Understanding unemployment

There is very little understanding of this very important economic indicator

By Zunairah Qureshi and Ghulam Abbas

Unemployment. Berozgari. It is an economic indicator that has brought down governments and is constantly a bone of contention. At the very core of it the entire concept is very simple. People need livelihoods and in an economy where the services industry is the only path for anyone with no capital backing them - jobs are crucial. That said, there is very little understanding among people regarding what the ‘employment rate’ that is often at the center of economic debates is, how it is calculated, and what it stands for. Any A level economics textbook will tell you that the unemployment rate is the percentage of unemployed persons in the labour force which includes only those individuals who are eligible and available for employment. That makes sense. There is a certain section of the population that wants to be employed to qualify for employment and some of those people do not have jobs. But calculating the unemployment rate is a little more complicated than this.

A matter of definitions

To get a clearer picture, we need to understand how unemployed persons as well as the labour force are defined. Each country may have slightly-but-impactfully varying definitions for these terms. In our case how these terms are defined and consequently how the unemployment rate is calculated, is decided by the Pakistan Bureau of Statistics (PBS).

A number of labour market indicators like the unemployment, underemployment, labour force participation rates, and others are derived from data collected through the Labor Force Survey (LFS). The survey is supposed to be conducted by PBS yearly. However, the latest publicly available results are from the 2018 – 2019 LFS, which were published in September 2021.

According to this survey, Pakistan’s unemployment rate for the fiscal year 2019 was 6.9%. This was a significant increase from the previous fiscal year when unemployment was recorded at 5.8%.

However, bear in mind that LFS sets the working age at 10 years old, which is lower than the international standard of 15 years old. The unemployment rate for 2018 was reported at 5.8% in the 2017-2018 LFS results. However, in the Employment Trends Report 2018 published by PBS, the labour force was calculated with the minimum age limit set at 15 years instead of 10.

This was likely done to make labour force related figures within this report comparable to international rates which meant that the unemployment rate for 2018 was reported as 5.7% in the Employment Trends Report. (Note that there may be other differences between how countries define and

measure unemployment rates. This makes comparison less accurate in general.)

To understand what these figures really mean, we need to clarify a few things. Firstly, ‘unemployed persons’ does not include every person that is jobless or without an income in Pakistan.

Remember that the unemployment rate is not the percentage of unemployed people out of Pakistan’s total population, but out of its labour force. And to be counted as part of the country’s labour force you have to meet some conditions.

The Labour Force Survey 2018 – 2019 Annual Report terms the labour force as the ‘currently active population’ and defines it as consisting of ‘all persons ten years of age and above who can be categorized as employed or unemployed during the reference period i.e. one week preceding the date of interview’. Let’s break this down.

One of the most basic conditions, as was referred to above, is the working age limit of 10 years. This means that all persons below the age of 10 are not part of the labour force and hence are not represented in the unemployment rate. Even school going children who are above 10 years of age are not included as part of the labour force as they are not available for employment.

Another thing to note is the ‘reference period’. This period refers to exactly one week before the survey is being taken from an individual. The survey includes a number of questions regarding the individual’s occupational activities in the previous week in order to determine her employment status.

Moving on, those persons who are categorised as ‘employed’ have to, broadly speaking, either have been paid employees or self-employed (this includes employers) during the reference period. Paid employees can be those who are paid regularly, casually, by piece rate or work performed or paid ‘non-family’ apprentices.

On the other hand, those persons who are categorised as ‘unemployed’ are, for the duration of the reference period, not engaged in any kind of paid employment or self-employment. These persons are called ‘without work’.

However, it should be noted that, those who are without work have to also be available for work during the reference period, that is, they have to be able and willing to work. In the case that they are not available for work, they are no longer factored into the labour force and are not counted among unemployed persons. This is why people who willingly choose not to work or handicapped persons are not included in the unemployed population.

There are certain cases in which persons who have been unavailable for work during the reference period will be considered unemployed. This only happens if they are not working on account of illness, being temporarily laid off, an ongoing apprenticeship during which they willingly choose not to work, or because they will take a job within the next month.

Lastly, people without work who are seeking jobs within the last week are also considered unemployed. The LFS asks specific job-seeking questions such as ‘What steps did (name) take during the past month to seek work?’ and ‘How long has (name) been seeking work?’ to verify whether each person has legitimately been looking for work.

Since, being part of the labour force means you can either be employed or unemployed, if you fall outside of the above-listed conditions for being employed or unemployed, you are not part of the population that makes up the labour force.

Exceptions and complications

So, if you are above 10 years of age, without work and not interested in getting a job, you are not part of the labour force and hence do not figure into Pakistan’s unemployment rate. This naturally excludes groups such as the majority of students and women dedicated to housewifery from the labour force. To illustrate women’s performance in the labour market, consider this: in FY19, while labour force participation rate—the labour force as a percentage of the total population—of men was 67.8%, participation rate for women was merely 21.5%. Meaning that, 79.5% of Pakistan’s female population, that makes up almost 40% of Pakistan’s total population, was not part of the labour force. Overall, the labor participation rate for both sexes was 44.8% in FY19. In another interesting scenario, assume you are above 10 years of age, without work and have been seeking a job for a year or even more and finally decide to quit your search out of dejection and hopelessness. Then a week after you have quit job seeking, an LFS surveyor approaches you and in response to ‘Was (your name) seeking work during the past week?’ and ‘Was (your name) available for work during last week?’ you say no. The surveyor will then ask you why you weren’t available and you say that you have given up. In this case, you admit to having quit the labour force and are not going to be counted as unemployed. You will now be considered as part of the population that is ‘not currently active’. Naturally, handicapped persons and others unable to work, retired persons not willing to work, those who are too old to work, and agricultural/property landowners not willing to work among other groups, are also part of the not currently active population. In addition, those being paid income solely through dividends, royalties, etc. and those involved in immoral pursuits such as prostitution, begging, etc. are also not considered active.

Remember, those who are currently not active, are not part of the labour force, so even if they are not working, they are not considered unemployed and hence not included in the unemployment rate. The unemployment rate is based on the number of people who are currently active, meaning they are part of the labour force, but they are not in employment.

Since the unemployment rate is derived from the LFS. It would help to know a little bit about how the LFS is conducted. Unlike a census, the LFS is not filled by every individual in the country. Instead it is taken from a selected but representative sample.

This means that a group of households from both urban and rural areas of all four provinces and Islamabad are randomly selected to be surveyed. This group is selected using sampling techniques that make sure that the individuals within this sample proportionally represent the rural and urban populations of each region. This is to ensure that the answers this sample group will give in the survey are as representative of the rest of the population as can be.

For example, in the 2018 - 2019 LFS, a total of 41184 households were sampled. Out of these, 26688 were selected from rural areas and 14496 were selected from urban areas. These numbers were representative of Pakistan’s 65% rural and 35% urban population in 2018. Similarly, the sample for LFS is selectively representative of each region’s population composition.

Lastly, also take note that the sample is of households. The surveyor goes to each household within the sample and asks one person, usually the breadwinner of the house, to answer for every member of the household.

The unemployment rate is a widely-accepted measure for the labour market. It can express underutilization of the labour supply, showing that there are not enough skills and jobs being generated to actually maximise available human capital potential. It is also one of the accepted indicators that measure progress towards the SDGs. National policies for the economy, youth, education, market conditions of different sectors and many other vital decisions are informed by the unemployment rate. n