Employment and unemployment are very critical economic indicators. Therefore, it’s crucial to understand how the figures for unemployment are obtained and assessed. Thus, there is need to figure out which people are termed as unemployed. In the UK the ONS quotes the unemployment figures after every three months which is the time when the Job Seeker’s Allowance (JSA) claimant is offered. In the UK, the Labor Force Survey (LFS) is accountable for getting the statics which is then utilized by the ONS. The paper provides an analysis of how unemployment is measured in the UK, and this is complemented with a graph on the unemployment levels since the year 2007 to the year 2017.
The figures used to measure unemployment in the UK are collected based on the international definition. Thus, for anyone to be categorized as unemployed they ought to be able and willing to work, have been in search of jobs for 4 weeks or they are waiting to get a new job. Therefore, any individual who is not working but does not fall under the criteria mentioned above, they are referred to as economically inactive. In every quarter, the LFS collects data for 100,000 individuals in approximately 40,000 households who are obtained by random sampling (McGuinness and Brown 2017). The results are then weighted and analyzed to provide inferences on the entire UK economy. The sample size is rather large which means that the results are reliable. However, every research is subject to uncertainty and errors, as such, there is plus or minus 3 percent allowance for the unemployment levels (McGuinness and Brown 2017).
There are arguments that the ONS ought to use a larger sample to have monthly figures and make inferences that are more accurate. Therefore, some parties argue that the small sample size is a shortcoming on the unemployment estimation method. However, the move would require massive resources and the survey would be very complicated. The estimates of carrying out monthly reviews in the UK is estimated at around £7 million in the 1990s which means that at the moment its far more expensive (Crisp and Powell, 2017). A monthly survey would be preferable, for example, it’s possible to assess the unemployed people in the UK from April-June and compare the results with from May-July. The challenge is that this would be a lousy idea bearing in mind that the May and June statistics would feature on both sides. The other problem is that due to the small size of the sample used, it would not be appropriate for having a monthly analysis (McGuinness and Brown 2017).
Before the year 1998, the LFS results were only published once a quarter, and the frame that is currently being used had been obtained at the time. The UK is split into 212 subsections for data collection. The data is collected in 13 weekly groupings with each being randomly received in the 13 weeks of each quarter (Heyes, Tomlinson and Whitworth, 2017). The method is useful as it ensures that within the three months there is certainty that the sample featured represents the entire region which would not be the same case if the monthly basis is used. However, ONS provides numerous monthly estimates on unemployment and inactivity on a monthly basis. However, the disadvantage is that the monthly views tend to be somewhat volatile and unreliable when compared to the quarterly ones based on the reasons discussed above and as such they cannot be used effectively for the statistics (McGuinness and Brown 2017).
The other method for unemployment is the claimant count which is normally available for every month. The claimant count is not as complex as the unemployment rate, and as such it’s not affected by the sample size or the sample frame (McGuinness and Brown 2017). The values obtained from the JSA claimants and the results are provided for every region. The problem with JSA is that it’s only a few people who are not working who tend to qualify for it. The other disadvantage is that JSA claimant is a narrow measure and not an accurate reflection of the unemployment levels in the UK. Another critical challenge is that the data obtained via these data cannot be compared with other countries because it is not calculated using international standards.
The claimant count method assesses the unemployment levels by taking data about the number of individuals who receive the jobseekers allowance. The JSA can be classified into two main categories. The first is the contribution based, where if an individual has paid two years NI contributions, then he/she receives the JSA regardless of their income and savings levels. The first category is eligible for six months (McGuinness and Brown 2017). The next category is referred to as the income-based where those individuals with low income and savings level can make claims. The method is not subject to making a certain level of NI contributions because the assumption is that the income levels are too low.
The first disadvantage is that the claimant method is prone to misuse which explains why the UK government has been forced to alter it about 30 times since the year 1979 (McGuinness and Brown 2017). The main reason is to minimize the claimants. Therefore, it’s difficult to compare unemployment levels using the method because it keeps on changing. The process is inefficient since people who are in the pension bracket may claim pensions as opposed to JSA. Some individuals may fail to claim it even though they qualify. The other group of individuals who may be omitted from this method is those who are interested in part-time work as opposed to working full-time. The other concern is that some individuals may be qualified as claimants but would be classified as inactive as opposed to being unemployed (Martin, Sunley, Gardiner and Tyler 2016).
Figure 1; Unemployment in the UK between years 2007 to 2017 (source: Office of National Statistics)
The unemployment level was low during the high boom of the years the 1990s to the 2000s. There was a fall of 5%. Therefore, a high percentage of the people were employed. However, in the year 2008, there was the misfortune of the great depression which triggered the rise of unemployment because many people were being laid off. The recession is said to have lasted between the years 2008 to 2013 which can be seen by the high unemployment rates in diagram 1 above. The period is associated with the reduced performance of the GDP. The unemployment has been dramatically focused on by economists with the weak economy being pointed out as the primary factor behind the occurrence (Martin, Sunley, Gardiner and Tyler 2016). However, even though depression has persisted yet from diagram 1, its evident that the peak for unemployment was at 8.5% but has seen dropped as from 2011 (Crisp and Powell, 2017). Economists cannot explain the occurrence noting that the unemployment level fell much considerably in less severe depressions. However, the lower unemployment during the period can be explained by some factors. The first reason is that the real wages have been declining for instance in the year 2014, the nominal-wages only increased by 0.7% (Heyes, Tomlinson and Whitworth, 2017). The labor market in the UK is quite flexible which means that firms can be able to retain their employees through various practices such as the standard zero hour contracts. Labor productivity has dramatically declined, which means that firms can still manage to keep their workers even with the low output level. There has been the effect of disguised unemployment for instance by individuals in the UK working for fewer hours (McCombie and Thirlwall 2016). The other argument raised is that probably the GDP measures have been ineffective at explaining the recession and its impact on the labor market.
The major source of unemployment in the UK has been the aspect of recession. The effect can be explained by diagram 1 where from the years 2015 through to 2017, there have been lower levels of unemployment due to the decline of the recession (Heyes, Tomlinson and Whitworth 2017). With a decline in GDP, firms reduce their production, and as such, they only require a few workers. The other effect is that during the 2007-08 recessions, many businesses in the UK were forced to close down and as many such workers were rendered jobless. Structural factors also contribute to unemployment because the economy keeps on changing (Martin, Sunley, Gardiner and Tyler 2016). An example is that numerous manufacturing jobs have greatly declined as the economy has transitioned to more of the service sector. Many people cannot get employed in the technology industry as they lack the necessary skills. Youth unemployment has also been very high which can be associated with having inadequate skills in the relevant industries.
Conclusion
The three-month method of calculating unemployment is better and provides complete measures of joblessness. Therefore, even the ONS uses it for professional monthly assessments of the labor market. The three-month method may not be a perfect one, but it has more benefits when compared to other ways. The additional advantage is that the UK figures obtained are reliable and can be used to analyze unemployment levels between the UK and other countries. The method is enhanced by the scale of the survey which significantly increases its accuracy. In the paper, it is also evident that the great depression of the year 2007 and 2008 triggered massive unemployment levels in the UK. However, the number has declined with the recovery of the UK economy.
References
Crisp, R. and Powell, R., 2017. Young people and UK labour market policy: A critique of ‘employability’as a tool for understanding youth unemployment. Urban studies, 54(8), pp.1784-1807.
Heyes, J., Tomlinson, M. and Whitworth, A., 2017. Underemployment and well-being in the UK before and after the Great Recession. Work, employment and society, 31(1), pp.71-89.
Martin, R., Sunley, P., Gardiner, B. and Tyler, P., 2016. How regions react to recessions: Resilience and the role of economic structure. Regional Studies, 50(4), pp.561-585.
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments constraint. Springer.
Singleton, C., 2017. Long‐Term Unemployment and the Great Recession: Evidence from UK Stocks and Flows. Scottish Journal of Political Economy.
McGuinness, F. and Brown, J., 2017. House of Commons Library: Research Paper: Number 7119, 12 July 2017: Understanding statistics on employment, unemployment and earnings.
