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June 5, 2014

This is why it's so hard to define unemployment

WASHINGTON — What does it mean to be unemployed? Depends on what country you're in.

On Friday, the U.S. Labor Department is slated to release its monthly snapshot of the health of the labor market. Calculating the number of people who are unemployed seems like a pretty straightforward task. But the years since the Great Recession have highlighted the complexities of one of the country's the most critical economic indicators.

There is universal agreement that unemployed people meet two basic requirements: They don't have a job, and they want a job. Those characteristics separate the unemployed from, say, your 90-year-old grandmother who is retired and has no interest in working

It is the third requirement that gets messy: Unemployed people must also be looking for work. But what counts as "looking for work"? Applying for a job? Scanning a job board? Updating your resume? Signing up for LinkedIn?

The difficulty in settling on a single definition becomes clear when comparing the United States to our neighbors in the north. The official definition of unemployment in America requires "actively" looking for a job in the past month. That includes contacting an employer directly, visiting a job placement center and sending out your resume. It specifically does not include so-called "passive" actions such as scanning a newspaper jobs section.

The opposite is true in Canada. The country's official statistical agency lists "looked at job ads" as one of the acceptable methods of searching for employment. Statistics Canada said that if the country's unemployment rate were adjusted to match the U.S. measurements, it would fall from 6.9 percent to 5.9 percent.

"Most industrialized countries, including Canada and the United States, subscribe to guidelines established by the International Labour Office for defining and measuring labour market status, including unemployment. However, the guidelines are, by design, rather imprecise, so that individual countries can interpret them within the context of their own labour markets," the agency explains on its website.

In fact, until last year, the ILO was pretty lax in requiring countries - particularly in the developing world, where labor markets are still heavily informal - to incorporate "looking for work" into their definitions of unemployment. For example, South Africa used to publish two unemployment rates: an expanded rate of people who were simply out of a job and wanted to work and a strict rate of people who also had actually looked for a job or tried to start their own business. The differences could be stark: In 1999, the expanded unemployment rate was 36.2 percent, but the strict rate was 23.3 percent.

"It's messy enough in the high-income world where we have markets and statistics and surveys, but when you start going into the developing world, it becomes much more difficult," said Andrew Burns, lead economist of the Development Prospects Group at the World Bank. "The definitions all fall apart."

The ILO facilitates decisions by the International Conferences of Labour Statisticians. The group has tried to accommodate the world's evolving labor force by refining its wording. Countries are now required to include job search within their definitions of unemployment. Those who are out of a job and want a job but are not looking are considered part of the "potential workforce." The ILO also now distinguishes between people who are employed and people who are working more broadly, for example, in subsistence agriculture.

Statistics are not just numbers. They are an attempt to categorize and quantify the infinite variations in human behavior. No wonder the data always feels incomplete.

"We're looking at this thing that we think we know what it is using different lenses," Burns said. "Depending on the lenses that you're using, you'll get a slightly different picture. There's no right and no wrong answer."

 

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