Ever since the economic crisis hit Europe, Greece and Spain have attracted media attention over their astoundingly high youth unemployment. Leading economic analysts have decried that over half of these countries’ young people – 58 per cent and 55 per cent respectively in 2013 – are jobless and desperate. By contrast, the UK’s youth unemployment rate was ‘only’ 21 per cent. More recently the spotlight on France has spawned commentary around their ‘youth unemployment’ of 40 per cent as a possible cause of discontent and radicalisation in the Paris banlieues.
Are these figures wrong, or are they misinterpreted? The percentages weren’t wrong as such. What has been and remains problematic is analysts’ and commentators’ understanding of unemployment rates. Let us remember the unemployment percentage is only a proportion of the labour force, not of the population. So it’s wrong to assert that 50 per cent or even 20 per cent of young people are unemployed.
Furthermore, the labour force is a fuzzy concept that few can visualise clearly. It is made up only of people in paid employment (that means working at least one hour a week) together with those who have done not a single hour of paid work but are actively searching for employment. The term ‘labour force‘ excludes all who have found a job but cannot start immediately; those who have given up their active search for a paid job but still want one; all who do unpaid care work at home or for relatives; as well as students and pensioners. So the unemployment rate is the percentage of the unemployed within the whole cake of unemployed and employed together – a cake already shrunk by excluded ‘ingredients’.
But for an accurate political discussion of unemployment, and especially a useful one for understanding unemployment among the young (aged 16-25) and among core age women of 25-49 (covering the long child-rearing age), there is a better statistic: the unemployment ratio, which is the percentage of unemployed over the population of those age/gender groups. This is not based on the labour force, but on the hard data of population censuses.
Differences between the two measurements can make a dramatic difference to interpretation. Yet even renowned economic analysts and commentators have tended to confuse the two measurements and conflate the ‘young labour force’ (the basis of the unemployment rates) with the ‘young population’ (the basis of the unemployment ratios). As a result, public political discussion has been distorted. For instance, much of public opinion in Britain believed that over half of Greek or Spanish youth are unemployed, when the actual figure was closer to 16 per cent and 20 per cent respectively, and this had gone down to 15 and 19 per cent by the end of 2014. The confusion was due to writers having given us the correct figure for the unemployment rate but interpreted it as if it were the figure for the young population.
Figure 1: The Youth Unemployment Ratio (proportion of young population) contrasted with the Youth Unemployment Rate (proportion of labour force), by EU country and totals
Source: Eurostat latest all-EU harmonised whole year averages for 2013 (see data table).
The graph shows that such confusion makes a startling difference, and why it cannot be ignored in debates about the crisis. The yellow columns of unemployment rates do show that Greece and Spain (and Croatia and Macedonia) have double the unemployment rates over labour force than others, including the UK. Nonetheless the UK’s performance is 2 to 3 points worse – not better than – the EU-28 average. By contrast, the dark blue unemployment ratios show that the young population is a great deal less affected by unemployment and in this context, the UK has a greater proportion of young unemployed among its population than Denmark, Germany, France, even Poland and other Eastern European countries, and more than the EU average. In fact, the UK’s performance – in unemployment ratio over youth population terms – is the 7th worst of all. This means that our public conversations need to recalibrate previous flattering or nationalistic comparisons of the UK to the EU.
Of course neither the rate nor the ratio are measurements that should be used as synthesis indicators of a country’s complete labour market performance – yet they are consistently published as if they did. Many young people in apparently underperforming high unemployment economies may simply have stayed on longer in education, which is currently seen as a good thing in general, yet it shrinks the young labour force. This automatically makes the number of unemployed look like a larger proportion of a smaller labour force. It means that high unemployment rates may paradoxically hide the positive phenomenon of better education.
But equally, young graduates may have withdrawn from the labour market, no longer seeking jobs, disillusioned and not counted as ‘active’, thereby reducing the number counted as unemployed. This may be the case in the countries that show up as having much lower unemployment ratios than rates. Their young people may simply have been classified as ‘inactive’, so are left out of the whole unemployment debate and are only present within the population statistics. A concern for the size of the truly ‘inactive’ young persons has already led to the creation of the NEETs indicator (not in employment, education or training), which has become a revealing social indicator for some young people’s difficult predicament. But it is a composite of several social indicators rather than the result of the enormous Europe-wide Labour Force Survey that provides abundant harmonised data for international comparisons.
Of course the problem of the casual mini-jobs and of the forgotten ‘inactives’ are not the only contested issues in research on employment, and Guy Standing has published a number of challenges to the Labour Force Survey, culminating in the call to ‘Reform labour statistics’ in A Precariat Charter. There are enough critiques now to show that a full reformulation of the International Labour Organisation’s data-gathering procedures is urgently needed, given the unrealistic active/inactive criterion, and the fact that it is far too difficult to be classified as unemployed and far too easy to be ticked off as employed.
But so long as the International Labour Organisation convention retains the one hour of paid work = ‘employed’, northern hemisphere countries with efficient counting of their myriad mini-jobs that are impossible to live on – such as the UK – look like economic powerhouses instead of being reminiscent of the old ‘under-developed’ world. And this is even before challenging the conventional obliteration of the socially necessary yet unpaid care work from public understanding of productive activity and how people earn their living.
- This article was originally published in the LSE British Politics and Policy blog.
- This post gives the views of its author, not the position of LSE Business Review or the London School of Economics.
Monica Threlfall is a Reader in European Politics at London Metropolitan University.
Let’s see if I can get this right. Say you have a population of 100 young people. 10 of them are economically active but unemployed. If there are 20 econ active in total the unemployment rate is 50%. If there are 40 econ active this is 25%. But in both cases the unemployment ratio is 10%. But isn’t it a healthier economy that has 40% of youth in the Labour force than only 20%? So I would have thought the unemployment rate was quite a good reflection of how an economy is working for young people? Maybe I am confused?
Is a country with a high proportion of young people on the labour market a “healthy economy” as you suggest? The young category starts at 16 – up from 15 not so long ago – and stops at 24 in Eurostat calculations. So why not ask: shouldn’t they be doing A-levels, at FE Colleges, or studying for a degree? Yes, they should in a skills- based economy. If they are in work it is more likely to be in unskilled jobs with low pay leading to low productivity. And Should they be studying and working at the same time? Probably not, if you’ ve had to deal with students trying to juggle these commitments. It would be interesting to see whether research shows that students with no jobs get better degrees than students who have to spend a third or half their time earning the money to live on while they study.
An interesting article, and there are certainly some merit in looking at the unemployment ratio at times. Of all labour market statistics, this is probably one of the most misunderstood. It is worth noting that your definition of the those excluded from the labour force is slightly misleading as you include students and pensioners. However, it is quite possible for both to be classified as employed or unemployed and therefore part of the labour force. Many students work (and are therefore classed as employed even though they may be in full-time education, and I note your comment on whether this is a good or bad thing – this would be interesting to know) and likewise students can be actively looking for and available to start work while in full-time study. Also, a recent feature of the current labour market is that an increasing number of people over the state pension age have either returned to work, remained in work or are actively looking for work. Again, one could argue the merits for and against this – certainly it reduces the potential number of jobs available to those of a younger age.
Thank you for sharing your reflections on my article. Can I quickly clarify that it is the unemployment RATE not the RATIO that is misunderstood – this was probably just a slip on your part. And you are right that the old clear-cut separations between people who ‘work’ and people who don’t are breaking down – or returning to pre-industrial patterns. As to students, a person is ‘active’ as soon as the are doing on hour of work for pay or profit and what they do with the rest of their time is irrelevant as they can’t be classed as ‘inactive’. The key problem is that there is no standard, recurrent, internationally comparative survey of what the millions of ‘inactive’ do, and my argument is that there should be such a thing, because much unpaid care work is socially necessary work and should be recognised for income and pension purposes.
A plea for a more sympathetic attitude towards pensioners who need employment to top up their measly state pensions. Do you suggest they should be a) living on the breadline with their mean pensions, becoming dependent on food banks? ; b) depend on their children’s variable generosity, if they have them; c) receive a new benefit from the state to top up the low pension? which really means higher state pensions.
Also there is no such thing as a fixed number of jobs available (in economic analysis). When labour is cheap, more low paid jobs appear, because businesses can always use an extra pizza delivery man, or an extra waitress, or office gofer. Pensioners don’t compete for higher skilled jobs because if they are still that skilled it ‘s because they’ve been in a good job before and are receiving a supplementary pension. And if businesses prefer to employ older rather than young workers, that’s their choice – it could be the other way round.
More worrying is the question of the shrinking prospects of a good pension for younger workers today! You can’t blame older workers for that .