📝 How it works
Interviewers ask a sample of people whether they have a job, whether they have looked for work recently and whether they could start work soon. The results from the sample are scaled up to estimate the figures for the whole country.
Employment and Unemployment » Measuring Unemployment
What you'll learn this session
Study time: 30 minutes
Cambridge spec: 4.6.1, 4.6.2
- What employment, unemployment and full employment mean
- Who counts as unemployed and who is in the labour force
- How the labour force survey measures unemployment
- How to calculate the unemployment rate
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Unlock This CourseEmployment, unemployment and full employment
News reports often say things like "unemployment has fallen to 5%". To understand a figure like that, you first need to know exactly who is counted. Economists use careful definitions, and the exam expects you to use them too.
Key terms:
- Employment: the number of people who have a paid job, whether full-time or part-time, including people who work for themselves.
- Unemployment: the number of people who are without a job, are actively seeking work and are available to start work.
Remember, full employment was one of the government's macroeconomic aims. Here is the exact meaning: full employment is a situation where everyone who is willing and able to work has a job. Even at full employment there is still a small amount of unemployment, because people take time to move between jobs.
Notice the three tests for being unemployed. A person must have no job, must be looking for one and must be able to start. A student in full-time education who is not looking for work is not unemployed. Neither is a retired person, or a parent who has chosen to look after children at home.
The labour force
To work out how big a problem unemployment is, we need to know how many people it is out of. That total is the labour force.
Key terms:
- Labour force: all the people who are able and willing to work. It is the number of people in employment plus the number of people who are unemployed.
Labour force formula
Labour force = number employed + number unemployed
People who are not looking for work, such as full-time students, retired people and full-time carers, are outside the labour force. They are not employed and they are not counted as unemployed either.
How unemployment is measured: the labour force survey
A government cannot count every person in the country every month. Instead, many countries use a labour force survey.
Key terms:
- Labour force survey: a regular survey in which a sample of households is asked questions about their work. The answers are used to estimate how many people in the whole country are employed and unemployed.
✅ Who counts as unemployed
Only people who say they have no work, are actively seeking work and are available to start. Anyone who does not meet all three tests is not counted.
The big advantage of this method is that it uses the same questions each time, so the figures can be compared from one period to the next.
The unemployment rate
The number of unemployed people on its own is hard to compare. One million unemployed means something very different in a country with a labour force of 5 million than in one with 50 million. So we use a percentage.
Key terms:
- Unemployment rate: the number of unemployed people as a percentage of the labour force.
Formula
Unemployment rate (%) = (number unemployed ÷ labour force) × 100
Worked example 1
In the made-up country of Halvaria, 18.4 million people are employed and 1.6 million people are unemployed. A further 6 million people are students, retired people or full-time carers.
Step 1: find the labour force. 18.4 million + 1.6 million = 20 million. The 6 million people outside the labour force are not included.
Step 2: apply the formula. (1.6 ÷ 20) × 100 = 8%.
The unemployment rate in Halvaria is 8%.
Worked example 2: working backwards
In the made-up country of Dunmark, the labour force is 5 million and the unemployment rate is 6%.
Number unemployed = 6% of 5 million = 0.06 × 5 million = 300,000.
Number employed = 5 million − 300,000 = 4.7 million.
Worked example 3: numbers up, rate the same
In the made-up country of Pellora, Year 1 has 9.5 million employed and 0.5 million unemployed. In Year 2 there are 10.45 million employed and 0.55 million unemployed.
Year 1: labour force = 10 million, rate = (0.5 ÷ 10) × 100 = 5%.
Year 2: labour force = 11 million, rate = (0.55 ÷ 11) × 100 = 5%.
The number of unemployed people rose, but so did the labour force, so the unemployment rate did not change.
Limits of the figures
The unemployment rate is useful, but it is not perfect. Keep these limits in mind:
- People who have given up looking. Someone who wants a job but has stopped searching does not pass the "actively seeking" test, so they are not counted. The true amount of unemployment may be higher.
- Part-time work. Someone who wants full-time work but has only a few hours a week is counted as employed.
- A sample, not everyone. A survey gives an estimate, which may be a little different from the true figure.
- Different definitions. Countries may count unemployment in slightly different ways, so comparing countries needs care.
Common mistakes
- Dividing by the number employed. The rate is always unemployed divided by the labour force, which is employed plus unemployed.
- Counting everyone without a job as unemployed. Students, retired people and full-time carers who are not looking for work are outside the labour force.
- Thinking full employment means 0% unemployment. Some people are always between jobs.
- Forgetting the × 100 at the end, so the answer is a decimal instead of a percentage.
Exam-style question
In the made-up country of Tarlenia, a labour force survey finds that 27 million people are employed and 3 million people are unemployed.
(a) Define unemployment. [2 marks]
(b) Calculate the unemployment rate in Tarlenia. Show your working. [2 marks]
(c) Explain one reason why the official unemployment figure may be lower than the true number of people who want a job. [3 marks]
Model answer
(a) Unemployment is the number of people without a job (1) who are actively seeking work and are available to start work (1).
(b) Labour force = 27 million + 3 million = 30 million (1). Unemployment rate = (3 ÷ 30) × 100 = 10% (1).
(c) Some people want a job but have given up looking for work (1). They do not pass the test of actively seeking work, so the survey does not count them as unemployed (1). This makes the official figure lower than the true number of people who want a job (1).
Exam tip
In a calculation, write the labour force first. Many students lose a mark by dividing 3 by 27 instead of 3 by 30.