Question

What are the conceptual problems in measuring unemployment, and why is this such a key indicator of the economic well-being of our nation?

Answer 1

People are termed as unemployed if they have been actively searching for work for the past six weeks but were unable to secure any job. There are various conceptual problems while measuring unemployment.

Measuring unemployment requires that we get relevant and accurate data for the labor force. This is often a herculean task to execute. Naturally, no survey is perfect and many data won't show up in the official statistics. Even if we get accurate data, some conceptual problem persists which are as follows: a) How to account for discouraged workers? discouraged workers are the workers who have been searching for a job since a long period of time but has eventually given up. It is difficult to incorporate such factors is the measurement. b) How to account for disguised unemployment? Disguised unemployment or hidden unemployment occurs when people are apparently engaged in a job but their work adds no value to the economy. c) How to account for people who are not actively looking for a job due to various personal constraints they face such as looking for a child or elderly at home, and other responsibilities. d) How to account for underemployment, which occurs when people are apparently employed but are looking for longer working hours.

Unemployment is something that is directly felt by individuals. It indicates how the human resources are being used in the economy and the amount of productive output the economy is producing that utilizes these scarce resources. If unemployment increases, people will have no income and will be unable to consume anything, thus leading to economic slowdown a\due to lack of demand and decrease in the aggregate level of welfare.