Measuring labour absorption problems in developing countries: Limitations of the concept of unemployment

Abstract

The "standard" unemployment rate is often criticized for omitting large numbers of people who are classified as employed or as not economically inactive, when in fact their situation amounts to unemployment. The author discusses the limitations of this standard definition for developing countries. After reviewing the methodological and statistical problems posed by the standard rate, he looks at the reality behind the words in contexts where the labour market is highly segmented. He shows that the standard unemployment rate underestimates excess labour supply and is a poor indicator of the Decent Work deficit, and considers its limitations in guiding economic policy.T he unemployment rate is widely used as an indicator of labour absorption problems, wasted human resources, labour market performance, success of economic policies, and even the risks of inflationary tensions. 1 Despite such broad appeal, however, it is a controversial and much criticized concept. Indeed, unemployment figures everywhere are hotly debated.This article considers the limitations of the "standard" -or "open" -unemployment rate in developing countries. It starts by reviewing the methodological and statistical problems associated with the standard rate, going on to look at the reality behind the words in contexts where the labour market is highly segmented. After showing how the standard unemployment rate underestimates excess labour supply and is a poor indicator of the Decent Work deficit, the discussion turns to its limitations in guiding economic policy. * Doctor of Economics, Head of Programmes and research in the West African Office of the Rosa Luxemburg Foundation (Dakar); email: ndongosylla@gmail.com.Responsibility for opinions expressed in signed articles rests solely with their authors, and publication does not constitute an endorsement by the ILO.

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