Measurement of Unemployment

October 13, 2010Unemploymentby EconomyWatch


Unemployment accounts for the part of the labor force willing to work at the current wage rate. The definition of unemployment may sound simple but its computation is equally difficult. Various measures are devised to measure the same. In this article we have elucidated some such measures.
Claimant Count

This method of calculating unemployment was widely used in the 1980s as well as the 1990s. This method, basically takes account of the number of heads unemployed and receiving unemployment benefits. Computation should be done with care since there may be double counting of people who have registered themselves in employment exchanges and those who are receiving the unemployment benefits.

The method has two advantages of calculating unemployment by using administrative records. Firstly, this method takes a complete count of the unemployed and so it is free from any sampling error.

Secondly, Obtaining such data is also very cost effective and is available on a regular basis.

However, this method of computation is fraught with certain limitations. The collection of data follows administrative rules and regulations, which may not be in line with statistical principles. Again, since different countries follow different computational rules, it is difficult to compare the unemployment statistics across different countries. Another difficulty is that the rules tend to change over time and so the unemployment data cannot be compared across different time horizons.

Another disadvantage of using the claimant count as a measure of unemployment is that it takes into account only that portion of the population, which has registered themselves in the employment exchanges or has claimed unemployment benefit.
The individuals who have not registered in both but are unemployed are left out of the unemployment count of the administrative records. Hence, the administrative records give a lower estimate of the actual employment scenario.

The above-mentioned limitations of administrative records gave rise to the most current computation method, that of Labor Force Survey.
Labor Force Survey

The Labor Force Survey is done by taking household samples. A standard questionnaire is prepared. All individuals in the workable age are asked about their employment status and the relevant data is taken. Individuals are next classified into employed, unemployed or economic active. The sample data is then utilized to estimate the number of individuals employed, unemployed or underemployed.

The labor force survey also has many disadvantages. The use of standard questionnaire is itself faulty. The respondents may provide subjective answers, which in some case may be misleading. Next, the sampling method has many statistical errors, which gets magnified with smaller size of the sample. Again a well-equipped statistical infrastructure is mandatory for a more accurate collection of data. Experienced supervisors and interviewers are required.

The greatest advantage of this computational method is that they meet international standards. Unemployment statistics obtained hence can be used to compare data across countries and across different periods of time.

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