How unemployment is measured (labour force survey)

Published by Patrick Mutisya · 14 days ago

IGCSE Economics 0455 – Government and the Macro‑economy: Employment and Unemployment

Government and the Macro‑economy – Employment and Unemployment

Objective

Understand how unemployment is measured using the Labour Force Survey (LFS).

Key Concepts

  • Labour Force: All people aged 16 (or 15) and over who are either employed or unemployed.

  • Employed: Persons who did any work for pay or profit during the reference week, or who were absent from work (e.g., on holiday, sick) but have a job.

  • Unemployed: Persons who are not working, are available for work, and have actively looked for a job in the past four weeks.

  • Not in the Labour Force: Persons who are neither employed nor unemployed (e.g., students, retirees, homemakers, discouraged workers).

Labour Force Survey (LFS)

The LFS is a household survey conducted by national statistical offices. It provides the data needed to calculate the main labour‑market indicators.

  1. Sample selection – a representative sample of households is chosen.

  2. Interview – each member aged 16+ is asked about their activity during the reference week.

  3. Classification – respondents are placed into one of the three categories: employed, unemployed, or not in the labour force.

  4. Aggregation – totals for each category are summed to give the national figures.

Labour‑Market Indicators

IndicatorFormulaInterpretation
Labour Force\$LF = E + U\$Total number of people either working or seeking work.
Unemployment Rate\$UR = \frac{U}{LF} \times 100\$Percentage of the labour force that is unemployed.
Employment Rate\$ER = \frac{E}{LF} \times 100\$Percentage of the labour force that is employed.
Activity Rate (Labour‑force Participation Rate)\$AR = \frac{LF}{P} \times 100\$Proportion of the working‑age population (\$P\$) that is in the labour force.

Example Calculation

Suppose the LFS for Country X gives the following figures (in thousands):

CategoryNumber (000)
Employed (E)12,500
Unemployed (U)1,250
Not in Labour Force6,250

Working‑age population (\$P\$) = 12,500 + 1,250 + 6,250 = 20,000 (000).

Calculate the indicators:

  • Labour Force: \$LF = 12,500 + 1,250 = 13,750\$ (000)

  • Unemployment Rate: \$UR = \dfrac{1,250}{13,750} \times 100 = 9.1\%\$

  • Employment Rate: \$ER = \dfrac{12,500}{13,750} \times 100 = 90.9\%\$

  • Activity Rate: \$AR = \dfrac{13,750}{20,000} \times 100 = 68.8\%\$

Limitations of the Labour Force Survey

  • Undercounting discouraged workers: People who have stopped looking for work are classified as “not in the labour force,” which can underestimate true unemployment.

  • Seasonal variation: Unemployment rates can fluctuate with the time of year; surveys must be seasonally adjusted.

  • Informal economy: In many developing countries, a large share of work is informal and may not be captured accurately.

  • Sampling error: As with any survey, there is a margin of error due to the sample size.

Suggested diagram: Flowchart showing the classification process in the Labour Force Survey (Population → Labour Force → Employed / Unemployed / Not in Labour Force).

Summary

The Labour Force Survey is the primary tool for measuring unemployment in the IGCSE syllabus. By classifying individuals as employed, unemployed, or not in the labour force, the survey provides the data needed to calculate key indicators such as the unemployment rate, employment rate, and activity rate. Understanding the methodology and limitations of the LFS is essential for interpreting labour‑market statistics accurately.