?he measurement of unemployment: An exercise in political economy? by James J . Hughes Senior Lecturer in Economics, University of Kent, England.

I INTRODUCTION MODERN day society is vitally dependent upon statistics. They improve our understanding of society and thereby act as a basis for decision making at all levels. Obviously, the usefulness of statistical data as an aid to decision making depends upon the accuracy and reliability of the statistics themselves. which in turn depends largely upon the methods of and purposes for collection. The analyst therefore requires to know the pur- poses for which data have been collected and the methods adopted in their collection, so that he is aware of any shortcomings in them when they are applied to any particular use. But knowledge of sources and methods is not sufficient in itself: honesty and integrity in the interpretation of the data are both vital, particularly when policy recommendations are made on the basis of any such interpretation.

However, in an imperfect world both ignorance and dishonesty might arise. The latter might occur both with respect to the interpretation of the statistics and the uses to which they are put. I t is not surprising, therefore, that conflict sometimes arises, both over the interpretation of statistics and the policy recommendations that flow from them. The debate2 between Sir Keith Joseph and Michael Foot over the monthly unemployment figures published by the Department of Employ- ment (DE) is an example of such conflict. This debate had been initiated some time before by John Wood, of the Institute of Economic Affairs. who criticised the DE unemployment figures on the grounds that they exaggerate the amount of Keynesian demand-deficient unemployment that exists at any point in time? Wood's arguments were taken to extraordinary lengths by certain writers4 before they were taken up by Sir Keith Joseph in his controversial Preston speech in

1 This 1% a revised version of a paper given al a ssminar on Longer- refm Pmspecrs for Empkymenr In Brifain. at Cranfield Schoot of Management. June 3-4. 1976

2 See the corrapondena columns of The Times. Sept 2 1 8 23. 19 74 9 See W w d . John 8.. HOW Much ~flEmp!+Ymenl?. Ressarch Mono-

graph 28. IEA. Aprd 1972 FOI a more iscant and relined ezposition 01 lhis author's Y~rn. -How Lirrle Unemplovnmnr. IEA. October 1975

4 For a discussion of some 01 these. see the article by the ptesent authof entitled "How Should We Measure Unemployment?". Brmsh Journal of IndusrnalRelalrons. Vol 13. No. 3. November 1975. PP 317-333

September 1974.5 Since May 1975. the Centre for Policy Studies6 (CPS) - which was founded by Sir Keith Joseph and Mrs. Margaret Thatcher i n 1974 - began to issue a rival press release to that put out monthly by the DE. The CPS believes that its own estimates of unemployment give a more realistic guide to the labour market than d o the official DE figures.

One of the purposes of the present paper is to examine the CPS estimates of unemployment to see whether they do offer a better indicator of joblessness than the DE figures. First, however. we take a look at the coverage of the DE figures themselves and say something about the extent of unregistered unemployment.

II THE D. E. REGISTER The unemployment figures published monthly

by the DE indicate the number of unemployed persons who, on the day of the count. have registered at a local employment office that they are seeking employment and have been classified as capable of, and available for. work. Although any unemployed person is entitled to register, thereby indicating his availability for work, the majority of those who do register are either claimants of unemployment benefit or supple- mentary benefit, or both. In order to qualify for benefit, an individual has to demonstrate his availability for work and registration is seen as a necessary step towards this.

The DE monthly figure does. of course, give only a snap shot view of the unemployment situation, indicating only the size of the unemploy- ment stock at a particular point in time, It tells us nothing about the flows into and out of the stock during the period between counts. Neither does i t distinguish between someone who has been unem- ployed for a day and someone who has been out of work for two years. Furthermore, those who join the register and leave it again in between counts never figure in the published total. which will

5 Reprinted in full in Rerersing The Trend. Barry Rose, 1975. 6 Thn Centre is independent 01 the Conssrvative Rawarch Department

and it¶ aim 18 "to m u r e luller understanding 01 the methods available to improve the standard 01 living. the quality 01 lile and the freedom 01 choce of the British pwple. with partnular allantion to wcial market policies"

INDUSTRIAL RELATIONS JOURNAL. Wmtw Vo1.7 No 3 Q 1976/ 77 Mercury House Publcatlonr Lid , London 4

therefore be somewhat biased towards longer duration unemployment.

Up to November 1972, the official unemploy- ment total included the “temporarily stopped”. but since that date this group has been excluded. From March 1976 adult students who register during periods of vacation are also to be excluded from the official count.

111 UNREGISTERED UNEMPLOYMENT It is generally acknowledged that the DE’s

statistics wit1 understate the extent of actual unem- ployment because not all unemployment is registered. Furthermore, the incidence of un- registered unemployment is likely to increase dur- ing recession if the so-called discouraged worker effect predominates over the additional worker effect. Therefore, in a cyclical recession. the decline in employment is likely to be greater than the increase in unemployment. as measured by the DE. I n the upturn, the increase in employment will be greater than the decline i n unemployment as measured by the DE.

At any point in time, the gap between ‘actual’ unemployment and registered unemployment (i.e. the DE measure) can be estimated by adopting a survey approach to the measurement of unemploy- ment. This involves asking those who are not in employment whether they are looking for work. If they are looking for work they are classified as unemployed: if not, they are classified as eco- nomically inactive. The estimate of unemployment obtained when the survey approach is adopted will depend upon how search activity is defined in the question that is asked. For example, those not in

employment might simply be asked whether they are looking for work: alternatively, they might be asked whether they have made specific enquiries about a job. or enquiries about a certain number of jobs, during a particular time period. Obviously the latter type of question implies a tighter defini- tion of search activity than the former type of question and. therefore. will give rise to a cor- respondingly lower estimate of unemployment. Hence the gap between the survey and registration measures of unemployment - which might be called unregistered unemployment - will be lower the tighter is the definition of search activity adopted in the survey approach. Clearly, the term ‘actual’ unemployment referred to above is a slippery concept. Any estimate of it necessarily involves a particular definition of search activity which itself implies a particular degree of labour force attachment.

In this country. estimates of unregistered unem- ployment have only been possible in census years. but more recently the General Household Survey (GHS) has incorporated questions on labour market search which have thrown some light on the extent of unregistered unemployment. Neither the 1966 sample survey nor the full census of 1971 adopted a rigid definition of search activity. For those who did not have a job on the day of the census and were not registered, the 1966 census simply sought information on whether they were seeking work or waiting to take up a job, or neither. The 1971 census elicited the same in- formation for those who did not have a job and were not registered in the week before the census. Both censuses also identified those who were out

Table 1: Census Estimates of Unregistered Unemployment, April 1% and 1971

April 1966 Males Females Total

Registered with D.E. 234.000 (69.2) 65.000 (32.7) 299,000 (55.7) Unregistered (census) 104,000 (30.8) 134.000 (67.3) 238,000 (44.3)

April 1971 Registered with D.E. 617,700 (89%) 112.500 (32.8) 730,300 (70.9) Unregistered (census) 70,000 ( 10.2) 230.000 (67.2) 300,000 (29.1)

TOTAL 338.000 199.000 537,000

TOTAL 687.700 342.500 I .030,300

Note: figures in parentheses indicate percentages of total unemployment.

5

The measurement of unemplqvment: an exercise in political econom!?

of employment but were neither registered nor searching for work because of temporary illness.

Table I indicates the extent of both registered and unregistered unemployment for April 1966 and 1971. Those who were unregistered, but prevented from searching for a job because of temporary illness, have not been included in the estimates of unregistered unemployment. However, to give some idea of the magnitude of this group. it is worth noting that in April 1966 there were 120,000 males and 78,000 females in this category.

The table suggests that in 1966 only 44 per cent of the ‘actual’ unemployment was registered, with almost a quarter of a million neither sick nor registered, but either seeking work or waiting to take up a job. By April 1971 unregistered unem- ployment had increased to 300.000. However, this aggregate figure conceals opposite movements i n the male and female components. While unregis- tered unemployment declined both absolutely and relatively for males, it increased by almost 100.OOO for females, so that by 1971 it accounted for two-thirds of the joblessness among females - the same proportion as in 1966.

Since 1971 it has also been possible to estimate unregistered unemployment from the GHS and

estimates derived from this source are given in Table 2. The GHS estimates include not only those searching or wanting to take up jobs. but also those who would have looked for work had they not been temporarily sick. Given that the GHS defini- tion of unregistered unemployment is looser than the census definition. it is surprising that the GHS estimates for 1971 are lower than the census estimates. However, differences in timing and coverage might help explain some, if not all, of the discrepancies. First, the census figures relate to a single point in time. whereas the G H S is a continuous enquiry and the estimate derived from it will be an average for the whole year. Second. the census covers the whole population, but the G H S covers only that part of the population resident in private households.

Notwithstanding the differences in census and GHS definitions. the estimates of unregistered unemployment in Table 2 are roughly in line with those in Table I . A realistic estimate of labour reserves should therefore allow for about a quarter of a million unregistered unemployed. Whether or not this figure should be included in any attempt to measure the social distress arising from unem- ployment is likely to be a much more contentious issue.

Table 2: GHS Estimates of Unregistered Unemployment, 1971-73 - ~~~~ ~ ~~

1971 Males Females Total

Registered with DE 639.800 (92.5) I 18.600 (46.3) 758.400 (79.9) Unregistered (GHS) 52.000 ( 7.5) 139.000 (53.7) 191.000 (20.1)

TOTAL 69 I .800 257.600 949.400

I972 Registered with DE 705.100 (90.6) 139.000 (48.0) 844.100 (79.0)

224.000 (2 1.0) Unregistered (GHS) 73.000 ( 9.4) 151,000 (52.0) TOTAL 778.100 290.000 I ,068.100

1973 Registered with DE 499.400 (80. I ) 98.500 (37.6) 597.900 (67.6) Unregistered (GHS) 124,000 (19.9) 163.000 (62.4) 287.000 (32.4)

Note: figures in parentheses indicate percentages of total unemployment.

6

TOTAL 623.400 26 1.500 884.900

Table 3: CPS Estimate of UK Unemployment, 1975-76 (in OOOs) May June July Oct Nov Dec Jan Fch March April 1915 1975 1915 i y ! 2;; 1915 1915 I975 1976 I916 1916 1916

1. Wholly uncm- nloveJlDEI 850.3 869.8 1081.9 1250-3 1249.0 1165.4 1168.9 121 1.5 1430.4 13oP.4 1285 0 14604

2 Unemploy a bles 205-1 210.9 250.0 2500 250.0 250.0 250.0 2500 250.0 250.0 250.0 250.0

3JohChangcrr 182.8 IR5.l 246-0 351-0 231.0 271.0 231.0 2160 215.0 221.0 199.0 211.0

4. Occupational

5 Adult ,tudenta - 3.8 97.8 99.3 103-8 i8. i -

6. CPS Unem-

Pensioners 500 50.0 500 500 50.0 50.0 50.0 50,O 30.0 Mi) 30.0 30.0

107 121.1 - 01 179.3

ployment 412.4 4194 4441 500.0 6142 515.9 638.0 6848 808.3 803.4 805-9 184.1

1 CPSai %or DEl6-I1 48.3% 48.2% 40.8% 40.0% 49.2% 49.4% 54.6% 565% 565% 61.6% 62.1 53.7%

8 CPS grots vacancm 418.2 4 0 5 3 363.0 346.1 358-5 329.0 289.3 251.5 222.1 248.7 272.6 299.3

9 CPS ner vacan- ciest8-3l 233.4 119.6 l i l . 0 - 4 9 121.5 58.0 58.3 41-5 7.1 27.1 73.6 82.3

10 v-u adJULled CPS -1lj’Q -203.6 -424.9 -604.2 -590.5 -536.0 -519.7 -6540 -801.2 -775.7 -132.3 -701.8

11.”-urrudeCPS + 5 4 -141 -81.1 -153.9 -255.1 -2469 -348.1 -421.3 -5862 -5547 -533.3 -4848

IV THE CPS ESTIMATE Between May 1975 and April 1976, the CPS

issued a monthly7 press release entitled “What the unemployment figures really show”. In order to arrive at what i t considers to be a more realistic estimate of unemployment, the Centre excludes certain categories of unemployed from the DE’s own total. The excluded categories are: I ) those unsuited to regular full time employment - the so-called unemployables:

2) those between jobs -job changers: 3) occupational pensioners not seeking work: and 4) adult students.

The effect of excluding these categories from the official total has been to ‘reduce’ the magnitude of the unemployment problem by an amount that has varied from 37 to 60 per cent over the twelve month period ending in May 1976. In other words, the CPS estimate of unemployment has only been within the range 40 to 63 per cent as great as the DE would have us believe. We must therefore take a closer look at the reasons given by the CPS for excluding these various groups.

7 In May 1976. rhe CPS announced tts mtention to Issue a pmss reteam ewry threa months rather than every month

1. The unemployables According to the CPS. 30 per cent of the

registered unemployed are unemployable because they are unable to hold’down a job, even if they manage to get one, or they are simply lacking in enthusiasm for work? Two qualifications are ad- ded. First, in order to avoid double counting, 50,000 occupational pensioners (see below) are excluded from the 30 per cent. Second, the 30 per cent rule is assumed to hold only so long as registered unemployment does not exceed one million. The CPS formula for calculating the number of unemployables is therefore “30 per cent minus 50,000”. with an upper limit of 250,000. In other words, so long as registered unemployment is less than a million, 30 per cent of any increase in the stock is excluded on the grounds that it is unemployable. Only when the stock, as measured by the DE, rises above a million do all additions to i t count. On this basis, the number of unemploy- ables excluded by the CPS has exceeded 200.000 in

8 In the eadiiw pram raleasas the CPS 1ust8hed the erclrnlm 01 this group simply on the grounds that those in 11 are unebla to hold down regular lull time m r k even though ”the maprity of 5wh people are probably anxious to obtain w r k ” Llc t 01 enthus~nm was added in Iamr prm releaws

7

The nieusuremenl of unemplv.vmenr: on exercise in pofi/icul econonix?

every month, and in every month but two, it has reached the maximum of 250.000.

The justification for excluding such large numb- ers is. according to the CPS, to be found in the 1973 DE survey into the characteristics of the unemployed. This survey was carried out in June 1973 and concluded that:

"Forty per cent of those on the adult register at June 1973 were judged to have good or reason- able prospects of finding long term work (though perhaps limited by local opportunities) and to be keen to find work; another 30 per cent were keen to find work, but had poor

are likely to be trapped by i t as the demand for labour falls.

Clearly, suitability for employment is a slippery concept. As employers' demand for labour varies through the cycle, their hiring standards will also vary, and someone who might be taken on at one point in time might be deemed unemployable at another. The very notion that there exists a given number of unemployables presupposes some target rate or unemployment. But, even if the target can be agreed, the task of assessing whether an indivi- dual is employable or not is an extremely difficult one. T o facilitate a realistic assessment. we require

prospects of finding work and were somewhat unenthusiastic in their attitude to work".

The 1973 survey was undertaken when unem- ployment was 546.000 (with a male unemployment rate of 3.3 per cent) and the 60 per cent who either had poor prospects or were unenthusiastic or both amounted to about 262,000. A similar survey to the 1973 one had been carried out in 1964. when total unemployment was 200.000 lower than the 1973 level. (and the male unemployment rate was about half the 1973 rate). and this showed that the proporrion of unemployables was roughly the same as in 1973, although the absolute number was only 143,000. However. in interpreting the results of 2. Jobchangers these DE surveys, it cannot be stressed too strongly The CPS also excludes those just changing jobs that the findings are based upon the subjective - that is. the so called frictionally unemployed. assessment of local office staff. and these assess- This group is estimated by reference to those in the mentss seem to have been largely influenced by less than four-weeks duration category. Of course. the age of the unemployed and the duration of his this will not indicate the number whose completed unemployment. I t seems inevitable. therefore, that spells of unemployment last four weeks or less, a greater number will be deemed to have poor since many of those who have been unemployed prospects and be lacking in enthusiasm the greater less than four weeks on the day of the count will be is the overall level of unemployment when the at the beginning of longer term spells of unem- survey is carried out, because both the number of ployment.10 Also. the less than four-weeks dura- elderly unemployed and the average duration of tion category will include some who are just unemployment will vary directly with the level of beginning their second. third or fourth spell of unemployment. In other words, estimates of the unemployment in a relatively short period of

more'frequent and up-to-date surveys of the 1973 type. These surveys could be concentrated exclusi- vely upon the long-term unemployed, and ideally would be carried out quarterly over a 2-3 year period to see just how the number varies through the cycle, and just as important, if not more so, to see whether membership of the 'unemployable group' varies significantly through time. This is the sort of information that is required before we can. in all conscience, ignore a quarter million of the registered unemployed on the grounds that they are unemployable.

so-called unemployables are likely to be cyclically sensitive. even if DE officials are consistent in their evaluations. If they are not consistent in their evaluations. then the borderline between employ- ability and non-employability will shift. and more

9 That IS the assessments relating to long-term employment prospects and enthusarm for wort

8

time,'.' and such people cannot be regarded as

10 I t has been estimated that lor the period 1961-65. when lhn OYeraII rate 01 unemployment was 1.7 per cent. 32 out 01 every 100 joining the register would stay on it lor longer than 4 weeks For the period 1967-70, when the unemployment rate was 2 . 4 per cent, the corresponding estimate was 4 0 Wilh unemployment around 6 per cent. as an 1976. the number slaying on the register tor longer than 4 weeks would be ewtn greater

11 The 1973 DE survey revealed that 10 per cent 01 those unemployed in June 1973 had experienced three or more spells of unsmployment ln lha previous 12 months

normal job changers. If the CPS is not using the less than four-weeks

duration category as a proxy for the number of completed spells of unemployment that last for less than four weeks, what is the justification for using it?. The justification, according to the CPS, is to be found in a DE Gazerre article which states that “Actuarial calculations based on the exper- ience of 1961-65 suggest that the number now on the register for less than four weeks is approxima- tely equal to the number who will have been on it for up to I I or 12 weeks by the time they leave it.12 In other words, the number unemployed for up to four weeks on the day of the count is equal to the number now on the register who will experience spells of unemployment lasting up to I I or 12 weeks. Therefore, in excluding the less than four weeks duration category, the CPS is assuming that unemployment lasting up to 12 weeks merely represents job changing and can be ignored. It is not the actuarial calculations themselves which justify the exclusion of this group. I t is the implicit assumption that unemployment lasting up to I2 weeks is costless - presumably to both individual and society at large - because jobs are available for all those who are going to be out of work 12 weeks or less, and therefore no corrective action is required.

If all that we are interested in is a measure of demand-deficient unemployment. as the CPS seems to be, then i t is justifiable to exclude frictional unemployment arising from genuine job changing from the unemployment total. However. what is then required is a reliable method of estimating frictional unemployment and this will probably involve a detailed analysis of occupation- al unemployment and vacancy data by local labour market ( L L M ) area, For some occupations within a particular L L M , vacancies will exceed unem- ployment: in others, the reverse will be true.

Assuming that individuals can fi l l vacancies in those occupations to which they are attached. then for those occupations in which v>u, all unemploy- ment will be frictional. For those occupations in which u>v. the number of vacancies will indicate the extent of frictional unemployment. Therefore,

12 Depenmenr of Employment Gazette. March 1975. p 180

frictional unemployment in the LLM is equal to the sum of unemployment in scarcity occupations and vacancies in those occupations characterised by excess supply. An estimate of frictional unem- ployment for the economy as a whole is obtained by aggregating across LLM areas. However, this approach is not without its difficulties. First, there is the problem of delineating LLM areas, but at least a start could be made with towns, cities and large industrial conurbations. Second, there is a problem relating to the reliability of the DE vacancy statistics. since a report recently published l3 suggests that only about a third of all vacancies might be notified to local offices of the DE. Obviously, this problem can only be overcome either by making it compulsory to notify job vacancies or by supplementing the DE figures with information obtained from periodic surveys.

To return to the CPS estimate of frictional unemployment. Defining this to be equal to the number who have been out of work for up to four weeks will mean that frictional unemployment will rise when there is a general decline in the demand for labour, assuming that the change in labour demand is reflected either by an increase in the flow of discharges from employment (‘j’ in the diagram) or a reduction in the flow of short-term unemployed back into employment (‘a’), and not simply by a reduced flow of long-term unem- ployed back into employment (‘b’). For the fric- tional component of unemployment to rise as the demand for labour falls is contrary to what one would expect. given that frictional unemployment can only co-exist alongside frictional vacancies. A decline in aggregate labour demand will usually be reflected in a decline in unfilled vacancies as well as an increase in total unemployment, implying

I ‘b’ 1

13 DspanmsnrolEmployment Gazetrs Msrch 1974. pp. 222-227

9

The measuremenr of unemployment: an exercise in polirical econom,v?

that there are less jobs available for a larger pool of unemployed.

However, after a time lag of four weeks. a fall in the demand for labour, which gave rise either to an increase in ‘j’ or a reduction in ‘a’, would result in an increase in unemployment lasting more than four weeks - assuming flow ‘b’ to remain un- changed throughout. That is to say. changes in CPS unemployment, which is only a measure of demand-deficient unemployment, will lag one month behind changes in DE unemployment. The numbers temporarily lost as a result of this lag can be quite considerable, as can be seen from the changes in DE and CPS figures between July- August, and August-September 1975. For the ear- lier period, the number of wholly unemployed registered with the DE increased by 162,000, while CPS unemployment increased by only 57.000: the difference - 105,000 - being simply regarded as job changers by the CPS. Between August and September, when there was virtually no change in DE unemployment, the CPS measure increased by about 119,000. almost identical to the reduction in CPS job changers.

As Table 3 shows, the CPS estimate of frictional unemployment has varied between about 180.000 and 350,000 in the short time period covered. with sharp increases in it usually being associated with sharp changes in overall unemployment. Whether we are interested only in demand-deficient unem- ployment or in frictional unemployment for its own sake, we still need to develop better measures of genuine job changing than those suggested by the CPS.

3. Occupational pensioners The 1973 DE survey estimated that there were

about 5O.OOO occupational pensioners over 60 years of age on the unemployment register. The CPS deducted this total from the 1975 unemployment figures on the assumption that no occupational pensioner registered in order to obtain work. Instead, he registered in order to accumulate national insurance credits, and thereby qualify for a state pension at the age of 65, or because he was content to live on his occupational pension plus any unemployment and supplementary benefit to which he was entitled. From January 1976, the

10

number deducted to account for occupational pensioners seeking work was reduced to 30,000. even though the total number of occupational pensioners on the register remains the same. No reason for this change was given.

Although we must agree with the CPS that the oficial unemployment figures must be adjusted to take account of occupational pensioners who are not seeking work, there seems little evidence to support total, or even 60 per cent exclusion. The 1973 survey revealed that only 17 per cent of the occupational pensioners were not interested in finding work and registered only in order to accumulate national insurance credits. There is no reason lo believe that the remaining 83 per cent were not available for work or would have turned down a job if one had been offered to them. The only justification for excluding occupational pen- sioners from the count would seem to be in those instances where there is evidence that they have left the job market - that is, in those instances when non availability for work can be proved. The criterion that occupational pensioners should be available and looking for work is also the correct one for determining whether or not they should receive unemployment benefit. Any criterion for eligibility that is based upon the size of the occupational pension would violate one of the essential principles of national insurance, that benefits should be paid as of right.14

4. Adult students The final category that the CPS excludes is that of adult students. The justification for doing so is fairly strong, if not absolute. given that students are not permanent members of the labour force and many only register during vacation in order to qualify for supplementary benefit. The argument for keeping them in is that some, if only a minority, will be seriously seeking work for a limited number of weeks and therefore do consti- tute a net addition to the labour supply - and they would be included in an estimate derived

14 That it wauld violate tho6 principle 1s a serious Criticism of the Chamellor’s recent proposal to restrict payment of unemployment benetit 10 thm4 occupational psnmoners over 60 who are receiving occupmional penrlonr of f25 pat wesk or more Thrs proposal M a mads by the Chancellor in July during his suemenl on public expendilure culs

from the survey approach. However, given that the Christmas and Easter vacations are so short, the weight of argument might well favour their exclu- sion. The Government obviously thinks so since it has acceeded to CPS pressure and announced that in future adult students will be excluded from the

While a strong case can be made for excluding adult students. a similar case cannot be made for excluding school leavers from the official unemployment figures. Although the CPS does not press for the exclusion of school leavers, others have pressed for this. If i t were to be implemented, the proposal would mean that school leavers would be included in the statistics on employment when they are successful in getting work, but excluded from the unemployment statistics when. through no fault of their own. they cannot get a job. Hence. for this group. whether or not one is regarded as being a member of the labour force would depend upon how successful one is getting a job. rather than upon whether one is available and looking for work. Since those groups outside the labour force are unlikely to attract as much attention as those groups within i t when unemployment generally is rising, then to exclude school leavers from the official unemployment statistics runs the danger of ignoring the problem of school leaver unemployment. The consequence of this is as serious as it is obvious. Future supplies of skilled labour will be threatened.

Job vacancies The CPS also comments upon the undernotifi-

cation of vacancies to DE local officers, citing the study commissioned by the DE which suggests that only a third of all vacancies might be notified. If this is correct. then reported vacancies must be multiplied by a factor of three in order to obtain the correct vacancy level. However, acknowledging that the fraction reported might vary the CPS errs on the side of caution and adopts a multiplying factor of 2.5 when adjusting DE vacancy statistics. Whether or not this is a realistic multiplying factor

15 The eicIus~on of addl rrudanrr from tha counl of !ha wholly unemployed commenced In April 1976 Sea Osparfm8nr of Employment Garerrs March 1976 p 267

is difficult to say. Judged by the vacancy study already referred to, it can be argued that the multiplying factor adopted by the CPS is both fair and realistic. However, in interpreting the results of that study, it must be borne in mind that the findings were based on information obtained from only 29 companies in seven different areas. The firms were not selected at random, but were “biased towards areas where labour seemed gener- ally available, but where i t was apparent that particular firms were having difficulty in recruit- ment: to give some balance to the study one or two areas of relatively greater labour difficulty were included”. Since neither firms nor areas were selected so as to be representative of the country as a whole, the results of the study “cannot necessari- ly be taken to apply to vacancy and labour market conditions in general.” Indeed, it is likely that the extent of undernotification of vacancies not only varies through the cycle but also across regional, industrial and occupational boundaries. Even cases of over-reporting are not unknown. For example, a firm might place what amounts to a standing order with its local employment office for a particular type of labour, even though it might not have a current vacancy. By providing a steady flow of applicants such a policy might enable the firm to be more selective in catering for future rather than current vacancies.

I t is impossible to say, on the basis of the single survey that has been carried out, whether the CPS is correct in asserting that its own estimate of vacancies corresponds more closely to actual vacancies than does the official DE figure. Clearly the DE coverage is inadequate. and more systema- tic and representative surveys of vacancies would provide much needed information for analysing the demand side of the labour market.

While the CPS is correct in pointing to the inadequacy of vacancy data, its treatment of vacancies is not consistent with its treatment of unemployment. If unemployment figures are ad- justed to exclude the frictional .component, then vacancies must be similarly adjusted, especially if the two series are being compared in order to give some idea of excess demand or excess supply. Therefore, vacancies which arise from job chang- ing should be subtracted from total estimated

I 1

The measurement of unemployment: an exercise in political economy?

vacancies - just as unemployment arising from job changing is subtractcd from total unemploy- ment. The lack of vacancy data comparable to the duration of unemployment data used by the CPS to estimate frictional unemployment need cause no problem since, by definition. the frictionally unemployed are those for whom job vacancies exist, within easy reach and at current rates of pay. The frictional vacancies must, by definition, be equal to the number of frictionally unemployed. Given the CPS definition of frictional unemploy- ment, this means that frictional vacancies are equal to the CPS estimate of people between jobs (row 3, Table 3). Therefore, subtracting job changers from the CPS estimate of gross vacancies (row 8) we get what we might call the CPS estimate of net vacancies (row 9). I t is this vacancy figure - and not the gross vacancy figure as is implied in the CPS press release - that must be compared with the CPS estimate of unemployment (row 6). in order to obtain a consistent estimate of excess demand for labour. These estimates are given in row 10, with negative signs indicating excess sup- ply. Therefore. even if all the CPS adjustments to DE unemployment and vacancy data are accepted, the excess of long-term unemployment over non frictional vacancies for July 1976 was of the order 860.000 - that is. 367.000 more than is implied in the CPS press release.

CONCLUSION One point at least should have emerged from the foregoing discussion - there is no single measure of unemployment. This is because there is no unique method or approach to the measurement of this phenomenon. But even if there were. the purpose for which the unemployment measure is used will determine whether or not certain iden- tifiable groups within the total should be included in the measure that is adopted. In America, where the method of measurement is the labour market survey, it is possible to compute at least seven different measures of unemployment from the data that is published regularly by the Bureau of Labour Each of these different mea-

16 Sw the article by Shiskin Julius Employment and Unsmploymsnt the doughnut of the hole? ' Monrhlv Labour Review. Fsb 1976. Vol 99. No 2. pp 3-10

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sures is obtained by simply adding or subtracting certain identifiable groups from the official mea- sure. Each measure will reflect a particular set of value judgements concerning which groups should and should not be included. In the UK, measure- ment is through registration but. again, different groups can be identified within the total. All that the CPS is doing when it argues for the exclusion of some of these groups is reflecting a particular set of value judgements - probably, but not necessarily. the value judgements of those that it serves. What it does not do is come clean and acknowledge that it is only concerned with esti- mating the extent of demand-deficient unemploy- ment - that is, that unemployment that can be eliminated through a non-inflationary expansion of demand. This concern probably stems from deep rooted values about the evils of inflation and the most appropriate methods of controlling it.

However, our criticism of the Centre is not that i t focuses attention on only one of the components of unemployment, but that it adopts crude and arbitrary methods of disaggregating the total into its component parts. N o one would deny that at a given level of aggregate demand some people on the unemployment register will be virtually unem- ployable, that others will be between jobs, while yet others will be in the wrong place or possess the wrong skills for the vacancies that exist - and that the plight of all of these might best be served by policies other than demand expansion. But if the correct policy mix between demand management and labour market policies is to be achieved, then policy makers will require realistic estimates of all the components of unemployment. Even if policy makers were only concerned with demand- deficient unemployment. then. in order to estimate the magnitude of it, they would require accurate estimates of the non-demand-deficient compon- ents. That the CPS is not concerned with measur- ing these other components accurately reflects the value judgements that underlie its estimate. Although it purports to attempt to increase public awareness of the real nature of unemployment, it is difficult to avoid the conclusion that its attempt to obtain a more realistic measure of unemploy- ment is nothing more than an exercise in political economy.