Measuring Unemployment

The unemployed are those individuals of working age who are capable of work, and are actively looking for work, but who are not employed. If labour is employed, but not effectively used, the situation is called underemployment.

Measuring unemployment

Measuring unemployment accurately is made difficult because of imperfect knowledge. Not all instances of unemployment are recorded, and some records of unemployment may not be accurate. Because the unemployed are eligible for benefits, some individuals may work, but not disclose it, and claim benefit. Conversely, many unemployed may not bother to inform the authorities, and this unemployment goes unrecorded.

The Claimant Count

The Claimant Count records those claiming unemployment benefit (Job Seekers Allowance, or JSA) and can prove they are actively looking for work. It excludes housewives and those on training schemes.

How useful is the Claimant Count?

The Claimant Count may not reflect the true level of unemployment in the UK economy, given that not all the unemployed will bother to claim, and some are deterred because they cannot prove they are looking for work. This is especially true of part-time employeeswho are much less likely to register as unemployed compared with full-time workers. While some individuals may fraudulently claim, it is generally recognised that the Claimant Count under-estimates actual unemployment levels.

UK Claimant Count

The International Labour Organisation (ILO)

The labour force survey is undertaken by the International Labour Organisation (ILO) and is a more direct assessment of unemployment, rather than those who claim benefit.  It is based on an interview of a sample of 60,000 households (approximately 120,000 people) and tries to measure ‘unemployment’ as a whole, rather than those simply claiming benefits. To be considered as being unemployed individuals must:

1. Have been out of work for 4 weeks.
2. Be able to start work in the next 2 weeks, so they must be readily available for work.
3. Workers only need to be available for work for one hour per week, so part-time unemployment is included in the measurement, though these workers are unlikely to claim unemployment benefit. This tends to make ILO unemployment much higher than the Claimant Count.

UK unemployment 

The ILO survey gives a higher figure than the Claimant Count. Sustained growth between 1994 and 2008 pushed UK unemployment to a record low. Largely as a consequence of the financial crisis in 2008, the UK, along with many other advanced economies, went into a deep recession, with unemployment peaking at just under 2.65 million in the first quarter of 2012.

Youth unemployment

EU unemployment

Long term youth unemployment

How useful is the ILO survey?

Since 2003, the Labour Force Survey has become the UK government’s official measure of unemployment. However, critics argue that it over-estimates true unemployment by including people only looking for a few hours of part-time work per week. In addition, like all samples, it can be subject to sampling error, which reduces its accuracy.

The costs of unemployment

Opportunity cost.

Unemployment represents an opportunity cost because there is a loss of output that workers could have produced had they been employed. The government also spends more on unemployment benefit; hence there is another opportunity cost. The money going on unemployment benefit could be spent on hospitals and schools.

Waste of resources.

Resources not employed are left idle, and this is a waste to an economy – education and training costs are wasted when individuals who have received these benefits do not work.

The Chancellor loses revenue.

The unemployed do not pay income tax, and pay less indirect tax as they spend less.

Erosion of human capital.

Many skills are acquired at work, and being unemployed means can mean fewer new skills are acquired, and existing skills are lost.

Lower incomes.

The unemployed have lower personal incomes and lower standards of living. In addition, the unemployed also experience relatively poor physical and mental health.

Externalities.

There are further external costs associated with unemployment, such as increased crime, alcoholism and vandalism.