Economy Employment vs unemployment rates in the EU


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It is a common mistake to believe that employment rates are proportional to unemployment rates. They are in fact two quite different things. Here is a brief explanation of the differences.

1) job-seekers and the dole

The unemployment rate only takes in account people actively looking for a job. In Europe, this normally means that job-seekers are registered at a government's office in order to claim unemployment benefits. Given the generosity of some government (e.g. France, Germany, Belgium...) in the matter, it is not surprising that more people declare themselves unemployed than in a country with no such benefits, because of the shame or embarassment linked to unemployment. In short, this means that countries with little or no unemployment benefits typically have underestimated unemployment figures, while overgenerous countries might even have slightly overestimated figures, as many of the people on the dole actually work on the side.

2) Not working and not looking

There is a variety of people in age to work but not contributing to the economy and not looking for employment. For instance, in some societies married women are more likely to stay at home than to work. Students above 16 are also part of the "active population" but often do not work, and if they do it is just part-time. Most physically or mentally handicaped people also cannot work. Others just don't want to work and live off their parent's allowances. Landowners or rich shareholders may just live from their rents or dividends, without officially be in employment. These are all examples of people who may not want to be called "unemployed" are so do not declare themselves as job-seekers.

Does unemployment reflects bad economic conditions ?

Many people too hastily judge a country's economic health based on its unemployment rate. This is a grave error. In fact, it could be argued that a high unemployment rate, at equal GDP per capita, is a sign of healthier economic conditions. It certainly shows that the productivity is higher, as fewer people generate the same wealth per capita for the whole country. This also means that salaries (before tax) are higher. As countries with generous unemployment benefits tend to generate more officially unemployed people, it means that the country is rich enough to give all these people a minimum income. This is indeed a sign of wealth. Such a system also greatly help reduce poverty, which is yet another sign of national wealth if the country can afford it.

Comparing the statistics

The most interesting part is to compare employment and unemployment rates in various countries, and see which country has the highest rate of people not working and not looking for work, because such people are probably rich enough or have a rich enough family to support them. On the other hand, this may also be a sign of laziness, while countries with high employment rates would be seen as harder workers (or greedier people ?). Interpreting these statistics can be quite exciting.

Employment rates in 2005 (people between 16 and 64 actually working and paying taxes)

Denmark : 75.9%
Netherlands : 73.2%
Sweden : 72.5%
UK : 71.7%
Austria : 68.6%
Cyprus : 68.5%
Finland : 68.4%
Ireland : 67.6%
Portugal : 67.5%
Slovenia : 66%
Germany : 65.4%
Czech Republic : 64.8%
Estonia : 64.4%
Luxembourg : 63.6%
Latvia : 63.3%
Spain : 63.3%
France : 63.1%
Lithuania : 62.6%
Belgium : 61.1%
Greece : 60.1%
Slovakia : 57.7%
Italy : 57.6%
Romania : 57.6%
Hungary : 56.9%
Bulgaria : 55.8%
Malta : 53.9%
Poland : 52.8%
Iceland : 83.8% (!)
Norway : 74.8%
Switzerland : 77.2%
Croatia : 55%
Turkey : 46% (!)
USA : 71.2% (in 2004)
Japan : 68.7% (in 2004)

Unemployment rates in 2005 (people officially looking for work)

I have left the countries in the same order so that you can more easily see how a high employment rate does not always mean a low unemployment rate or vice versa. For instance, Italy and Hungary, at the bottom of employment rates, have lower unemployment rates than Sweden and Finland, at the top of the employment rates.

Denmark : 4.8%
Netherlands : 4.7%
Sweden : 7.8%
UK : 4.7%
Austria : 5.2%
Finland : 8.4%
Ireland : 4.3%
Portugal : 7.6%
Germany : 9.5%
Spain : 9.2%
France : 9.7%
Belgium : 8.4%
Greece : 9.8%
Italy : 7.7%
Hungary : 7.2%
Poland : 17.7%
Turkey : 10.3%
USA : 5.1% (in 2004)
Japan : 4.4% (in 2004)

Sources : Eurostat

Real unemployment rate

The "real unemployment rate" (all people between 16 and 64 who not working, regardless of whether they are job-seekers or not) can be obtained by substracting the employment rate from 100%. For example, the real unemployment rate in Denmark is 24.1%, while it is 47.2% in Poland. Naturally it is not the exact rate since it does not take the black economy (undeclared work) into account, which can be quite considerable in countries like Italy (maybe an additional 15 or 20% of people in employment).

If we substract the official unemployment rate from the real unemployment, we get the percentage of people supported by their family or living off their properties and investments. It is as low as 19.7% in Sweden and 19.3% in Denmark, but jumps to 35.9% in Hungary or 43.7% in Turkey. This is surely because most Scandinavians women work (over 70% of them), while few Turkish ones do (only 23.8%). It is less clear for Hungary, as half of the women work in that country, only slightly less than men. The truth is that former communist countries have lower employment rates for both men and women because of the sudden and radical change in the economy and way of working after 1990.
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A recent study estimates that the black economy in Belgium could be as high as 22%.

There has indeed been a rise in the last few years with construction workers from Eastern Europe (esp. from Poland) who are on every construction site in Brussels, and yet most seem to be undeclared.

Belgium having the highest income tax in the world (min 20% with no exemption on low salaries or part-time work, and max 55%), it is only natural that the part of undeclared work be significantly higher than in countries with much lower tax rates like the USA or Japan. It is very common that plumbers or restaurants do not give you a proper bill (for VAT refund) if you do not ask for one.

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