Macro & Micro economics
Topic:
unemployment rate
Type of work:
Term Paper
The unemployment rate is probably the mostly-known labor market measure that many countries quote as macroeconomic measures. The measure is considered fundamental in assessing the underutilization of the labor supply (ILOSTAT 1). The measure reflects the economy not being able to generate employment opportunities for its citizens who can work but are not working. These individuals are available for employment and actively looking for those employment opportunities. To this effect, the unemployment rate is the indicator of the economy’s efficiency and effectiveness to absorb its labor force and also how the labor market is performing,
Notably, due to its utility in conveying valuable information on the country’s current labor market situation and that it is broadly acknowledged as a headline labor market indicator, it would be included among the indicators measuring progress towards the attainment of the Sustainable Development Goals (ILOSTAT 1). Specifically, Goal 8 of the SDGs focussed on promoting sustained, inclusive, and sustainable economic growth in conjunction with the attainment of full and productive employment for every individual part of the working population.
Measuring Unemployment Rate
Calculating the unemployment rate entails expressing the number of unemployed individuals as a percentage of the total number in the labor force. The labor force, also known as the economically active population, is the total number of individuals employed and the number of individuals unemployed. Therefore, measuring the unemployment rate needs the measurement of both employment and unemployment.
The unemployed constitute all the individuals of working age that were either without work during the reference duration that is not being paid either in employment or in self-employment. Other categories falling under the unemployed category also include those available for work currently during the reference duration and those looking for a job that has taken specific steps within a particular recent period to look for either paid employment or self-employment. Future beginners, that is, individuals who did not have employment opportunities but have a coming labor market stage, are also considered under the unemployed category in conjunction with the participants in the skills training or retraining schemes that the payment promotion programs.
The data on unemployment is obtained monthly through the Current Population Survey, which surveys about 60000 households. This survey is done b7y the Census and the Bureau of Labor Statistics every month, which encompasses an estimated 105000 citizens aged 16 and above (Stephanie). The questions on unemployment will refer to what the individuals were during the week, which includes the 12th of the month, called the reference week. Therefore, the survey released on the first Friday of Mark will cover the second week of February. The Current Population Survey is also known as the household survey, which is essential for differentiating it from the establishment survey that looks into the number of individuals in the employer payrolls (Stephanie). Thus, the tally on payrolls in January 2021 demonstrated that the American economy had recovered 9.9 million of the 22.4 million jobs lost since the start of 2020. This increase in recovered jobs would hence reduce the country’s unemployment rate.
For the last three years, the unemployment rate in the American economy has been at different levels, which has been the result of various economic times. In 2019, the unemployment rate had fallen to 3.5%, which was the lowest rate since 1969 (Edwards and Sean 1). Over this year, there has been an increase in the employment-population ratio and the civilian labor force participation rate. This was a decade from the end of the Great Recession, and the American economy had demonstrated consistent expansion, and the labor market was remaining by historical standards. This low unemployment rate was consistent with other labor force measures since they have shown constant improvement. The total employment measured by the Current population Survey did expand by 2million, and the employment-population ratio did increase to reach 61% (Edwards and Sean 1).
Conversely, in 2020, the unemployment rate increased, which was substantially attributed to COVID-19. The unemployment rate surged to 13% in the second quarter of 2020prior to easing to 6.7% in the final quarter of the year (Smith et al. 1). While some individuals were able to work at home, the numbers representing those in a temporary layoff or working part-time due to economic reasons or were unemployed for 27 or more weeks grew sharply over the year. The pandemic prevented individuals from opening their businesses due to the strict lockdown measures, and those that were unemployed could not look for any work. This year, the total civilian employment was reduced by 21 million. At the same time, the unemployment rate tripled from 3.6 to 13%, which was the highest quarterly average unemployment rate in the history of the Current Population Survey (Smith et al. 1).
Similarly, other countries and the global economy did face increased unemployment rates due to the COVID-related restrictions. 93% of the global workers who lived in countries where workplace closure measures were affected considerably (International Labour Organization 1). The global labor markets were disrupted in 2020 on a historically unprecedented scale. Thus, 8.8% of the worldwide working hours would be lost in the year concerning the final quarter of 2019, which was equivalent to 255 million full-time jobs. The losses in working hours were exceptionally high in Latin America and the Caribbean regions, Southern Europe and Southern Asia. This decline in working hours in 20 led to a loss of employment opportunities and a reduction in working hours for those that remained employed (International Labour Organization 1). The losses in employment were highest in the Americas while lowest in Europe and Central Asia. The latter regions experienced lower unemployment rates because of job retention schemes that supported the decline in working hours, especially in Europe. Global unemployment rose by 33 million in 2020, where the unemployment rate rose by 1.1% points to reach 6.5% (International Labour Organization 2).
The Limitations of the Unemployment rate
It is important to note that the unemployment rate is not the most accurate measure for labor underutilization. Labor underutilization is the mismatch between the demand and supply of labor, prompting an unmet need for employment (ILOSTAT 1). Unemployment is generally at the center of labor underutilization, considering that the unemployed are the most straightforward, most explicit individuals facing the unmet need for employment. Therefore, the unemployment rate will commonly be the only measure of labor underutilization (ILOSTAT 1). However, using this measure solely only provides a partial perspective of labor underutilization considering the particular possibility of having unused labor supply within the employment or those that are outside of the labor force after quitting from the job searches or are not currently available for work,
This measure of joblessness fails to be accurate simply because it fails to consider everyone that does not have a job. Also, the unemployment rate will focus on a particular population (The Unemployed) and not go further into providing explanations regarding the situations of individuals in employment or about the individuals outside the labor force. Whether the individuals who have escaped the unemployment rate are doing decent jobs or whether the jobs provide satisfactory working and living conditions (ILOSTAT 1). Policy stakeholders must acknowledge that so much goes beyond having a job that the unemployment rate as a measure in isolation fails to recognize and analyze. Therefore, even if it is a valuable and fundamental measure, there is still a need for a comprehensive understanding of the labor market and its underutilization. This is done by using additional indicators alongside the unemployment rate. One of the indicators is the real unemployment rate that is usually referred to as the U-56 measure. It is reported monthly in the jobs report along with the unemployment rate and other four measures of unemployment (Dixon). This measure considers the underemployed and the marginally attached workers, including discouraged and unemployed individuals.
Conclusively, one cannot underestimate the valuable insights provided by the unemployment rate in the labor market. An increase in the rate will demonstrate the need to create job opportunities or create a better business environment. In contrast, a reduction will show the economy being on the right path to creating employment. Notably, the assessment of unemployment needs to go beyond identifying this rate. It is prudent that other unemployment indicators are incorporated to understand further the situations in which the employed and unemployed conditions have been facing during the reference duration.
Works Cited:
Aaronson, Stephanie. “What Does the Unemployment Rate Measure?” Brookings, 17 Feb. 2021, www.brookings.edu/blog/up-front/2021/02/18/what-does-the-unemployment-rate-measure/.
Dixon, Amanda. “Top 5 Problems With the Unemployment Rate.” SmartAsset, 21 May 2018, smartasset.com/career/problems-with-the-unemployment-rate#:.
Edwards, Roxanna, and Sean M. Smith. “Job market remains tight in 2019, as the unemployment rate falls to its lowest level since 1969.” Monthly Lab. Rev. 143 (2020): 1.
ILOSTAT. “Indicator Description: Unemployment Rate.” ILOSTAT, https://www.ilo.org/ilostat-files/Documents/description_UR_EN.pdf
ILOSTAT. “Avoiding unemployment is not enough: An analysis of other forms of labour underutilization1.” Spotlight On Work Statistics (2018).
International Labour Organization. “ILO Monitor: COVID-19 and the World of Work.” Updated estimates and analysis. Int Labour Organ (2020).
Smith, Sean M., Roxanna Edwards, and Hao C. Duong. “Unemployment rises in 2020, as the country battles the COVID-19 pandemic.” Monthly Lab. Rev. 144 (2021): 1.
