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| Headline numbers: Targeting employment or unemployment | Headline numbers: Targeting employment or unemployment |
| (about 7 hours later) | |
| Official figures on Tuesday told us that the employment rate was at about 73.0% while that for unemployment was at about 5.8%. | Official figures on Tuesday told us that the employment rate was at about 73.0% while that for unemployment was at about 5.8%. |
| Both of these figures follow the continuing trend of employment rising and unemployment falling. | Both of these figures follow the continuing trend of employment rising and unemployment falling. |
| But clearly they do not add up to 100%, and there have been discussions this week about which number the government should be targeting. | But clearly they do not add up to 100%, and there have been discussions this week about which number the government should be targeting. |
| On Monday, Prime Minister David Cameron said he was committed to achieving full employment, by which he meant taking the UK's employment rate above those of other developed countries. | On Monday, Prime Minister David Cameron said he was committed to achieving full employment, by which he meant taking the UK's employment rate above those of other developed countries. |
| That's quite an unusual definition of full employment, which is usually taken to mean getting unemployment down to a rate at which it does not cause inflation, which is often given as 5%. | That's quite an unusual definition of full employment, which is usually taken to mean getting unemployment down to a rate at which it does not cause inflation, which is often given as 5%. |
| In August 2013 when the Bank of England was looking for a measure of the economy to target as part of its forward guidance policy, it said that it would not consider raising interest rates until the unemployment rate was below 7%. | In August 2013 when the Bank of England was looking for a measure of the economy to target as part of its forward guidance policy, it said that it would not consider raising interest rates until the unemployment rate was below 7%. |
| What is the difference between targeting employment and unemployment? | What is the difference between targeting employment and unemployment? |
| The employment rate is the proportion of all people aged between 16 and 64 who are in work. | The employment rate is the proportion of all people aged between 16 and 64 who are in work. |
| The unemployment rate is the number of people who are unemployed divided by the economically active population, which is the number of people employed plus the number of people unemployed. | The unemployment rate is the number of people who are unemployed divided by the economically active population, which is the number of people employed plus the number of people unemployed. |
| Hence, what makes the difference between the two figures is the economically inactive population, which is people who are not looking for work or not available for work. | |
| That includes people in full-time education or training, people unable to work as a result of illness or disability, people with caring responsibilities such as those looking after young children and people who have taken early retirement. | That includes people in full-time education or training, people unable to work as a result of illness or disability, people with caring responsibilities such as those looking after young children and people who have taken early retirement. |
| So the reason the employment rate and the unemployment rate don't add up to 100% is the nine million or so economically inactive people between the ages of 16 and 64. | So the reason the employment rate and the unemployment rate don't add up to 100% is the nine million or so economically inactive people between the ages of 16 and 64. |
| The other difference is that the employment rate only covers those aged between 16 and 64, while the unemployment rate does not have an upper age limit. | The other difference is that the employment rate only covers those aged between 16 and 64, while the unemployment rate does not have an upper age limit. |
| The Institute for Public Policy Research did some research funded by the Trades Union Congress in July 2013 on which target should be used. | The Institute for Public Policy Research did some research funded by the Trades Union Congress in July 2013 on which target should be used. |
| Strange situation | Strange situation |
| It concluded that the employment rate was a better one to target and added that a rate of 73% was consistent with an unemployment rate of about 5% - but either target throws up anomalies. | It concluded that the employment rate was a better one to target and added that a rate of 73% was consistent with an unemployment rate of about 5% - but either target throws up anomalies. |
| If you are targeting unemployment, then you can cut the rate by persuading more people to move from unemployment to inactivity by giving up on looking for a job or returning to education or training, for example. | If you are targeting unemployment, then you can cut the rate by persuading more people to move from unemployment to inactivity by giving up on looking for a job or returning to education or training, for example. |
| This creates the strange situation in which, when an economy recovers from a downturn, there may be a temporary rise in unemployment as inactive people decide it may be worth starting to look for a job again. | This creates the strange situation in which, when an economy recovers from a downturn, there may be a temporary rise in unemployment as inactive people decide it may be worth starting to look for a job again. |
| If you're targeting employment, then that is no longer an issue, but there is still a problem that, for example, for the government target, it is better to have two people working 20 hours a week (even if they want more work) than to have one person working 40 hours a week. But that may not be the best thing for the economy. | If you're targeting employment, then that is no longer an issue, but there is still a problem that, for example, for the government target, it is better to have two people working 20 hours a week (even if they want more work) than to have one person working 40 hours a week. But that may not be the best thing for the economy. |