Unemployment rate

**Unemployment rate** is a key measure that shows how many people in the labour force want a job, do not have a job, and are actively looking for work. Governments, international groups, and researchers use it to study the health of an economy. The measure has limits. It shows changes that have already happened and may not show the current situation. It also does not include people who stop searching for work and become inactive, or people who are in poor quality or informal jobs. Because of these limits, the unemployment rate cannot be used by itself to describe the full condition of the labour market.

## Equation

The unemployment rate is the number of unemployed persons divided by the total labour force.

The total labour force is the number of people who are unemployed plus the number of people who are employed. These are the people who are working or actively looking for work. Some people are outside the labour force. These are non-participants who do not have a job and who are not searching for work. Many non-participants, apart from children and older people, stop searching for work because they feel the labour market is difficult or closed to them.

## Definition of the employed

People are counted as employed when they have:

- paid employment, such as wage or salary work
- self-employment, such as employers, own account workers, or unpaid family workers
- underemployment, where a person works fewer hours than they would like

A person who has a job but is away because of illness, holiday, or a small dispute is still counted as employed.

## Definition of the unemployed

People are counted as unemployed when they:

- have no job,
- are actively looking for work, and
- are available to start work.

The unemployed group includes:

- short-term unemployed
- long-term unemployed
- attached workers who expect to return to a former job
- unattached workers who do not expect to return

### Types of unemployment

Economists usually describe four main types of unemployment:

1. **Cyclical unemployment** comes from low demand for goods and services. When the economy becomes weak many workers lose their jobs.
1. **Frictional unemployment** is always present. It comes from workers who move between jobs. This may happen because of personal choice, skill changes, or the time needed to shift from one job to another.
1. **Structural unemployment** happens when worker skills do not match the open jobs. It may also occur when jobs are located in other regions or when new technologies replace old work.
1. **Equilibrium unemployment** is the unemployment that remains when the economy uses its resources fully. It includes frictional and structural unemployment and can exist even during steady growth.

## Sources of unemployment statistics

Countries usually collect unemployment data from three main sources:

- claims for unemployment benefits
- lists of job seekers held by employment offices
- labour force sample surveys

Labour force surveys ask people directly if they worked during the reference week, if they looked for work, and if they are available to start work. These surveys are the international standard.

## Consequences of higher unemployment rates

1. **Economic loss**. Unemployed people are unused labour resources. The goods and services they could produce are not created, which reduces national output.
1. **Harm to human capital**. Human capital means the skills and experience people gain through education and work. Long periods without work weaken these skills.
1. **Greater inequality**. The unemployed and underemployed lose more income than the employed, which widens income gaps in society.
1. **Social and psychological costs**. High unemployment can lead to loss of trust, social unrest, and emotional stress. People want to feel needed, and lack of work can cause strong personal harm.

Many economists say that real unemployment and the hidden costs of underemployment can be reduced through careful structural changes. These changes can include improving education programs, giving training support, correcting unfair hiring practices, helping immigrants enter the labour market, and offering apprenticeships in public agencies. Such measures are seen as more effective for long-term progress than short-term fiscal or monetary policies.

## References

- Bean, R. (ed.) (2019). _International Labour Statistics: A Handbook, Guide, and Recent Trends_. Routledge, Abingdon, Oxon.
- Lipsey, R. G., & Chrystal, R. (2020). _Economics_ (14th ed.). Oxford University Press, Oxford.

## See also

- Unemployment