Measuring Unemployment

Two Main Measures

1. Unemployment is measured in two main ways.
2. The claimant count records those claiming unemployment-related benefits.
3. The Labour Force Survey underpins the ILO measure, a large sample survey of the population.
4. The ILO measure counts everyone available for and actively seeking work, whether or not they claim benefits.

Calculating the Rate

1. The labour force = the number employed + the number unemployed.
2. The unemployment rate is the share of that labour force which is without work, expressed as a percentage.
3. It is measured against the labour force, not the whole population, so the economically inactive are excluded.

$$Unemployment\; rate=\frac{Unemployed}{Labour\; force}\times 100$$

Why the Measures Differ

1. The claimant count misses those seeking work who do not qualify for benefits.
2. It can also include some claimants who are not genuinely seeking work.
3. Changes to benefit rules alter the claimant count without any real change in unemployment.
4. The two measures therefore rarely give the same figure, and the ILO measure is usually higher.

Difficulties in Measurement

1. Hidden unemployment, such as discouraged workers, is missed by both measures.
2. The underemployed are counted as employed, which understates spare capacity.
3. Survey samples carry sampling error, and self-reported answers can be inaccurate.
4. The informal economy is hard to capture, especially in developing economies.

Which measure gives the truer picture?

1. The claimant count is cheap, quick and objective, because it comes from administrative records, but it is narrow: it misses jobseekers who do not qualify for benefits and shifts whenever the benefit rules change, so it usually understates true unemployment.
2. The ILO measure from the Labour Force Survey is broader and internationally comparable, because it counts everyone actively seeking work, but it relies on a sample and self-reported answers, so it carries sampling error and still misses hidden and informal unemployment.
3. On balance, the ILO measure is generally the more reliable guide, though no single figure captures the true slack in the labour market, so it is best read together with the claimant count and alongside the inactivity and underemployment data.