This commentary examines unemployment rates in the UK and selected other countries, especially in the post-2007 period.
Unemployment rates measure the percentage of the workforce who are currently out of work but are seeking employment. Different countries have different ways of measuring it.
For example, the UK series counts people as unemployed if they are not in employment and have been looking for work in the last four weeks and if they are able to start work within the next two weeks. It makes no difference if the person is looking for a full-time or a part-time job or is claiming Jobseeker’s Allowance or any other benefits. The unemployment rate also includes those who are out of work but who have found a job and are waiting to start in the next two weeks.
The OECD publishes ‘harmonised unemployment rates’. This attempts to measure unemployment in a consistent way across countries – defining the unemployed as people of working age who are without work, are available for work, and have taken specific steps to find work.
Unemployment is often divided into different categories. Two of the broadest categories are structural and cyclical. Cyclical unemployment is due to fluctuations in economic activity – booms and busts – which are generally thought of as the result of fluctuations in aggregate spending. In the face of such fluctuations and – given a reluctance or an inability to change prices and wages immediately – firms tend to hire or lay off workers. Fiscal policy and – nowadays especially – monetary policy are the instruments governments use to deal with cyclical unemployment: by relaxing or tightening policy they can influence aggregate spending and possibly smooth it. The rise in unemployment following the financial crisis in 2007 is a recent example of a rise in cyclical unemployment.
Structural unemployment is unemployment that is due to certain structural features of an economy such as: a mismatch between the skills in the labour force and those required by employers; difficulties in moving easily to where jobs are available; social policies which make work a poor alternative to remaining unemployed; labour legislation which affects an employer’s ability to hire and fire workers; technological changes which make certain types of worker obsolescent. Policies to deal with this type of unemployment fall under the heading of structural reform. They include things like: reform of the welfare system and of industrial relations legislation; improving the access, especially of the young, to training; improving transport facilities; and improving the government entity which matches the unemployed to vacancies.