KPI of the Day – State Government: % Unemployment rate
Definition
Measures the percentage of active labor force who is unemployed out of the total active labor force, calculated for a local community or for larger administrative areas such as regions or countries.
Purpose
To indicate the level of unemployment, since it is a reflection of the economic development, legality and records of work, both as a local or national indicator.
Recommendations
The indicator is directly related to the employment rate. Among the factors that might influence high rates of unemployment are the general economic conditions, recent labor market developments, mismatches in the skills of workers and jobs or extended unemployment benefits.
The % Unemployment rate is regarded as a pertinent indicator of a region’s socio-economic health, stability and development degree. Persons can be regarded as unemployed as long as they have the legal working age, do not have a workplace and are actively seeking one (i.e. reaching out to employers and public employment agencies).
The % Unemployment rate can be further divided into several categories: voluntary, respectively involuntary unemployment, frictional unemployment (the period between two jobs), cyclical unemployment (caused by the business cycle, rises in times of recession and declines during development periods), seasonal unemployment (peaks and lows for specific periods of the year) and structural unemployment (caused by the emergence of new technologies which replace the human workforce).
When setting targets, it is important to note that while low % Unemployment rates are a sign of development, zero unemployment is hardly recommended, due to the inverse relationship between unemployment and inflation.
Better practices in utilizing this indicator include the following:
- Identifying the natural % Unemployment rate which represents the minimum level of unemployment in a balanced economy and commonly functions as a baseline;
- Calculating separate results for the various types of unemployment (structural, cyclical, frictional etc.) in order to take action accordingly;
- Identify recurring patterns in % Unemployment rates so as to effectively design remedy policies.
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