This book is about how to reduce poverty and improve global living standards. Topics include economic growth, income inequality, corruption, sustainable development, the future of technology, and much more.
Below is a sample of questions answered th...
To produce goods and services, a country needs people that are working.
Most governments determine the extent of employment by using their own unemployment statistics. When we hear that the unemployment rate is 5%, we assume it means 5% of the working-age population doesn't have a job.
Wrong. According to the US Bureau of Labor Statistics, the official unemployment rate doesn't include people as unemployed anymore if they haven't found a job within 12 months [1]. They're put into a different category called "discouraged workers" that are "marginally attached to the workforce."
Put another way, if someone goes long enough without a job, the government basically says, "Forget that person. They're not going to find a job. Let's treat them as if they're retired." Retired people aren't counted as unemployed.
Suppose one-third of the working population was laid off, bringing the unemployment rate to 33%. One year later, these people wouldn't be considered unemployed anymore even if they didn't find a job. The official unemployment rate would fall back down, giving the illusion of a recovery.
Every nation has an official unemployment statistic that works similarly.
It's not entirely useless, however. If the official unemployment rate rises suddenly, it is a valid indication of economic troubles. The only problem is that those troubles will appear to have gone away after 12 months even if they haven't.
There's another statistic called the labor force participation rate. It's the percentage of adults that have a job or are looking for one. The problem with it, though, is that it lumps people that have a job and those that don't (but still want one) in the same category. It doesn't tell us how many people are employed. If nobody was working, but everyone wanted a job, then the labor force participation rate would be 100%.
Also, the labor force participation rate tends to be lower in countries with a high percentage of elderly people. That's because that demographic isn't looking for work. In the United States, for instance, the percentage of the population that's retired has been going up for years. Thus, the labor force participation rate has been falling. A shrinking labor force participation rate doesn't necessarily mean the economy is doing worse. It usually just means more people are dropping out of the workforce because they're retiring.
The best way to determine employment is to look at the employment-to-population ratio. It's the percentage of the working-age population (15 to 64) that has a job. Discouraged workers—and those that are looking for a job but haven't found one yet—are counted as unemployed, as they should be. An employment-to-population ratio of 70% means that 70% of working-age people have a job. The real unemployment rate would be 30%.
The employment-to-population ratio statistic is more reliable when comparing countries. And unlike the official unemployment rate, it counts discouraged workers as unemployed.
Employment-to-population ratio is strongly correlated with national quality of life. See figure 21. (Note: A higher number is better. It means more people are employed as a percentage of the working-age population.)
Figure 21
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