Macroeconomics For Dummies®, uk edition Published by: John Wiley & Sons, Ltd

Comparing the two measures

In many cases, someone who’s unemployed according to the ILO definition is also unemployed according to the Claimant Count, and vice versa. But in certain cases, the two measures disagree, for example:

A person working only a handful of hours a week, but looking for full-time employment. The ILO definition considers this person to not be unemployed (he’s working more than one hour a week). However, this person can possibly be counted in the Claimant Count as unemployed if he’s working less than 16 hours a week and has a low income.


A person looking for work but whose partner is employed may not be eligible for unemployment benefits (and so not deemed unemployed by the Claimant Count), but would be unemployed according to the ILO definition.


A person of retirement age looking for work is considered unemployed according to the ILO definition, but because he can’t claim unemployment benefits, he wouldn’t be included in the Claimant Count.


The total number of unemployed people according to the ILO definition tends to be much larger than according to the Claimant Count (see Figure 6-1) for a variety of reasons, including the following:

Eligibility rules mean that a large number of people who are looking for work can’t claim benefits.

Some people eligible to claim unemployment benefits choose not to.


Source: ONS


Figure 6-1: Claimant Count and ILO unemployment in the UK.


Distinguishing Two Different Types of Unemployment

Economists classify unemployment into different types depending on the underlying cause of the unemployment. The actions that policy makers may want to take in order to reduce unemployment depend on the cause of unemployment.

We take a closer look in this section at two particular types of unemployment that stand out:


Frictional unemployment: Unemployment that arises due to labour market frictions (issues or problems), such as potential employees not being well informed about all available jobs, employers not being able easily to observe the ability of potential employees and potential employees having limited geographical mobility.

Structural unemployment: Unemployment that arises due to failure of

the labour market to adjust to an equilibrium where the demand for labour is equal to the supply of labour. In other words, the failure of wages to adjust to ensure that the number of people willing and able to work at the market wage is exactly equal to the number of people that firms want to hire at that wage.


Figure 6-2 shows the theoretical position: the quantity of labour demanded at the wage rate w* is exactly equal to the quantity of labour supplied at the wage rate w*. Thus everyone willing and able to work at the wage rate w* is employed. Sadly, the realworld labour market doesn’t work like this.


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Figure 6-2: Supply and demand for labour.