3 percent, while the average
for the decade was 2 percentage points higher.
Canada and the Netherlands had somewhat lower
unemployment rates in 1989, compared with their
averages for the decade, but the differences were
small. Japan’s February 1990 rate used in these
comparisons was a bit below that country’s 1980's
average. For Germany, the 1989 unemployment
rate was virtually the same as the average for the
decade, while in France and Italy, unemployment

8 Monthly Labor Review March 1993

in 1989 was above their averages for the 1980’s.
The following tabulation presents the 1989 U-S
rate (February 1990 for Japan) and the average
U-S rate for the decade for each of the countries
studied, with the ranking of each country in paren-
theses after each rate (for Sweden, Germany, Italy,
and the Netherlands, the average for the 1980's is
an estimated annual average, adjusted for breaks in
the series):

Average for

1989 1980's

United States . . 53 G3) 73 ()
Canada . 75 6) 78 (6)

2.2 (2) 25 (2)
14 (1) 210 (1)

Japan ..
Sweden ..

European Community:
France ... 97 (9) 92 (7)
Germany . 58 (4) 58 (3)
Italy ..... 78 (7) 70 (4)
Netherlands . 88 (8) 9.9 (8)
United Kingdom ... 7.4 (5) 10.1 (9)

Four countries—Canada, Japan, Sweden, and
the Netherlands—ranked the same in 1989 as
they did for the entire decade, and Germany’s
1989 ranking was only slightly changed from its
decade-long average. The United States and the
United Kingdom had improved rankings in 1989
over their average for the decade. The United
Kingdom had the highest U-5 rate, on average,
for the 1980’s, while France and Italy fared
worse under the 1989 rankings than they did for
the decade.

International differences in unemployment
rates, as conventionally defined, have been ad-
dressed in numerous studies. In a 1978 bulletin,
the Bureau found explanations for these differ-
ences in such factors as cyclical trends, labor force
growth and composition, labor migrations, sea-
sonality, income maintenance arrangements (for
example, unemployment insurance), labor market
programs, the transition from school to work, and
legal, cultural, and social considerations.°

Long-duration unemployment (U-1)

Long-duration unemployment was much more
prevalent in the European Community countries
than in Sweden and the non-European countries
studied. The situation persisted throughout the
1980's in the European Community countries,
while in North America and Sweden, the inci-
dence of such unemployment remained rela-
tively low. In the five European Community
countries, U-1, unemployment of 3 months or
longer, was higher than U-2, the job loser rate.
This was also the case in Japan, but there, both
rates were very low in comparison with Europe.


figures in its regular unemployment comparisons pro-
gram. In any event, the effect is very small: the 1989
‘Swedish unemployment rate (U-S) was increased from
1,3 percent to 1.4 percent by adding 5,000 students to
the unemployed and to the labor force.

Japan’s regular monthly survey questionnaire dif-
fers greatly from both the Eurostat survey and other
Wester models. Current availability in the reference
week is required, but no job search period, such as “the
past 4 weeks,” is specified. The Bureau has used the
results of a special survey conducted in February 1990
to adjust the Japanese figures as closely as possible to
the U.S, definition. Adjustments were made to omit
persons who did not actively seek work in the previous
4 weeks and to include persons who were not working
and who actively sought work in the previous 4 weeks,
but who were not classified as unemployed. Although
each of these adjustments is quite large, on balance,
they tend to cancel each other for both sexes combined.
However, male unemployment rates are overstated and
female rates understated by the regular survey.

Persons on temporary layoff who are awaiting re-
call to their jobs are classified as unemployed in the
United States and Canada. European and Japanese lay-
off practices are quite different in nature from those in
North America; therefore, strict application of the U.S.
definition has not been made on this point. In general,
persons on layoff are classified as employed in Europe
and Japan, because they are employed under work con-
tracts. They regard themselves as having a job, they of-
ten remain on the payroll, and they are virtually certain
to be recalled to their jobs. In Europe and Japan, em-
ployers tend to adopt the practice of reducing workers”
hours, rather than laying off workers outright. How-
ever, there are a small number of persons whose layoft’s
take the form of zero hours worked during the’ refer-
ence week.’ For Europe and Japan, these workers are
included in U-6 as persons working part time for eco-
nomic reasons. In the calculation of U-6, they are
given full weight, whereas those working reduced
hours are given half weight.

Treatment of unknowns. Nonresponse to a survey
question is a source of nonsampling error. Some coun-
tries compensate for nonresponses by deriving a suit-
able response based on other information collected in
the survey, such as information on respondents with
similar characteristics. In the U.S. Current Population
Survey, all nonresponses are handled in this fashion,
and no groups of unknowns are reported in the data
used in this analysis. In the other countries examined,
however, some data elements contain a reported group
of unknowns. In some cases, these were due to nonre-
sponses; in other cases, certain groups were not asked
the relevant questions. For example, the data on U-I
for most of the European Community countries and
Sweden include some nonresponses to the question on
duration of unemployment; on the other hand, persons
seeking self-employment were not asked whether they
sought full-time or part-time work. In general, these
unknowns (usually a smal! number) have been distrib-
uted by the Bureau according to the proportions de-
rived from the respondents. There may be some error
associated with this method, but it should have virtu-
ally no impact on the comparisons.

As mentioned earlier, the overall EUROSTAT unem-
ployment data for Italy include a significant number of
“inactive” jobseekers whom the Bureau excludes from
U-5 for comparability with U.S. definitions. EuRosTAT
was able to provide the Bureau with unpublished distri-
butions of data for Italy that included persons who re-
ported that they had sought work in the previous 30
days. However, there were a significant number of un-
knowns, amounting to 20 percent of the unemployed
{after adjustment), who were unaccounted for by the
Eurostat figures, Most were persons seeking self-em-
ployment, an unusually large group in Italy. They were
not questioned about when they engaged in their last
job search, even though the International Labor Office
guidelines state that such persons should be actively
seeking a job, engaging in such actions as looking for a
place of business or equipment, arranging financing,
and applying for business licenses. These unknowns
were allocated among U~! through U-7 according to
the Eurostat distributions relating to persons who
sought work in the past 30 days.

For Japan, data on duration of unemployment and
job losers are available only for the reported, rather
than adjusted, number of unemployed persons. The
Bureau has allocated the adjusted number of unem-
ployed to categories of duration and of former status
according to the proportions derived from those re-
ported as unemployed. To the extent that this group is
not representative of the distribution of the adjusted
number of unemployed, there will be an error associ-
ated with the technique. Because Japanese unemploy-
ment is so low, any such error would not significantly
affect the rankings of U-1 and U-2.

Proxies. In a few instances, data are not reported for
the exact grouping desired, and proxies have been used
in their place. For example, France has no direct meas-
ure of persons working part time because they could
not find full-time work. The proxy used is the number
of part-time workers who worked their usual hours and
sought more work. This proxy understates the true
number to the extent that persons working part time in-
voluntarily did not seek more work.

Full-time and part-time employment. Full-time em-
ployment is a component in the calculations of U-4,
U-6, and U-7. In the United States, full-time employ-
ment includes the following categories: (I) persons who
worked 35 hours or more during the survey week; (2)
persons who worked fewer than 35 hours for other than
economic reasons (for example, because they were on
vacation or were ill), but who usually worked 35 hours
or more; (3) persons who were not at work, but who
usually worked 35 hours or more; and (4) persons who
worked fewer than 35 hours for economic reasons, re-
gardless of their usual status. The rationale for includ-
ing the last group among those employed full time is
that although they are working part time, presumably,
they desire full-time work. Those working part time
consist of all persons who worked fewer than 35 hours
and who usually work fewer than 35 hours for
fnoneconomic reasons.

In the European Community countries, Canada, and
Sweden, data on part-time and full-time employment
are reported according to whether the individual usu-

Monthly Labor Review March 1993 21

ay


choose an appropriate measure of the generosity
of benefits, as benefits can vary with time and
family situations. A study by the Organisation for
Economic Co-operation and Development using
summary indicators that take some account of
these complicating factors found some positive,
but weak, correlation between benefit replace-
ment rates over the long term and the incidence of
long-duration unemployment."

Long-duration unemployment feeds on itself,
eventually becoming a “long-term unemployment
trap.”? In other words, the average rate at which
people leave unemployment to become employed
tends to decrease with the duration of the unem-
ployment spell. For example, in France, 48 per-
cent of persons unemployed between 12 and 18
months, but only 22 percent of persons unem-
ployed for more than 3 years, found a job within
the 18 months after a survey that took place in
November 1986." It is often suggested that such
declines reflect a loss of employment-related
skills, as well as discrimination against long-term
unemployed persons by employers.

Sweden has an extensive system of labor mar-
ket programs to assist the unemployed. Employ-
ment Office personnel are instructed to put pres-
sure on unemployed persons to avail themselves
actively of job opportunities or labor market train-
ing. As a result, in many cases, they become em-
ployed or leave the labor force to take training be-
fore their duration of unemployment becomes
lengthy.'' Thus, unemployment, which is low any-
way in Sweden, becomes virtually nil at durations
of 6 months or longer.

Job losers (U-2)

Unemployed persons can be classified into four
categories based on their former employment sta-
tus: job losers, job leavers, new entrants into the
labor force, and reentrants into the labor force.
Table 4 shows each of these four groups as a per-
cent of the civilian labor force. U-2 focuses on job
losers.

U-2 rates were relatively low in Europe and Ja-
pan, compared with North America. This reflects
the greater level of job security and protection for
regular workers in Europe and Japan. Italy was an
extreme case, with virtually no job loser unem-
ployment, but a very high proportion of unem-
ployment associated with new entrants into the la-
bor market. Among the European Community
countries studied, only France had a pattern simi-
lar to North America’s, with job losers bearing the
brunt of unemployment among the four categories
listed. But it should be noted that 1989 was a year
of high unemployment in France, and job losses
are highly cyclical. The discussion below of U-6,
the measure that includes those employed only

part time for economic reasons, presents some in-
formation on the nature of employment in Europe,
whereby regular workers are shielded from unem-
ployment, while workers on temporary, fixed-
contract, or other nonstandard jobs are the job los-
ers.
Among the four groups categorized by former
employment status, job losers made up the highest
proportion of the labor force in the United States
and Canada. They were also the most significant
among the jobless in Sweden, where all unem-
ployment rates were very low. By contrast, job
leavers were the largest category in Germany.
Rounding out the picture, new entrants in Italy and
reentrants in the Netherlands and the United King-
dom constituted the highest proportions of the
jobless in the labor force in those countries,

Adult unemployment (U-3)

Adult unemployment, as reflected in U-3, was
lower than youth unemployment in every country
studied except Germany, where a strong appren-
ticeship system shields many youth from unem-
ployment. In all of the other countries, there was a
significant youth-adult differential, as shown in
the following tabulation:

Ratio,
Youth Adult youthto

rate rate adult
United States ...... 10.9 4.0 27
~ 3 6.6 17
6.4 17 38
3.7 1.0 37

« 19.7 8.1 24
. 57 58 10
see » 25.4 43 59
Netherlands . 13.5 76 18
United Kingdom ... 10.4 6.6 16

Because of the low youth-adult unemployment
differential in Germany, that country’s U-3 and
U-5 unemployment rates were virtually identical,
whereas in all the other countries studied, U-3
was significantly lower than the official U-S rate.
(See table 2.) Italy’s U-3 measure was particularly
low, because youth unemployment there was
about 6 times higher than adult unemployment.
Indeed, virtually all of Italian unemployment is
among persons under age 25, a phenomenon re-
lated to the job loser-new entrant difference for
Italy. New entrants into the labor force tend to be
young persons, and adults with established jobs
tend to be shielded from unemployment in Italy,
although they may be subject to underemploy-
ment in the form of reduced hours. (See the discus-
sion of U-6 below.)

Monthly Labor Review March 1993

i

Td


Constance Sorrentino

Constance Sorrentino is

an economist in the
Division of Foreign Labor
Statistics, Bureau of Labor
Statistics.

International comparisons
of unemployment indicators

Seven unemployment indicators for 1989 reveal

major labor market differences among North America,
Europe, and Japan; Sweden and Japan have the largest
increases in unemployment when part-time work

for economic reasons and discouragement

with the labor market are taken into account

or a Jong time now, international compari-

sons of labor markets have focused on the

unemployment rate, which gives an impor-
tant, but incomplete, indication of how well labor
markets are functioning from country to country.
The unemployment rate is a convenient and well-
known concept; however, too exclusive a focus on
this single measure may distort our view of the
economies of other developed nations in compari-
son with that of the United States.

Thus far, the Bureau of Labor Statistics’ ap-
proach to international labor market comparisons
has been limited largely to analyzing unemploy-
ment rates adjusted to the usually cited U.S. con-
cept and to providing periodic data and analysis of
other labor market indicators, such as employ-
ment, employment-to-population ratios, and labor
force participation rates, to help round out the pic-
ture.' International unemployment figures are
regularly presented in terms of age and sex, but
not according to the many other dimensions of un-
employment and underemployment. Additional
statistics are needed for a balanced interpretation
of comparative tabor market conditions.

Since 1976, the Bureau has published alterna-
tive unemployment measures for the United States
known as U-1 through U-7.? The presentation of
these measures recognizes that no single unem-
ployment definition can serve all the purposes for

which such data are needed. Under this frame-
work, U-S is the official, usually cited, U.S. unem-
ployment rate, while U-1 through U-4 narrow in
on certain “more serious” types of unemployment,
such as joblessness of long duration and persons
who have lost their jobs (as opposed to new en-
trants and reentrants into the tabor force and job
leavers). U-6 and U-7 portray broader concepts
of unemployment than does U-—S, bringing into
consideration two additional elements of under-
utilization of labor: persons working part time
for economic reasons and discouraged workers.

This article introduces a set of measures com-
parable to U-1 through U-7 for eight foreign
countries for 1989. The United States, Canada.
pan, five major European Community countries.
and Sweden are covered. The data for Germany
relate to the former West Germany only and ex-
clude the eastern regions of the country.

A slight modification was made in the defini-
tion of U-1 to enhance international comparabil-
ity. Otherwise, the framework used here is the
same as that derived for U-1 through U-7 from the
Current Population Survey. Data were available
to calculate all of the indicators, except U-7 for
Germany.

For the United States, U-1 through U-7 repre-
sents a progression from tow to succt
higher unemployment rates. This is not necessarily

Monthly Labor Review March 1993 3

|



Alternative Unemployment Indicators

straints on layoffs, as well as cultural mores, in
Europe and Japan have made worksharing a more
attractive option than in the United States. For
many years, worksharing in European countries
has also been encouraged by statutory unemploy-
ment insurance or assistance schemes that contain
provisions covering payments for partial unem-
ployment. Japan introduced such payments in
1975. By contrast, in the United States and
Canada, workers whose hours are cut receive no
compensation, except for some workers in a few
US. States, such as California.'*

Nonetheless, U.S. employers do resort to re-
ducing employee hours to a significant extent: in
1989, when unemployment averaged 6.5 million,
there were an additional 2.4 million workers on
reduced hours for economic reasons. They repre-
sented almost half of all persons working part time
for economic reasons, with the remainder consti-
tuting chiefly persons who could find only part-
time jobs. (See table 5.)

In Canada, Japan, Sweden, and Westem Eu-
rope, the bulk of those working part time for eco-
nomic reasons was persons who could find only
part-time work; those on reduced hours (or zero
hours) for economic reasons were a much smaller
category, accounting for from 6 to 8 percent of all
persons working part time for economic reasons in
France, Germany, and the Netherlands to about 10
to 13 percent in Sweden and the United Kingdom,
17 percent in Canada, 30 percent in Japan, and 40
percent in Italy.

It may be in the employer's interest to resort to
layoffs rather than a reduction in hours, because
fringe benefits cost more under a worksharing sys-
tem. There are few, if any, such costs associated
with workers who are let go, especially if they are
on temporary work contracts or other nonstand-
ard forms of employment, which proliferated in
Europe during the 1980's. The recent dramatic
growth in the use of “contingent” workers (part-
time, temporary, and subcontracted personnel) is a
widespread phenomenon that heralds a changing
pattern of employment in Europe and helps to ex-
plain the disparity in U-6 rates between Europe
and North America.'*

A recent study provides a guide to the growth
of nonstandard employment in Western Europe.'®
The report indicates that employment relation-
ships have changed substantially and diversified
considerably in Europe since the late 1970's. Work
forces have become more flexible, with more
workers employed on fixed-term contracts, on
temporary work contracts (through temporary
agencies), and in part-time work and other non-
standard forms of work. Although also growing in
the United States in the last decade, such flexibil-
ity of the work force was already well established
in the Nation prior to the 1980’s.

14 Monthly Labor Review March 1993

In some countries—notably, France—there has
been a large increase in the numbers of workers on
fixed-term contracts and workers employed by
temporary employment agencies. Employers there
are not restrained by legal requirements from let-
ting such workers go. While “regular” part-time
workers who work a substantial number of hours
weekly appear to have secure jobs, part-time em-
ployment of a few hours per week offers little or
no job security. Therefore, employers have turned
more toward the preceding forms of labor flexibil-
ity, while probably resorting less to reducing the
hours of permanent workers, during economic
downturns,

Another factor in the move toward nonstandard
forms of employment in Westem Europe was the
unusually high unemployment that occurred there
during the late 1970’s and early 1980’s. Many
workers became more disposed to accept atypical
employment as an alternative to unemployment.
Ac the same time, national governments, in at-
tempts to decrease unemployment levels and
stimulate job growth, tended to remove or modify
employment legislation regulating the use of non-
standard forms of employment. Also, the weak-
ened position of trade unions made them less able
to resist the spread of these forms of work.'7 Fi-
nally, the widespread decline of employment in
manufacturing and the expansion of the service
sector have played their part in the growth of atypi-
cal employment, as temporary workers and work-
ers willing to do other nonstandard forms of em-
ployment are more common in the service sector.

Some national data are available separately for
two of the major classes of nonstandard work:
temporary work contracts under which the worker
is employed by an agency and fixed-term contracts
between employer and employee for a definite
period of time. Temporary work contracts became
well established in France, the Netherlands, and
the United Kingdom during the 1980’s. In France,
the annual number of such contracts doubled, from
2 million to 4 million, between 1979 and 1987.'*
The 1987 figure was equivalent to almost 200,000
full-time jobs; by 1989, the full-time equivalent
had risen to 280,000, about 1.5 percent of all full-
time jobs in France.'? Temporary contracts also
expanded significantly in Germany, especially at
the end of the 1980’s. In the Netherlands, the
number of workers on temporary work contracts
rose steadily, from 25,000 in 1982 to more than
90,000 in 1988.” By contrast, temporary work
contracts were practically nonexistent in Italy and
Sweden, where profit-making employment place-
ment agencies are banned by legislation.”!

Fixed-term contracts, concluded directly be-
tween the employer and the employee, rose very
sharply in France, almost doubling between 1985
and 1989, and accounting for 3.4 percent of all



pan, persons on layoff the entire week have been
added to U-6, rather than U-5. Because they
worked no hours at all during the week, they are
given full weight instead of half weight in the
calculation of U-6. Except for Italy, the numbers
of such persons were very small.

Table 5 shows a breakdown of the category of
those working part time for economic reasons into
subcategories and indicates the total of all persons
in these subcategories, for comparison with the
conventional unemployment figure for each coun-
try. Working part time for economic reasons was
proportionally highest in Sweden, accounting for
about 70 percent of the sum of the unemployed
and those working part time for economic reasons.
In the United States and Japan, the proportion was
approximately 43 percent. The Netherlands had a
similar proportion. However, the other European
Community countries had lower proportions than
did those countries outside the Community; the
figures varied from about 13 percent in Germany
and France to 30 percent in Italy.

Because of these differences, the U.S. U-6 rate
increased more in relation to U-5 than the simi-
larly defined rates for the European Community
countries. In the Community, only the Nether-

lands and Italy approached the magnitude of in-
crease recorded by the United States in this regard.
France and the United Kingdom had much
smaller increases from U-5 to U-6, and Ger-
many’s rate hardly increased at all. (See table 2.)
On the other hand, Sweden’s U-6 rate was
greatly increased over U-S, as labor slack was
channeled much more into underemployment
than into unemployment.

In the European Community countries, par-
ticularly France, the employment situation was
improving in the spring of 1989. Thus, employers
were increasing the hours of their workers, and
fewer were working part time for economic rea-
sons than did the year before. This partly explains
the smaller increases in U-6 over U-S5 for these
countries. If a different year had been chosen for
the analysis, U-6 might have shown a somewhat
greater increase over U-5. Similarly, Japan’s Feb-
ruary 1990 U-6 figure of 2.8 percent was lower
than in some of the years in the 1980's.

In Western Europe and Japan, employers have
traditionally tried to maintain their work forces by
making use of “short-time schedules,” whereby
hours at work are reduced, to spread available jobs
among a larger number of persons. Legal re-

Table 5. _ Part-time workers for economic reasons, nine countries, 1989'
{Numbers in thousands}
European Community
Category United States} Canada | Japan | Sweden
France | Germany | taly |Netherlands|United Kingdom
Total working part time for
economic reasons .......| 4,893 506 970 153 381 247 739 417 503
Reasons for working
part time:
Reduced hours? . 2,360 86 240 7 a1 15 110 16 30
Zero hours.......... : 0 0 40 1 1 5 188 " 18
Could find only
part-time work? 2,233 420 690 125 321 215 430 386 407
Job starts and stops‘... . 300 0 0 0 28 12 1 4 48
Total U-S unemployed . .... 6528 | 1,018 1,360 66 2316 1,658 4,752 579 2,126
Total working part time for
‘economic reasons and
unemployed ........ 11,421 1,524 2,330 219 2,697 1,905 2,491 996 2,628
Percant working part time
for economic reasons ... 428 33.2 41.6 69.9 14.4 13.0 207) 41.9 194
Percent unemployed . 572 868 58.4 30.1 85.9 87.0 703) 58.1 80.9
Civilian labor force... 123,869 | 13503 | 60,950 4,604} 23,810 20,747 | 22,561 | 6,564 28,608
Percent of labor force:
Working part time for
economic reasons 40 37 1.6 3.3 1.6 09 33 64 18
Percent unemployed . .- 53 75 22 1.4 97 58 78 88 74

+ February 1990 for Japan. that persons working part time involuntarily did not seek more work.

? Except for Canada, persons working fewer than 35 hours a week for + Included in “reduced hours" for Canada and Sweden. For Japan, some
economic reasons. For Canada, persons working fewer than 30 hours a —_are included in “reduced hours,” and an unknown number (probably smal)
week. are excluded altogether from the figures on part-time workers for economic

2 France has no direct measure for this category. The figure shown isa reasons.
proxy representing the number of part-time workers who worked their usual Source: Compiled by Bureau of Labor Statistics from labor force
hours and sought more work. This understates the true numberto the extent —_ surveys for each country.

Monthly Labor Review March 1993 13


Alternative Unemployment Indicators

Chart 1. Comparison of U-5 and U-7 unemployment Indicators, by country, 1989

United States

Canada

1

Japan

Sweden

France

aly

Netherlands

United Kingdom

Bus
@u7

i) 5 10
Percent

* February 1990 data,

reasons and discouraged workers.

NOTE: U-6 is conventional unemployment rate. U-7 is unemployment rate encompassing persons working part time for economic

15 20

group unemployed in the following month, we
find that, during normal times in the United States,
only about haif are still unemployed, a quarter
have found jobs, and the remaining quarter have
left the labor force entirely. By contrast, European
countries have much lower levels of labor market
flows than does North America.’ These differ-
ences in labor market dynamics show up in the
comparative data on duration of unemployment.
High levels of unemployment benefits payable
for tong periods of time allow workers to remain

10 Monthly Labor Review March 1993

unemployed longer while seeking work. European
Community countries have more generous benefit
systems than most other countries. However, the
degree to which these systems influence unem-
ployment duration is unclear, due to difficulties in
measuring the phenomenon both within and
across countries.

Many unemployed people are not eligible for
benefits at all or are not eligible up to the maxi-
mum duration, because they have an insufficient
employment record. Further, it is difficult to


24 Monthly Labor Review

Alternative Unemployment Indicators

except for Sweden, which surveys individuals. Two
types of error are possible in an estimate based on a
sample survey: nonsampling error and sampling error.
Nonsampling errors arise in surveys from many differ-
ent sources and may occur at almost every phase of the
survey operation. For example, interviewers may mis-
understand instructions, respondents may make errors
in answering questions, the answers may be entered in-
correctly on the questionnaires, and errors may be in-
troduced in the processing and tabulation of the data.
All countries attempt to minimize such errors by care-
ful design of questionnaires, intensive training and su-
pervision of interviewers, and a thorough control of the
processing system. Countries may also conduct peri-
odic special studies, such as reinterviews of portions of
the sample population. In general, the more personal
and more subjective an inquiry is, the more likely it is
to contain nonsampling errors and the larger those er-
rors will be. Thus, data on discouraged workers would
be highly subject to nonsampling error.

Sampling error refers to the error arising from tak-
ing a sample, rather than surveying the entire popula-
tion of interest. In terms of sampling errors, the data
used in this article for the United States, Canada, Swe-
den, and Japan are highly reliable, with small estimated
standard errors. For Canada and Sweden, a few data
elements that were obtained from unpublished tabula-
tions may be tess reliabie because of their small size.
Nonetheless, even if they had a high sampling error, a
smail number would not affect the results of the calcu-

Footnotes to the appendix

lations in a significant way. For the five European
Community countries, al} published data and virtually
all of the unpublished data used in this study were
within the statistical confidence limits established by
eurostar for reliable data,

Table A-i shows the significant aspects of cover-
age and reliability of the labor force surveys used in the
current study. The European Community countries
have much higher sampling ratios (ratios of the number
of households surveyed to total households) because
they conduct yearly surveys, whereas the U.S. Current
Population Survey is conducted every month, with a
smaller sample size relative to total households. The
range of the published unemployment rate at one stan-
dard error (68-percent confidence level) and two stan-
dard errors (95-percent confidence level) is also shown.
At two standard errors, there is a 95-percent chance that
the true value of the estimate falls within the range
given. These standard errors relate only to U-S. Differ-
ent, and perhaps larger, standard errors could be associ-
ated with the other measures, For example, there would
be a larger standard error associated with data on dis-
couraged workers for the United States because such
data are obtained from only one-fourth of the sample.

Because of the possibility of sampling and non-sam-
pling errors, very small intercountry differences (that is,
a few tenths of a percentage point) in the alternative
unemployment rates analyzed in this article should be
discounted. However, larger differences can be regarded
as accurate indicators of international disparities.

' See Robert J. Myers and John H. Chandler, “Interna-
tional Comparisons of Unemployment,” Monthly Labor Re-
view, August 1962, pp. 857-64.

? International Comparisons of Unemployment, Bulletin
1979 (Bureau of Labor Statistics, 1978).

* Constance Sorrentino, “The Uses of the European Com-
munity Labor Force Surveys for International Unemploy-
ment Comparisons,” The Community Lahour Force Survey
in the 1990s, proceedings of a seminar held in Luxembourg,
October 1987 (Luxembourg: Office for Official Publications
of the European Communities, 1988), pp. 171-97.

+ See the following Monthly Labor Review articles by
Constance Sorrentino: “Japan’s low unemployment: an in-
depth analysis,” March 1984, pp. 18-27; “Japanese unem-
ployment: pts updates its analysis,” June 1987, pp. 47-53;
and “Adjusted Japanese unemployment rate remains below 3

March 1993

percent in 1987-88,” June 1989, pp. 36-38. Updates of and
some revisions to these articles will appear in a forthcoming
issue of the Review.

For a further discussion of this point, see Chapter 5 of
Organisation for Economic Co-operation and Development,
Employment Outlook, September 1987, pp. 125-138.

* For further information on the adjustments, see
Sorrentino, “Japan's low unemployment.”

? Joyanna Moy and Constance Sorrentino discuss the sta-
tistical treatment of layoffs in more detait in “Unemployment,
labor force trends, and layoff practices in 10 countries,”
Monthly Labor Review, December 1981, pp. 3-13. especially
pp. 8-1.

"A more detailed description of the Japanese data on dis-
couraged workers is in the appendix to Sorrentino, “Japanese
unemployment.”



Alternative Unemployment Indicators

ary 1990 for Japan). Table 2 shows each indicator
in each country in terms of its ratio to the conven-
tional measure, U-5, in that country; this is a con-
venient means of comparing the various rates both
within and among countries. In each table, figures
are shown for both sexes, men, and women. Data
were available to calculate all rates for all coun-
tries, except that U-7 could not be calculated for
Germany because no data on discouraged workers
were available.

Table 2 highlights some of the international
differences in labor markets that are not ex-
pressed in the conventional unemployment rate.
Only in the two North American countries did
U-1 through U-7 represent a progression from
low to successively higher unemployment rates,
Only in these two countries and Sweden was the
job loser measure (U-2) higher than the long-
duration measure (U-1). In Italy, U-1 was
higher than U-3, the measure of adult unem-
ployment, while in France, U-1 and U--3 were
identical. In Japan, Germany, and the Nether-
lands, U-3 was higher than U-4, the full-time
unemployment rate, and in France, Italy, and

the United Kingdom, U-4 was higher than the
conventional unemployment rate, U-S. In Swe-
den, U-4 and U-S were identical. Most of these
relationships were also observed in the 1984
study.

Sweden had, by far, the largest proportionate
increases in unemployment, as measured by U-6.
The Swedish rate was more than double the U-5
rate, whereas the increases for the other countries
were much smaller. For example, the U-6 rate was
36 percent higher than the U-5 rate in the United
States and was only 3 percent higher in Germany.
Japan had the largest proportionate increase from
U-6 to U-7.

Chart 1 illustrates the increase from the con-
ventional rate to the most comprehensive rate,
U-7, in eight of the countries studied (exclud-
ing Germany). In Sweden, U-7 was almost triple
U-S, although it was still low in comparison with
U-7 in other countries. Japan’s U—7 rate was more
than three times the U-5 rate, but Japan still
ranked second lowest among the countries stud-
ied. However, the Japanese U-7 rate drew much
closer to the U.S. rate.

Table 1. Alternative unemployment indicators, U-1 to U-7, nine countries, 1989"
{tn percent]
European Community
Indicator | United States | Canada Japan Sweden
France Germany {taly | Netherlands / United Kingdom
1.2 31 14 05 84 46 73 69 52
24 39 4 7 44 17 8 1 15
4.0 66 17 1.0 84 58 43 76 66
49 74 16 14 10.4 53 8.0 69 8.0
53 75 14 9.7 58 7.8 88 74
72 95 34 10.9 6.0 10.0 18 87
79 99 38 wt ° 158 12.6 93
14 31 1 6 6.0 37 84 55 59
29 44 $s 6 36 16 6 12 20
3.9 6.1 13 1.0 61 45 29 57 67
48 7.0 16 13 79 46 55 64 79
5.2 73 19 14 74 46 54 69 27
68 82 22 24 84 48 7A 82 83
73 86 3.8 24 84 ® 10.0 85 88
1.0 34 12 5 10.7 60 114 9.0 44
18 32 2 7 48 19 6 14 E}
42 73 20 14 106 79 7.0 W4 65
5.4 79 17 1.4 145 68 13.2 79 81
54 79 28 15 12.6 75 12.0 119 7A
79 114 37 5.1 149 82 15.8 19.1 94
87 W7 42.9 5.6 153 e@) 26.1 20.7 99
* February 1990 for Japan. measure; U-6, rate encompassing persons working part time for economic
2 Midpoint of range ot estimates. reasons; U-7, U-6 plus discouraged workers. (See box on page 4.)
* Not available.
Nore: U-1, long-term unemployment rate; U-2, job loser rate; U-3, adult Source: Compiled by Bureau of Labor Statistics from labor force surveys
unemployment rate; U-4, full-time unemployment rate; U-5, conventional —_for each country.

6 Monthly Labor Review March 1993



emerged as a country with high discouragement,
compared with its very low level of unemploy-
ment. The United States still maintained a much
lower proportion of discouraged workers than
Sweden, Japan, or Italy.

In all of the countries studied, U-7 rates were
significantly higher for women than for men. (See
table |.) The increase from U-S to U-7 was also
larger for women. This result is consistent with
much research which shows that unemployed
women are more likely to leave the labor force
than are unemployed men.””

At 12.3 percent, Japan’s U-7 rate for women
was particularly high, given that country’s U-5
measure of only 2.8 percent for women. The large
contingent of discouraged Japanese women re-
flects the high numbers of women who are tempo-
rary or casual workers and who withdraw from the
labor force, rather than becoming unemployed
when they lose their jobs. Because of these non-
regular women workers, Japanese employers have
flexibility in their work force during economic
downturns, enabling regular workers, predomi-
nantly men, in large Japanese enterprises to be vir-
tually assured of employment until they retire, un-
der Japan’s “lifetime employment” system.

Adding labor market programs in Sweden

Sweden is generally regarded as the pioneer of so-
called active labor market policies. These policies
are highly developed and provide a comprehen-
sive system of institutions for retraining and relief
work for the unemployed. They also provide for
sheltered workshops and other aids for the handi-
capped. Most other countries also have job train-
ing or job creation programs, but relative expendi-
tures on such programs and the numbers of people
involved are far lower than in Sweden.”

Sweden is unique in that it has deliberately em-
ployed its adult training programs as an economic
instrument for countercyclical purposes, expand-
ing them rapidly whenever demand slackens.
Thus, the training courses in Sweden are used as a
form of public works for the unemployed, as well
as a means of upgrading the skills of the labor
force. They have been an important factor in hold-
ing Swedish unemployment rates down.””

A special unemployment rate can be con-
structed to take into account Sweden's labor mar-
ket measures, which absorb a substantial number
of potentially unemployed persons. In 1989, when
the unemployed in Sweden totaled 66,000, there
were, on average, more than 145,000 persons in
the labor market programs. Without these pro-
grams, most of these individuals would probably
have been either unemployed or discouraged
workers who had withdrawn from the labor force.
Sweden’s U-S rate of 1.4 percent in 1989 would

have tripled to 4.5 percent if all of these persons
had been unemployed. Adding these people to the
U-—7 rate would have increased it from 3.8 percent
to 7.3 percent in 1989. Still, even a figure of 7.3
percent in 1989 would have ranked Sweden virtu-
ally tied with Japan for the lowest among the
countries studied, but the rate would have been
much closer to the U.S. U-7 rate of 7.9 percent.

Other aspects of unemployment

Unemployment figures are used by many persons
for different purposes. The U-S figure is used
most frequently to assess current conditions in the
labor market; that is, it serves as a cyclical indica-
tor of the relationship between the supply of and
the demand for labor. As such, it involves no value
judgments regarding a person’s relative need for
work.

Judgments as to what constitutes hardship vary
greatly, from the very narrow to the quite broad.
As a group, U-1 through U-7 provides insights
into some aspects of economic hardship (unem-
ployment of long duration, for example), but does
not contain a complete indicator of the phenom-
enon. Indeed, the definition of hardship itself var-
ies greatly among different analysts.” Some view
it in terms of the adequacy of the three basic ele-
ments—food, clothing, and shelter—while others
consider it in terms of relative standing in the dis-
tribution of income. Hardship can take the form of
working full time, but at a substandard wage. Any
measure of employment and earnings inadequacy
is subject to judgments as to what an adequate in-
come level is.>' Labor force surveys are generally
not designed to measure economic hardship spe-
cifically. Special studies of income adequacy and
poverty levels are required to measure the phe-
nomenon, and such investigations are beyond the
scope of this article.

Broader measures of underutilization of avail-
able labor resources could also encompass a vari-
ety of situations not covered by U-6 and U-7.
Public policies can cushion the U-5 unemploy-
ment rate by diverting labor slack into channels
other than overt unemployment, part-time work,
or discouragement with the labor market. The case
of Sweden is a prime example. The Swedish pro-
grams encourage people to withdraw from the la-
bor force and enter training programs, or they pro-
vide jobs for people who otherwise would have
been unemployed. In addition, countries may have
policies to promote early retirement, to retain
young people in education and training, or to en-
courage ill unemployed workers to apply for dis-
ability benefits.

Nearly all European countries instituted early
retirement schemes during the 1970's, usually as a
means of combating rapidly rising unemployment

Monthly Labor Review March 1993

7



Organisation for Economic Co-operation and Develop-
ment, Employment Outlook, July 1991, p. 206.

" Phid. p. 222.

" phid...p. 46.

" For further information on the statistical treatment of
laid-off workers, see Joyanna Moy and Constance Sor-
rentino, “Unemployment, labor force trends, and layoff prac-
tices in 10 countries,” Monthly Labor Review, December
1981, pp. 3-13, especially pp. 8-11.

" Moy and Sorrentino, “Practices in 10 countries,” p. 9.

'* Fora study of this phenomenon in the United States, see
Richard S. Belous, The Contingent Economy: The Growth of
the Temporary. Part-time and Subcontracted Workforce
(Washington, National Planning Association, 1989.)

'® Industrial Relations Services, Non-standard forms of
employment in Europe, Report No. 3 (London, European In-
dustrial Relations Review, 1990). See also Organisation for
Economic Co-operation and Development, Employment
Outlook, July 1991, pp. 44-53.

” For a discussion of trends in union membership in major
industrial countries, see Clara Chang and Constance
Sorrentino, “Union membership statistics in 12 countries,”
Monthly Labor Review, December 1991, pp. 46-53.

TM See Organisation for Economic Co-operation and De-
velopment, Employment Outlook, July 1991, p. 48.

' Industrial Relations Services, Non-standard forms of
employment, pp. 44-48.

» Organisation for Economic Co-operation and Develop-
ment, Employment Outlook, July 1991, p. 48.

TM [hid., p. 218.

* Industrial Relations Services, Non-standard forms of
employment, p. 28.

2 Income Data Services, European Report, No. 301, Nov.
3, 1987, p. IIL.

> Organisation for Economic Co-operation and Develop-
ment, Employment Outlook, July 1991, p. 51.

+ Ibid.

°* There have been periodic debates in the United States
about whether discouraged workers should be explicitly in-
cluded in the count of the unemployed. For example, see Na-
tional Commission on Employment and Unemployment
Statistics, Concepts and Data Needs, Counting the Labor
Force, Appendix, Volume 1 (Washington, U.S. Goverment
Printing Office, 1979), pp. 193-244.

2 Organization for Economic Co-operation and Develop-
ment, Employment Outlook, September 1987, p. 144.

According to figures collected by the Organisation for
Economic Co-operation and Development, Sweden spends
1.58 percent of its gross domestic product on active labor
market programs; by contrast, Germany spends 1.02 percent
and the United States 0.25 percent of gross domestic product
‘on such programs. See Organisation for Economic Co-opera-
tion and Development, Employment Outlook, July 1991, pp.
237-49.

TM International Comparisons of Unemployment, pp. 33—
34, See also Guy Standing, Unemployment and labour mar-
ket flexibility: Sweden (Geneva, International Labour Office,
1988), pp. 97-124.

® See Shiskin, “Employment and unemployment,” p. 4.

TM For a discussion of an index of employment and earn-
ings inadequacy termed the “subemployment” measure, see
Sar Levitan and R. Taggart, “Employment and earnings inad-
equacy: A measure of welfare,” Monthly Labor Review, Oc-
tober 1973, pp. 19-27.

® International Comparisons of Unemployment, p. 60.

% See Chris de Neubourg, Unemployment, Labour Slack
and Labour Market Accounting: Theory, Measurement and
Policy (Groningen, the Netherlands, Rijksuniversiteit, 1987),
p.89.

TM De Neubourg, Unemployment, p. 85.

APPENDIX: Sources, methods, and definitions

The usefulness of the measures U-! through U-7 for
international comparisons depends upon the compara-
bility of data collection methods and concepts across
countries. National definitions of unemployment and
the labor force vary, and adjustments must sometimes
be made to enhance international comparability. Since
1962, the Bureau of Labor Statistics has conducted an
ongoing program in which foreign unemployment sta-
tistics are adjusted to approximate U.S. concepts.' Un-
til this study was begun, these adjustments related
mainly to U-5, the conventional unemployment rate.
Detailed information on the methods of adjustment
have been published in a Ls bulletin,’ subsequent
supplements to this bulletin, and articles in the Monthly
Labor Review.

An initial international comparison of alternative
unemployment indicators was prepared for the Statisti-
cal Office of the European Communities in 1987.* This
study presented comparisons of U-1 through U-7
among and within nine European Community coun-
tries, the United States, Canada, and Japan for 1984.
Sweden and the Netherlands were not covered, and the
methods of adjustment were not as refined as in the cur-
rent study, In addition, some work has been published
on comparisons of U-6 and U-7 between the United
States and Japan.‘

Data sources. All of the data used in this article are
derived from labor force surveys. Annual average data
obtained from monthly surveys are used for the United
States, Canada, and Sweden. For Japan, the data are
from a special labor force survey conducted in Febru-
ary 1990. This survey was used to construct the alterna-
tive indicators because it provides much more detailed
information on the status of the labor force than the
regular monthly surveys do. A February 1989 survey
was available for Japan, but the data were not used here
because the Emperor’s funeral was held during the
week of the survey. This caused unusual fluctuations in
the 1989 data on persons working reduced hours, as
well as in measures of the part-time and full-time labor
force. Accordingly, to present a more typical set of in-
dicators for Japan, the February 1990 survey was used
instead.

The figures for the European Community countries
were obtained from the Community Labour Force Sur-
veys conducted in the spring of 1989. The Statistical
Office of the European Communities (eurostat) over-
sees, compiles, and publishes the Community sur-
veys.

The spring European Community surveys are good
indicators of annual averages for the year 1989, at least
for the conventional U-5 rate. For Japan, February is

Monthly Labor Review March 1993

19

il


U-1, U-1 has been redefined slightly for com-
parative purposes. In the published figures per-
taining to the United States, it represented persons
unemployed 15 weeks or longer, as a percent of
the civitian labor force. However, most other
countries break their categories denoting duration
of unemployment at 3 months (13 weeks), rather
than 15 weeks. Because U.S. data are available (in
unpublished form) for durations of a single week,
these data were used to modify the U-1 measure
for the United States to conform with the defini-
tion citing 13 weeks or longer as the breakpoint.
This modification makes only a slight difference
in the U-1 rate for the United States, increasing it
from 1.1 percent to 1.2 percent in 1989.

U-I excludes unemployment of a short-term,
job-changing nature. The rationale behind U—1 is
the belief that the impact of joblessness is more
severe the longer it lasts, because presumably,
shorter periods of unemployment can be with-
stood through unemployment compensation and
savings.

U-2. The second series, U-2, is the number of
persons who have lost their last jobs, as a percent
of the civilian labor force. This measure focuses
on experienced workers, for whom the loss of a
job may lead to a significant loss of income. Un-
employment resulting from reentry into the labor
force, entering the labor force for the first time,
and leaving a job are excluded from this series.

U-3. This series was originally defined as the
number of heads of household that were unem-
ployed, as a percent of all heads of household in
the civilian labor force. However, the Bureau no
longer publishes data in terms of heads of house-
hold, because of the increasing difficulty of identi-
fying such a person in a household in which both
husband and wife work. Consequently, U-3 has
been reformulated to cover adult unemployed per-
sons, defined as persons 25 years of age and over,
as a percent of the civilian labor force in that age
group. This measure is designed to focus on
workers who have completed their basic educa-
tion and generally have a serious commitment to
the labor market.

U_-4, U-is the number of unemployed persons
seeking full-time jobs, as a percent of all those in
the full-time labor force (including all those em-
ployed part time for economic reasons). The idea
in this case is that full-time workers are more
strongly attached to the labor force than are part-
time workers,

U-5. The official, usually cited. unemploy-
ment rate represents the total number of persons
not working, but available for and seeking work,
as a percent of the civilian labor force. Only per-

sons on temporary layoff and persons waiting to
start a new job are not required to seek work in
the past 4 weeks, a necessary condition for clas-
sification as unemployed. U-5 can be viewed as
the base series from which each of the other six
measures is constructed, through addition or
subtraction of various labor force and unem-
ployment components.

U-5 is a consensus definition. It simply re-
quires that, with two exceptions, jobseeking take
place in the past 4 weeks. U—S has had widespread
support from various study groups and has under-
gone little change over the years.*

U-5 follows the general guidelines for measur-
ing unemployment recommended by the Interna-
tional Labour Office. Most other countries now
also follow these general guidelines, with occa-
sional modifications for specific national circum-
stances. The guidelines are not specific on some
points, allowing for interpretations to fit national
needs. For instance, the Office recommends that
jobseeking in a “specified recent period” occur for
classification as unemployed. Most countries, in-
cluding the United States, have set that period at 4
weeks.

U-6. The first of the two rates that are broader
than U-5, U-6 includes the number of unem-
ployed persons seeking full-time work, plus one-
half of the number of unemployed persons seeking
part-time work and one-half of the number of
those involuntarily on part-time schedules for eco-
nomic reasons. The denominator for this rate is the
civilian labor force, less half the part-time labor
force. The reasoning behind this formulation is
that involuntary part-time workers should be
counted as at least partially unemployed; simi-
larly, unemployed persons seeking only part-time
work should be given just half the weight of unem-
ployed persons seeking full-time jobs, because
their employed counterparts work, on average,
only about half of a full workweek. This indicator
moves from the activity-based concept of the labor
force used in all the earlier indicators to a “time
lost” type of concept.

U-7. The second of the two rates that are broad-
er than U-5, U-7 is the same as U-6, except that
the number of discouraged workers is added to
both the numerator and denominator. Discouraged
workers are defined as persons who are jobless
and want work, but are not looking for work be-
cause they believe that they cannot find it. This is
the broadest measure and is designed to be the
most inclusive,

Overall results

Table | shows the seven indicators for the United
States and eight foreign countries for 1989 (Febru-

Monthly Labor Review March 1993 5

_


Alternative Unemployment Indicators

the case for the other countries. For instance, un-
employment of long duration (U-1) is higher than
unemployment due to job loss (U-2) in most of
the other countries studied. In addition, the
broader rates (U-6 and U-7) show important dif-
ferences in intemational relationships that are not
evident in international comparisons of the con-
ventional measure (U-—5). For example, Sweden
and Japan, the countries with the lowest U-S rates,
have the largest proportionate increases in unem-
ployment as measured by U-7. Indeed, the Japa-
nese rate, including persons working part time for
economic reasons and discouraged workers, was
less than 1 percentage point below the comparably
defined U.S. rate. Labor slack in Japan is reflected
more in underemployment and discouragement
than in actual unemployment, probably for institu-
tional and cultural reasons.

While Sweden had a large proportionate in-
crease of U-7 over U-S, the rate was still very
low, compared with the same measure for other
countries. For Sweden, where active labor mar-
ket programs remove a significant number of
persons from the ranks of the unemployed, a fur-
ther measure beyond U-7 is needed to cap-
ture the impact of this phenomenon on the job-
less rate. A section of this article presents infor-
mation on the Swedish situation, because it is
important to an understanding of that country’s
low unemployment rates.

‘The article presents an international compari-
son of U~1 through U-7 for 1989 in eight coun-
tries and for February 1990 in Japan. The year
1989 was a year of relatively low or average un-
employment (for the 1980’s) for most of these
countries. Data for February 1989 were available
for Japan, but were not used, because of unusual
circumstances that took place during the survey
week. (See the appendix.) Japanese unemploy-
ment was marginally lower in 1990 than in 1989.
Annual average 1989 data are used for the United
States, Canada, and Sweden; the figures for the
European Community countries are taken from
surveys conducted in the spring of that year.

The U-S figures for Japan and the European
Community countries are very close to the annual
average, and therefore, the other measures can
probably be viewed as good indicators for the en-
tire year. For France and Italy, 1989 was a year of
relatively high unemployment, and this affects the
international rankings because of the cyclical di-
mension to the indicators studied. To the extent
that countries are in different phases of the busi-
ness cycle, the comparisons for only | year will be
affected to some degree. However, the main rela-
tionships among the various indicators are quite
similar to those in an earlier study for the year
1984, when all of the countries were in or just
coming out of a recession.*

4 Monthly Labor Review March 1993

Under a program that began in the early
1960's, the Bureau has published foreign unem-
ployment rates adjusted to U.S. concepts. This ar-
ticle represents an extension of the methods em-
ployed in that longstanding program. An appendix
describes the data sources, methods of adjust-
ment, and limitations associated with some of the
adjustments.

Seven indicators

The box on this page shows the definitions of the
seven alternative unemployment indicators. The
sequence U-I through U-7 illustrates a range of
unemployment measures, going from a very nar-
row to a very broad view. Other unemployment
indicators could have been chosen instead. The
ones included were originally chosen “because
they are representative of differing bodies of
opinion about the meaning and measurement of
unemployment; because they are meaningful
and useful measures in their own right; and be-
cause they can generally be ranked along a scale
from low to high.” A short description of each
indicator and the rationale behind it follows.

Alternative unemployment
indicators

Long-duration unemployment rate: Per-
sons unemployed 13 weeks or longer, as
a percent of the civilian labor force.

Job loser rate: Job losers, as a percent of
the civilian labor force.

U-3 Adult unemployment rate: Unemployed
persons aged 25 and over, as a percent of

the civilian labor force aged 25 and over.

U-4 Full-time unemployment rate: Unem-
ployed full-time jobseekers, as a percent

of the full-time labor force.

U-5 Conventional unemployment rate: Total
unemployed, as a percent of the civilian

labor force.

Rate encompassing persons working
part-time for economic reasons: Total
full-time jobseekers, plus half of the
part-time jobseekers, plus half of the to-
tal number of persons working part time
for economic reasons, as a percent of the
civilian labor force, less half of the part-
time labor force.

U4

Rate adding discouraged workers: U-6
plus discouraged workers in the numera-
tor and denominator.



employees in the latter year. Lesser increases oc-
curred in Germany, Italy, and the United King-
dom since 1985, but each of these countries had
more than 5 percent of its employees under fixed-
term contracts by 1989.” In Germany, the 1985
Employment Promotion Act made it easier for
companies to take on new workers through fixed-
term contracts. A study of the Act suggests that
fixed-term contracts accounted for almost 50 per-
cent of new hires in 1986.”*

There is evidence that in France and Ger-
many, persons on fixed-term contracts were in-
creasingly becoming unemployed. In France,
fixed-term and temporary work contracts to-
gether accounted for 47 percent of all new cases
of unemployment in 1987, compared with 31
percent in 1979, the increase being entirely at-
tributable to the rise in the number of fixed-term
contracts. Similarly, a study shows that in Ger-
many in 1987, 18 percent of persons whose
fixed-term contracts ended became unem-
ployed, with the proportion rising steadily dur-
ing the 1980’s.”* In contrast, some fixed-term
contracts are renewed for another fixed term,
while others are converted to a permanent con-
tract at the end of the employment term.

Thus, in at least some of the European Com-
munity countries, higher unemployment in the
1980’s was associated with employers resorting
less to placing workers on reduced hours and more
to letting atypical workers go. As temporary and
fixed-contract workers flowed into. unemploy-
ment or moved out of the labor force, regular
workers under contract were shielded both from
losing their jobs and from losing hours of work.

Including discouraged workers (U-7)

U-7 is the most comprehensive rate in the BLS se-
ries, bringing into consideration not only those
working part time for economic reasons, but also
discouraged workers. Discouraged workers are
defined as persons without work who want a job,
but who are not looking for work because they be-
lieve that their search will be unsuccessful. They
are discouraged from seeking a job either because
they believe that no jobs are available or because
they believe that they do not have the requisite
qualifications to obtain a job. They can be consid-
ered part of the “hidden” iabor supply, but they are
not included in the labor force, as conventionally
measured.

Determining the number of discouraged work-
ers involves subjective phenomena. Results are
quite sensitive to the questions posed. Intercoun-
try comparisons should be viewed with caution
because the methods and the questions asked vary
from country to country.

In the U.S. survey, persons who are neither

employed nor counted as unemployed are asked
whether they want a regular job now. Those who
answer “yes” or “maybe, it depends” are asked
why they are not looking for work. Those who re-
spond that they believe no work is available or that
they could not find any work are classified as dis-
couraged due to job market factors. Those who re-
spond that they lacked the necessary schooling,
training, or skills, that employers thought they
were too old or too young, or that they had a per-
sonal handicap (such as a language problem) are
classified as discouraged due to personal factors.
The sum of both groups—the one citing job mar-
ket factors and the other citing personal factors—
represents the total of discouraged workers. There
is no actual test of whether the discouraged
worker is currently available for work, but the
fact that the person responds that he or she wants
a job now would indicate the person's availabil-
ity for work. As discussed in the appendix, other
countries have different questions and methods
of determining the number of discouraged work-
ers, and these differences have an unknown ef-
fect on the comparisons.

The inclusion of discouraged workers brought
the largest increases, by far, in the U-7 rates for
Italy and Japan. Some comments are necessary,
however, to promote understanding of the data for
these two countries and the reasons for the large
increases shown. Although the appendix discusses
comparability issues in some detail, it is important
to note here that the discouraged worker concepts
for Japan and Italy are somewhat more broadly
defined than those for the other countries.

For both Japan and Italy, the Bureau has added
persons to the discouraged workers count who
may not necessarily be discouraged, according to
the preceding definition; nevertheless, they have
been included in U-7 because they stand some-
where between unemployment and discourage-
ment. In this way, U-7 for Japan and Italy pro-
vides a more comprehensive coverage of labor
slack than does U-S, from which these individuals
have been left out.

For Japan, 2 million persons responded in the
February 1990 special survey that they were avail-
able for work, but were not seeking it because
there was “no prospect of finding a job.” These
individuals would have made up 3.2 percent of the
labor force, had they been in it. They are clearly
discouraged in the sense of the foregoing defini-
tion. Another 1.2 million were not seeking work
for the same reason, but they either could not take
up, or were undecided about taking up, a job now.
An unknown portion of this group would also
come within the scope of the U.S. definition of a
discouraged worker, because the U.S. method in-
cludes persons who respond “maybe” as to
whether they want a job now.

Monthly Labor Review March 1993

15


18 Monthly Labor Review

Alternative Unemployment Indicators

by making jobs available to younger persons.”
Prolonging regular training periods has been used
in Germany, while absorbing a portion of the un-
employed through disability-related schemes is
important in the Netherlands.» Government poli-
cies toward foreign labor migrations also have an
impact on unemployment rates. Except for the
Swedish labor market programs, it is difficult to
quantify the effects of these many different gov-
erament actions on the labor market.
Underutilization can also appear as “dis-
guised” underemployment. A member of the la-
bor force may be at work, but may be used so
ineffectually, that he or she contributes little to
the value of national output. Unlike involuntary
part-time workers, these persons do not suffer
from reduced hours. Rather, they are a form of
“labor hoarding” by an employer who judges it
more productive to let them come to “work,” in-
stead of dismissing them. In Japan, disguised un-
deremployment occurs for cultural reasons: em-
ployers feel paternalistic toward their regular
workers and keep them on the full-time payroll,
even if there is not enough work to do. Such dis-
guised underemployment is recognized by the
International Labour Office as falling beyond
conventional statistical measurement.*

Conclusion

The series U-1 through U-7 of alternative unem-
ployment indicators takes the focus away from a
single measure of unemployment to a more bal-

Footnotes

anced view of international labor market compari-
sons. For 1989, these indicators revealed signifi-
cant differences among countries that would not
be evident if one examined just U-5, the conven-
tional unemployment rate. Among the varying
definitions of unemployment, joblessness of long
duration was found to be much more prevalent in
Europe than in North America, but North America
was seen to have more job losers, reflecting the
lower level of job security in the United States and
Canada, compared with Europe and Japan. When
the defini was broadened, Sweden and Japan,
the countries with the lowest U-S rates, incurred
the largest proportionate increases, with the Japa-
nese U-7 rate approaching the comparably de-
fined U.S. rate. In these two countries, labor slack
moved much more into involuntary part time em-
ployment and discouragement with the labor mar-
ket than into open unemployment. If Sweden’s ac-
tive labor market programs had not been in effect,
that country’s U-7 rate might also have ap-
proached the U.S. level.

One limitation to this study is that the data pre-
sented are for only | year, 1989 (1990 for Japan).
Since the indicators have large cyclical compo-
nents, the international relationships may change,
depending on the phase of the business cycle in
each country. The Bureau intends to create a data
base of the indicators U-I through U-7 back to
1983 and also to update the figures to cover more
current years, so that the changing international
relationships may be studied over a wide span of
time. Q

AckNowLebamens: The author thanks Neil Bain, Geoffrey
‘Thomas, and Michel Skaliotis, of the Statistical Office of the
European Communities, for providing expert advice and
‘many unpublished tabulations from the Communities’ labor
force surveys. Thanks also go to the following persons in na-
tional statistical offices, for providing special tabulations and
expert interpretation of their data: John E. Bregger, Paul
Pai. and John F, Stinson, Jr, of the U.S. Bureau of Labor
ics; Doreen Duchesne and Emest Akyeampong, of Sta-
te Canada; Bernard Grais, of the French National Insti-
tute of Statistics and Economic Studies; Hannelore Poschl, of
the German Federal Statistical Office: Sten Johansson, Direc-
tor General, and Anita Olofsson, of Statistics Sweden: and
Grazia Arangio-Ruiz, of the Italian Central Statistical Office.

' For example, see Joyanna Moy, “An analysis of unem-
ployment and other labor market indicators in 10 countries,”
Monthly Labor Review, April 1988, pp. 39-50.

The framework embodying U1 through U7 was intro-
duced in Julius Shiskin, “Employment and unemployment:
the doughnut or the hole?" Monthly Labor Review, February
1976, pp. 3-10. Since that time, the seven indicators for the
United States have been published each month in Table A~7
of the news release, Employment Situation.

» See Constance Sorrentino, “The Uses of the European
Community Labor Force Surveys for Intemational Unem-

March 1993

ployment Comparisons," in Statistical Office of the European
Communities, The Community Labour Force Survey in the
1990s, proceedings of a seminar held in Luxembourg. October
1987 Luxembourg: Office for Official Publications of the
European Communities, 1988), pp. 171-97. Some refine-
‘ments to the adjustments used in that study have been made in
the current article, but these have little effect on the basic rela-
tionships shown for 1984.

* Shiskin, “Employment and unemployment,” pp. 4-5.

§ The definition of U-S was most recently reviewed by the
National Commission on Employment and Unemployment
Statistics (Levitan Commission). See U.S. Department of La-
bor, Final Report of the Secretary of Labor on the Recommen-
dations of the National Commission on Employment and
Unemployment Statistics (Washington, Department of Labor,
October (981). This report is summarized in Robert L. Stein,
“National Commission recommends changes in labor force
statistics,” Monthly Labor Review, April 1980, pp. 1-21.

* International Comparisons of Unemployment, Bulletin
1979 (Bureau of Labor Statistics, 1978), Chapter 5, pp. 48-68.

7 Janet L. Norwood, “Labor market contrasts: United States
and Europe,” Monthly Labor Review, August 1983, pp. 3-7.

* Organisation for Economic Co-operation and Develop-
ment, Employment Outlook, July 1991, pp. 204-8.

” Organisation for Economic Co-operation and Develop-
ment, Employment Outlook, July 1983, p. 63.