Who is unemployed?

The rise in unemployment to a 17 year high is very bad news for the UK economy. The cause of the unemployment is a combination of factors:

1. Cuts in public sector jobs
2. Slow private sector growth
3. Rising productivity

I am not going to get into the argument about how to solve this situation again. I am interested in two points that arise from The Guardian article linked below.

The economy is growing at 'about half the rate needed' to keep the unemployment rate stable according to one commentator. So the economy is growing, but unemployment is rising. How is that possible? The answer is that each year labour productivity improves, and so to produce the same amount of goods and services each year less workers are needed. A rule of thumb is that 1% Real GDP growth offsets productivity gains to maintain the level of employment.

Therefore the UK is not growing nearly fast enough to keep unemployment stable.

The other point is how we measure unemployment. The economic definition for being unemployed is that the worker is " Willing and able to work at the current wage rate, but cannot find a job". To meet this criteria someone who is unemployed must be able to start full time work in a suitable job at the wages offered in the market.

When someone wants to work but thinks the wage on offer is too low they are voluntarily unemployed (i.e. they fail the 'willing' part of the test). The way the Labour Force Survey measures unemployment means that it can count some people as unemployed when they actually are not willing to work. At this point I should point out that the LFS is more accurate than the Claimant Count which clearly understates unemployment.

The issue raised in the article is that over a quarter of a million of the youth unemployed are in full time education. The Minister thinks they are not properly unemployed as they fail the 'able to work' criteria. This is an issue that arises in every period of high unemployment. Education is often referred to as the 'employer of last resort', if you can't find a job keep busy on a course.

Here the difference between the official statistics and what economists mean by unemployment is highlighted and is useful material for examples when asked about the limitations and advantages of the measures of unemployment. This question comes up in about 50% of F582 papers.

The Guardian article is here

Don't forget the BBC website that provides interactive data in the useful links box on the bottom right