by Jerome a Paris
Tue Jan 9th, 2007 at 04:14:55 AM EST
A good, short, paragraph from Laurent Guerby which I am translating below:
Flaws in the definition of unemployment
In the fourth quarter of 2004, the normalised unemployment rate for men aged 25 to 54 was, according to the OECD, 4.6% in the USA and 7.4% en France. At the same time, for the same group, the employment ratio was 86.3% in the USA and 86.7% in France.
We thus have an unemployment number which is 60% higher in France than in the USA even though more people work in the selected group, which is rather counter-intuitive if we expect the unemployment rate to reflect the situation of the labor market.
One should thus avoid hasty interpretations of unemployment numbers. In fact, the definition of unemployment is built on the - fragile - distinction between the unemployment of an potentially active worker his/her non-employment. Despite the best efforts to normalise this distinction, it remains heavily subjective and thus easily influenceable by various policies which have otherwise no real effect on the labor market.
As a reminder:
- the unemployment rate is the ratio of the unemployed active to the total active population;
- the employment rate is the ratio of the employed to the total population.