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Unemployment rate: the essentials to know
By Gabriele Brambilla
Among the most widely used and well-known indicators is the unemployment rate. Let's find out what it is, what it is used for, and what its limitations are
Introduction
Let’s learn more about the unemployment rate, one of the most famous and relevant statistics in economics. Here is everything you need to know.
Index
What is the unemployment rate?
The unemployment rate is one of the most important economic and statistical parameters of all. It is an indicator that, by means of a simple number, provides an immediate snapshot of labor in a given country, but also over smaller territories (such as provinces) or large ones (the Eurozone).
The indicator makes it possible to measure the difference between supply and demand in the world of work, i.e., the demand for labor from businesses and the demand for jobs from those in work.
How to calculate unemployment rate?
The unemployment rate formula is quite simple: just divide the number of people looking for work with the total labor force. The latter consists of the sum of those not working and looking (unemployed) with those who already have one (employed). The result of the formula is a number expressed as a percentage.
UNEMPLOYMENT RATE = UNEMPLOYED/LABOR FORCE
Given the very nature of the formula, sometimes the unemployment rate rises with that of the employed; this is because there is precisely a close relationship between the two categories, which together make up the labor force.
"UNEMPLOYMENT RATE = UNEMPLOYED/LABOR FORCE"
What is the purpose of the unemployment rate?
The unemployment rate is indispensable in assessing the general state of the labor market.
More broadly, the figure is of great importance in measuring how the economy is doing, especially in complex periods. For example, when inflation is high, central banks intervene with measures that impact investment and businesses, which then find themselves having to cut labor. In these cases, keeping the unemployment rate monitored allows one to assess how far one can push with interventions and when one must stop, or else even more serious issues will arise.
In addition, the rate also affects the issue of wages. When it rises, workers have less bargaining strength and cannot raise their demands too high. As a result, wages fall. Conversely, if the rate is low and demand from firms is high, workers have more strength and can demand more money.
In any case, while very important, the unemployment rate has limits. One example is the very definition of unemployed, according to which it is enough to work only a few hours a week (even one!) to fall out of the category. This affects the rate, which thus comes out lower than it really should be.
Another consideration lies in the difference between unemployed and unemployed. The former do not have jobs and are actively seeking them, while the latter are those who have never been employed. However, even if the latter are looking for work, they are still not included in the unemployment rate. Result: lower rate than it actually should be.
Unemployment rate in Europe
A healthy unemployment rate is between 3.5 and 4.5 percent, according to some experts even up to 5 percent. These figures allow for a good balance between supply and demand, as well as the balance between the bargaining power of workers and that of businesses.
Clearly, the figure never stays fixed at these quotas; that would be too good. There are periods when unemployment rises and others when it falls and even falls below the optimal range. The economy is a web of mutually conditioning parameters and dynamics: the unemployment rate is part of the game.
So let’s get down to the practical: how many unemployed are there in Europe?
We can consult TradingView charts, based on real data, to know at any time what the situation is in the labor market.
The european data is the result of the average of the unemployment rates of the states that make up the euro area. Consequently, it can hardly enter the 3.5/4.5 percent area: too many differences between countries.
US unemployment rate and China unemployment rate
The converse changes for the United States and China, economies that are different from European realities.
The States has no shortage of periods when unemployment exceeds 10 percent, but neither do phases when it is in the optimal range. Even better is China, which makes the low rate one of its workhorses.
Given the economic size of these two countries, unemployment is a figure to be monitored because it is capable of offering relevant information from a general perspective outside their borders.
