What unemployment is and how it is measured

The official definition

• Stats NZ measures unemployment in the Household Labour Force Survey (HLFS), published quarterly.

• To be counted as unemployed, a person must meet all three conditions:

  1. Without paid work in the survey week
  2. Available to start work
  3. Actively seeking work — they have taken specific steps to find a job

• All three are required. Someone who wants a job but has not looked for one is not counted as unemployed.

The groups you must be able to name

Working-age population

• Everyone aged 15 and over.

Labour force

• Those who are employed plus those who are unemployed — everyone working or actively looking for work.

Employed

• Anyone who worked for pay or profit in the survey week. One hour of paid work is enough to be counted as employed.

Not in the labour force

• Everyone in the working-age population who is neither employed nor actively seeking work: students, retired people, people caring for family full-time, people who are unwell, and people who have given up looking.

The unemployment rate

$$\text{unemployment rate} = \frac{\text{number unemployed}}{\text{labour force}} \times 100$$

• The denominator is the labour force, not the population. Dividing by the total population is the most common calculation error in this standard.

Why the official rate understates the problem

Discouraged workers

• Someone who has looked for months, found nothing and stopped looking fails the "actively seeking" test.
• They leave the labour force entirely — so the unemployment rate falls, even though no one has found a job.
• This is why a falling unemployment rate is not automatically good news: check whether the labour force shrank.

Underemployment

• Someone working part-time who wants more hours is counted as employed, however few hours they work.
• The official rate counts them as fully employed.

Hidden unemployment

• People in training or study only because there is no work; people working far below their skill level.

Underutilisation — the broader measure

• Underutilisation is a broader Stats NZ measure that adds together:

  • the unemployed, plus
  • the underemployed — part-time workers who want more hours and are available, plus
  • the available potential jobseekers — available but not actively looking, plus
  • the actively seeking but not available to start immediately

• The underutilisation rate is always higher than the unemployment rate, often around twice as high.

• Quoting both is exactly what the standard's "different definitions" clause is asking for.