Unemployment is an economic condition in which individuals actively seeking jobs remain un-hired. While this would seem to be straightforward, there are several complications in both measuring unemployment within a country and in comparing unemployment rates from country to country.
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The official unemployment rate is defined as the number of unemployed persons divided by the total labor force (which is the sum of unemployed persons and employed persons).
Definitions of “employed person” and “unemployed person” can make this concept complicated and can contribute to what some economists call “hidden unemployment.” For example:
- A person who loses well-paid, full-time work, cannot find similar work and settles for a job at one-tenth of the pay doing part-time work is classified as “employed.”
- A person who loses a job, actively seeks work for a year and then takes a couple of weeks off from his or her job search (called “a discouraged worker”) not only may no be longer considered unemployed but might not even be counted in the labor force.
Therefore, many economists assert that, if the “hidden unemployed” or the “underemployed” (which are difficult to measure) are taken into account, the actual unemployment rate may be much higher than official statistics suggest.
Economic reports from individual countries or compiled by different organizations may involve different measures of unemployment. Examples of the various measures are:
- A census-type measure of the full labor force, which some critics say may lead to distortions.
- Employment office records, which count those unemployed who are registered in the employment office.
- Surveys of a sample of the labor force; proponents consider this the most comprehensive, as the surveys can be designed to cover virtually the entire population, all branches of economic activity, all sectors of the economy and all categories of workers, including, for example, own-account workers and unpaid family workers.
- The “normal” or “acceptable” rate of unemployment within one country can be different from that in another country, or between countries at different points in an economic cycle.
This is why, to get a truer picture, most economists prefer to look at a variety of statistics, including, for example, labor market participation rate, the percentage of people aged 15 to 64 who are currently employed or searching for employment, the total number of full-time jobs in an economy, and the total number of person-hours worked in a month compared to the total number of person-hours people would like to work.
Nevertheless, unemployment rates remain a useful measure of the health of a particular economy over time.
The unemployment rate has both social and economic implications. Among them are:
- Rising unemployment results in loss of income for individuals, reduced collection of taxes for governments, and increased pressure on government spending on social benefits.
- Beyond its financial and social effects on personal life – long-term unemployment negatively affects social cohesion and hinders economic growth, of particular concern to policymakers.
- The effects of high (and particularly prolonged) unemployment go beyond the borders of a particular nation and can have a major impact on the economies of its trading partners of that nation as well, because reduced employment in one country leads to a decrease in demand for exports from its trading partners.