What Does Unemployment Rate REALLY Mean?

This post is something that is on a tangent of my usual posts, but something very interesting!

I am not sure if you are all aware of how the statistics for unemployment really work, but I think that finding it out was an eye opener to me. I am writing this as some countries are bragging about their low unemployment rates, but what does this even mean? What does it mean to have a 5% unemployment rate?

No, it doesn’t mean that 5% of the country’s population is unemployed… it doesn’t even mean that 5% of the work force is unemployed… so what is it? I will take the test case of Brazil (because it has a very nice roughly round number and is one of the countries that says that they are wonderful for having a low unemployment rate)

  1. Definition 1: The Brazilian Work Force

Brazil has, currently, 200 million inhabitants (191 million according to the 2010 Census), roughly 100 million between the age of 15 and 65 (See? Nice, round numbers!). This is when brazilian are able to legally hold a job and, therefore, compose the country’s work force. This is according to the 2010 Census. (So, 100 million people are out of the unemployment statistics)

  1. “Bolsa Familia” and the Work Force

“Bolsa Familia” is a government social welfare program that gives a monthly help to families and individuals that receive this government aid. About 50 million people are currently receiving aid from the government and, according to IBGE (the brazilian statistics research body), 65% of them are in the Work Force age, which amounts to 32.5 million people that are not considered unemployed. This amounts to 132.5 million people who are not officially unemployed.

  1. Students, House Husbands/Wives and People who Have Never Looked for Work

If you are a student, have never looked for work and/or are a house husband/wife, you are not part of the statistic. According to the census, Brazil has around 6.7 million of university students. From the same study, around 51% hold a job and 49% have never worked in their lives. It can be safely said that 3.29 million youngsters are out. So, this totals around 135.8 million people in the country.

  1. Early Retirement and Disability

Some people manage to retire before the age of 65 (after a certain number of years of government pension contribution) and some have suffered some illness or accident and are no longer able to work, also don’t fall in the statistic of unemployment. This is a number that I was not able to find anywhere, so I will leave it out.

  1. Informal Work

Informal workers, who hold temporary jobs and don’t pay taxes on their income, are not entitled to pension benefits etc, are somewhat part of the statistic. These are usually very low paying, seasonal jobs that one would not be able to rely to support a family (some aren’t, of course). This is also a very shady number that can only be estimated, but no one has a precise number nor their age group. Since informal workers are not in the system, they can be part of any of the above categories… claim disability, bolsa familia, be retired, students etc. IBGE calculates that around 44.2 million workers (or all ages, under 15 and over 65 inclusive) in Brazil are informal. I am not sure of how many are part of the work force, but no-one really is either. In order to estimate a percentage of the population that are formally employed, pay taxes etc, I can only estimate that just like the population, around 50% of the informal workers are aged 15-65.

  1. Quick Conclusion

So that depression won’t set in, I will stop here, but there probably are some aspects that I am overlooking. So, when taking into account the population that are actively contributing to the country’s economy (people who actively pay taxes on their income), there are roughly 43 ± 22 million formal workers or people who are actively looking for work. Out of these, around 5% are officially unemployed, which means roughly a couple of million only people are actively looking for work.

Phew! This estimation, as you can imagine, is very difficult to have precise numbers due to do overlaps between areas. But when correlating with the fact that 78% of brazilians live below the average GDP per capita of R$2300 (£750) per month and 85% live below the R$4500 per month threshold (£1150), this estimation, somewhat makes sense.

Thank you for reading.

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