Unemployment and Inflation

I.     Unemployment

A.      Despite International Labour Office conventions, differences continue. See this article and this one by Constance Sorrentino of the U.S. Department of Labor. Also, see OECD Standardized Rates .

1.      Without work?  Contractually (Europe, Japan) or physically (U.S.).

2.      Available?  During survey (N. America, Japan) or within 2 weeks (E.C.).

3.      Seeking work?  During past 4 weeks (N. America), 4 weeks with exceptions (most E.C.), 60 days (Italy), or unspecified (Japan).  Thus, Italian unemployment was 11.1% in 1989 by Italian definition or 7.8% by U.S. definition.  "Passive jobseekers" who conduct their research for work strictly by reading newspaper ads are included in the labor force (and among the unemployed) in Canada, but not in the United States (reduces Canadian rate 1% point by U.S. definition or raises U.S. rate 0.15% point (in 1998) by Canadian definition). Will the former planned economies consider a person unemployed if they reject a job offer?


B.      Standard definition can be adjusted for:

1.      Duration - E.C. countries have high rates of long-term unemployment

2.      Underemployment - improper use of skills (unmeasured) or involuntary part-time work.  Latter problem was largest, as % of labor force, in Netherlands and U.S. and smallest in Germany.  Underemployment may also mean overstaffing, as in former planned economies.

3.      Discouraged workers - Defined culturally.  Biggest increases for Japan and Italy, especially Japanese women with temporary jobs.


C.      Methods of Data Collection

1.      Sample surveys - Considered the best method. Conducted monthly in U.S., annally in E.C.  Still are sensitive to wording of questions.  Still may miss underground employment.

2.      Registrations at unemployment or social security offices - most developing countries.

U.S. Unemployment Rates in December 2015
by Alternative Definitions 



U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force


U-2 Job losers and persons who completed temporary jobs, as % of the civilian labor force


U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)


U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers


U-5 Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers


U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers


Source: U.S. Bureau of Labor Statistics

Note: Marginally attached Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.  Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

OECD Alternative Measures of Unemployment, 2014

Unemployment 2014


II.         Inflation

A.      Price indexes vary across countries in the quality and quantity of data collected.

1.    Price surveys in market economies

2.    Comprehensive price lists in planned economies

B.      Laspeyres, Paasche, Fisher, and Chained Price Indexes handle quantity weights differently.  U.S. has moved to Fisher Chained indexes for both GDP (Paashe before 1996) and CPI (Laspeyres before 1999) measurement. The EU Harmonized Indices of Consumer Prices are chained Laspeyres indices with the weights updated each January.


C.      Quality Adjustment—during 1995, quality adjustments reduced the measured CPI inflation rate in the U.S. by 1.7 percent, but, according to the Boskin Commission, that adjustment should have been more like 2.3 percent. See the U.S. CPI Home Page.

1.      Direct adjustment - adjust food items for change in package size, adjust cars for change in standard equipment.  In the U.S., mandated pollution control measures were not counted as quality adjustments in 1970, but they were between 1971 and 1999, and now (since the beginning of 1999) they again are not counted as quality improvements. See the BLS discussion of this issue.

2.      Matched Models - limit sample to matching products, rather than price per unit for full sample.

3.      Hedonic Method - statistical technique to find out how much price has changed after allowance has been made for a number of operating characteristics.  In U.S., they are now used in computers (in the PPI since 1991 and in the CPI since 1998), televisions (in the CPI since 1999), appliances (CPI 2000), and a growing number of other products. 


D.      Countries that exercise price controls experience:

1.      Open, reported inflation - Occurs because not all prices are controlled or because planners increase prices.

2.      Hidden inflation - Monetary price increases, but not measured.

a.      Hidden transactions - black market or "under the table"
b.      Hidden quality deterioration, false quality improvement, or forced substitution of high-quality for low-quality products

3.      Repressed inflation - Occurs when price controls are effective, and inflationary pressure causes shortages or queues.

Consumer Price Inflation Rates, 1981-2013


Source: IMF World Economic Outlook Database