Question

Discuss some limitations of unemployment rate figures as a measure of a country’s economic well-being.

Answer 1

Previously, unemployment rates where good measure for understanding a nation's economic health and well being. But recently, with the growth and development in technological avenues, part time employment and effective outsourcing has made unemployment rates unreliable for decision making and for drawing inference about the nation's well-being.

The unemployment rate of a country is generally used as a measure to identify the unutilized labor force. Yet this rate, does not take 'short term unemployment' into account, yet adds the same data to its final result. Also, unemployment rate does not necessarily specify the composition of the population that are unemployed, as in the age, gender, qualifications etc of an unemployed worker and does not identify the most vulnerable sectors where workers have the risk of unemployment. Also the measure rate does only specify the people who have no jobs and actively look for one and not the resources that are available with the said unemployed worker.

Unemployment rate takes no effort in explaining the nature and type of unemployment , if it is short term ( Cyclic) or long term ( Structural ). In many cases , where a country's well-developed social protection schemes with saving and support systems are present, it takes time for an individual to find the right work, thus misguiding policy makers into thinking the contrary. Unemployment rates have more chances of being very high in nations where lower incidence of poverty and economical development is already established.

Technological development and substitutes are highly necessary for an economy to grow and prosper, yet at the same time, it is inevitable that growth in technology will lead to structural unemployment in the economy. With unions and trade groups aiming to achieve the low unemployment rates, increase in advancements in technological grounds would result in creating new jobs and market openings along with creating unemployment and market closure in those previously established industries thus fueling more structural unemployment. This makes it clear that higher unemployment rates doesn't necessarily mean that the well-being of the economy is hindered.

Unemployment rates do not specify the composition on socio-economic background, sectoral unemployment of the workers who are left with no work yet look for the same. In some cases, these cases are used to back up gender differences in terms of employment and pay as unemployment rate in an international level is higher for women than men, Yet the same drawn conclusion is somewhat half-baked as the rate does not provide a full picture of reality. Women are observed to withdraw from their careers for a temporary period of time when they start up a new family yet at the same time men are induced to work more to earn more.

Unemployment rates are significantly higher in times of economic recession, thus resulting in policy makers to come up with reforms that enable to correct the economic situation and to provide jobs to a point where unemployment rate is stable and acceptable. But there is a point to which unemployment rate cannot fall without initiating an inflationary pressure in the economy.

These are some of the limitations of unemployment rate as a measure of a country's economic health and well-being.