The economics profession is surprisingly bumbling when it comes to estimating unemployment levels, which adds greatly to the macroeconomic confusion since unemployment drives so much policy discussion and public debate today. For example, hardly a day goes by without a new headline screaming about the scandal of joblessness among young people, which has been pinned at the outrageous levels of nearly 50% in Spain and Greece and over 20% in the eurozone.
There’s just one problem – those numbers are derived from a flawed methodology. And that methodology misrepresents the true level of unemployment among young people, making it look far worse than it is. The resulting distorted figures have been reported widely and have become “conventional wisdom.” Indeed, the distorted numbers have been routinely used on the Social Europe Journal website, which has published a series of articles on youth unemployment as part of a joint project with the Friedrich-Ebert-Stiftung.
Here’s the problem with the methodology. The adult jobless rate is calculated as the percentage of unemployed workers divided into the number of total workers in the labor force. So if you have 200 workers in the labor force, and 20 of those are unemployed, the unemployment rate is 10 per cent.
But when it comes to youth, the millions of young people who are attending university or job-training are not considered part of the labor force because they are neither working nor looking for a job. With so many students removed from the labor force, that makes the denominator in the equation much smaller and, with the numerator staying the same, the unemployment rate looks much, much higher.
In the example above, let’s say that of the 200 workers, 150 enter a university. They would no longer be counted as part of the labor force, so even though the number of young people actually out of work has not changed, the unemployment rate has quadrupled to 40 per cent!
In other words, the same methodology used for calculating adult unemployment gives a distorted picture when used for calculating youth unemployment, because it does not account for the many young people who are in school or in training, and therefore are not counted as part of the labor force. These youth are “invisible” to unemployment statisticians. That’s quite a large oversight.
For adult unemployment, the same methodology probably understates the true level. Since it only includes adults in the labour force, those who have quit searching are not counted. During the Great Recession, the number of such “discouraged workers” has climbed higher than normal, so unemployment looks lower than it really is…
- France – Lessons on Youth Unemployment and Youth Employment Policy
- Youth Unemployment in EU – The crisis has caused a significant increase, but rates vary widely (jobmarketmonitor.com)
- UK: Long-term youth unemployment grows eight-fold since 2000 (jobmarketmonitor.com)
- Official youth unemployment – The Scariest Chart (jobmarketmonitor.com)
- Tea Party : Unemployment Higher Among Native Born than Immigrants (jobmarketmonitor.com)
- Youth Unemployment – Young Invincibles Calls for Action (jobmarketmonitor.com)