ILO Unemployment Rate

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Xiao Chen Low

ILO Unemployment Rate refers to the percentage of economically active people who are unemployed by ILO standard. Under the ILO approach, those who are considered as unemployed are either 1. Out of work but are actively looking for a job or 2. Out of work and are waiting to start a new job in the next two weeks. ILO Unemployment Rate is measured by a monthly survey, which is called the Labour Force Survey in United Kingdom. Approximately 40,000 individuals are interviewed each month, and the unemployment figure reported is the average data for the previous three months. The ILO Unemployment Rate replaced the Claimant Unemployment Rate as the international standard for unemployment measurement in the UK.

The advantage of using the ILO Unemployment Rate, as compared to the Claimant Unemployment Rate, is that it is more comprehensive. It covers everyone who is unemployed, instead of just those who are claiming benefits. However, there are also disadvantages. The ILO approach is subject to sampling error since it is based on a survey. In addition, it is also time consuming. Last but not least, there is no distinction between those who work longer hours and those who work shorter hours, as anyone who takes only one hour's paid work is also considered as 'employed'.^[1]

Why is it important?

Although unemployment rate is commonly used as a lagging indicator, it it nevertheless an important signal of overall economic health. This is because consumer spending is highly correlated with labor conditions.^[2] When unemployment rate is high, consumer spending will decrease, and that means slugglish economic growth and lesser corporate profits. This will push stock markets down and cause investors to become more risk adverse and flee to safer investments like bonds. On top of that, a contracting economy will also lead to declining interest rates, hence, boosting the bond markets instead.^[3]