Biases in the Measurement of Unemployment

Counting those who are registered for unemployment compensation, and considering them as the unemployed, makes sense and is probably the best approximation we can get easily. But it really is an imperfect method, and it leads to two kinds of biases -- biases that work in opposite directions.

Biases in Unemployment Data:

Discouraged Workers

Discouraged workers are people who are willing to work at the going wage, but have given up looking actively for work, because they do not expect to find a job. They are not registered for unemployment compensation because they have been unemployed too long to be eligible (under American law). Thus, they really unemployed but are not counted as unemployed.

"Andy Capps"

I have borrowed the term "Andy Capps" from a British newspaper comic strip of that name. An "Andy Capp" is a person who is registered for unemployment compensation but not really willing to work at the going wage. He is only keeping up appearances in order to get the unemployment money. (This is probably more common in European countries where the programs are more generous than the American, especially with long-term unemployed males). "Andy Capps" would be counted as unemployed although they are not really willing to work.

Unfortunately, although the two biases work in opposite directions, we cannot assume that they offset one another. We don't know which one is the more important, or whether our unemployment numbers are too low or two high.

(Of course, most economists have their opinions, and my opinion is that there are relatively more discouraged workers, so that the numbers are too low -- at least in the United States).

Kinds of Unemployment