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In the previous few articles, we were studying about the definition of unemployment. The idea was to understand in a clear and unambiguous way what unemployment meant. However, the definition of unemployment is contingent on the definition of employment.
Since the definition stated that unemployment is the inability to find employment, we need to understand what the government means when it uses the word employment.
The government’s interpretation of the word employment has been found to be misleading by many critics and as such there have been several criticisms leveled against it. This is the reason that we consider it an important flaw meaning that this definition manipulates the unemployment rate number.
Let’s understand how this manipulation takes place.
The government does not see employment as something that happens on a continuum. Rather it sees employment as being binary i.e. you are either employed or unemployed. You cannot be partially employed. This leads to a gross misinterpretation of the unemployment rate. Let’s look at the common sense point of view and then contrast it with how the government views the situation.
Common sense dictates that a person needs to work a certain number of minimum hours to qualify as being fully employed. Usually people who work 40 hours or more per week are said to have a full time job. This full time job is necessary to sustain the household expenditures of a family.
Hence, if a person works let’s say 20 hours a week, they are only 50% employed. It is true that they have a job. However, 50% of the potential labor force that they have is being wasted and hence they should be considered only 50% employed.
The government views employment as a binary situation. You can either be employed or unemployed. They are not concerned with percentages of employment. Therefore, as per the government’s set of rules, if a person obtains even one hour of work in a given week, he/she is considered to be 100% employed! Now, one can easily see as to how this point of view can lead to gross understatement of the unemployment rate.
Hence, if the government finds out that about 80% of the labor force have jobs and that 25% of this 80% works a part time job and work only 50% the number of hours, the unemployment rate is still considered to be 20% since 80% people have jobs.
Common sense would dictate that this rate be modified to 60% people with full time jobs plus 10% i.e. 20% people working half the number of hours i.e. 70%.
Also, consider the fact that companies like Wal-Mart and other retail giants which provide maximum employment in the US hire part time workers. Hence, all these semi-employed people who actually depend upon food stamps for their survival are actually labeled as employed.
The hardships that they are facing do not reach the government via the unemployment rate.
Just like the number of hours is irrelevant to the government, so is the skill set of the worker. This too leads to manipulation of the unemployment rate. Let’s have a closer look at this logical error.
If a large number of people are deciding to do a finance related course, the economy must provide them with finance related jobs to exercise their skills and benefit the economy. If a person who has done a finance related course obtains the job of a peon, there it is not really employment. At best, we can call it underemployment. However, under no circumstances can we call it full employment.
If a person with MBA finance is employed as a peon, then their status shows up as employed and they do not appear in the unemployment rate statistics. The probable logic is that it is the government’s job to provide a job that can enable sustenance and not a job that fits your skill sets.
If we consider both the discouraged worker and the definition of employment flaws of the unemployment rate in tandem, we can see why the rate stated by the government will be widely distorted as compared to what is experienced on the streets.
Firstly, people who cannot find a job within a stipulated time period will simply be eliminated from the calculation. Secondly, in an adverse scenario even if qualified professionals like doctors and lawyers will be doing menial jobs, they will be considered to be 100% employed.
Hence, the unemployment rate quoted by the government is often rightly taken with a pinch of salt.
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