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Monday, February 07, 2005

Comparing unemployment rates

"The number of unemployed people in Germany rose to five million last month, the most in the post-World War II period, as the government transferred some longtime welfare recipients to the jobless rolls," reports Mark Landler in the New York Times. As a result the German unemployment rate stands at 11.4 percent. Last year's unemployment rate in U.S., he notes, was only 5.4 percent.
Mark Landler, "German Joblessness Rises as Benefits Are Reduced," New York Times, 2/3/05, C5.
What a striking contrast, further enhanced if one goes by the German rate of 12.1 percent reported in the International Herald Tribune and by the news that the U.S. "unemployment rate dropped to a three-year low of 5.2 percent in January" 2005.
Carter Dougherty, "Jobless Rate in Germany Hits Record," International Herald Tribune: The IHT Online, 2/3/05; Eduardo Porter, "Labor Market Expanded at Modest Rate in January," New York Times, 2/5/05, B: 1,4.
The obvious inference is that the U.S. economy is doing much better than the German, since its unemployment rate is less than half of the German rate.

But how much better is not as obvious as it might seem. As Porter goes on to observe, the latest drop in the U.S. rate came "because hundreds of thousands of people stopped looking for jobs and dropped out of the labor force." (Porter, B1) Meanwhile, the German rate rose because some long-term unemployed workers not previously counted were added to its unemployment rolls. Both the numerator (numbers of "unemployed") and the denominator (size of the labor force) matter, and how they are defined varies by country. On the intricacies of such comparisons, see Constance Sorrentino, "International Unemployment Rates: How Comparable Are They?" Monthly Labor Review, June 2000, 3-20.

Wouldn't it be nice if the major media developed some rule of thumb for translating unemployment rates across countries, rather than merely citing the numbers as if they measured exactly the same thing?

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