Is the unemployment rate correct?

Labor market policy

Stefan Sell

To person

Stefan Sell is Director of the Institute for Social Policy and Labor Market Research (ISAM) at the Koblenz University of Applied Sciences and Professor of Economics, Social Policy and Social Sciences in the Department of Economics and Social Sciences. Before that, he was a consultant for fundamental issues of labor market policy and job placement at the Baden-Württemberg State Employment Office in Stuttgart and a consultant for labor market policy at the Federal Chancellery in Bonn. He is the editor of the social policy information portal "Current Social Policy": www.aktuelle-sozialpolitik.de

Lena mug

is a political scientist, since June 2020 a consultant in the department of work design and securing skilled workers at G.I.B. mbH. Before that, from April 2017 to May 2020 she was a research assistant at the Institute for Social Policy and Labor Market Research at the Koblenz University of Applied Sciences (ISAM) and editor in charge of O-Ton Arbeitsmarkt.

The recording of unemployment is subject to social law criteria and is therefore politically controllable. How many unemployed there are officially depends on the definition of unemployment the measurement concept is based on. As a result, not every person without paid employment is also unemployed in the sense of the statistics.

Announcement of the monthly labor market statistics of the Federal Employment Agency in October 2019 (& copy picture-alliance / dpa)

Every month the Federal Employment Agency (BA) announces the official number of unemployed, which is recorded in the employment agencies and in the job centers, the providers of basic security for job seekers. The average number of unemployed in 2018 was 2.34 million. But this number is determined according to social law requirements and does not take into account all people without work. Several hundred thousand de facto unemployed who, for example, on the day of the census, are not considered unemployed in the sense of the statistics due to an illness or due to participation in a measure, were therefore only counted as "underemployed" in 2018.

In addition, the Federal Statistical Office publishes the number of unemployed, which is determined using the measurement concept of the International Labor Organization (ILO). In 2018, their number was just under 1.47 million and thus far below the number announced by the BA. When asked how many people in Germany are out of work, the various measurement concepts arrive at very different answers, which result on the one hand from the respective definitions of gainful employment and unemployment and on the other hand from the data collection method.



How do unemployment and unemployment differ?

The monthly number of unemployed people announced by the BA is obtained from the business data of the BA and the job center on a set date and is therefore based on a total survey. On the other hand, the number of unemployed, which is published by the Federal Statistical Office, is the extrapolation from a sample survey of the population carried out as part of the microcensus. In the two measurement concepts of the BA and the ILO, a total of four criteria must be met for a person to be considered unemployed or unemployed: earning capacity, unemployment, active job search and availability for the labor market. In defining these criteria, however, the two concepts differ from one another. The definition of unemployment used by the BA can be found in Book III of the Social Code (SGB III):

Source text

Section 16 Unemployed (SGB III)

(1) Unemployed people are those who are entitled to unemployment benefits
  1. are temporarily not in an employment relationship,
  2. are looking for an employment subject to compulsory insurance and are available to the placement efforts of the employment agency and
  3. have registered as unemployed with the employment agency.
(2) Participants in active labor market policy measures are not considered to be unemployed.
According to the BA concept, only employable people can also be unemployed. Anyone who is at least 15 years old and younger than the respective standard retirement age and able to work for at least three hours per day is considered to be able to work. The unemployed must actually be available for the labor market. This is only the case if you do not work for more than 15 hours per week, have registered as unemployed with the responsible employment agency or a job center, are looking for a job subject to social security contributions and follow the suggestions of the public employment service.

The situation is different with the labor force concept of the ILO, which determines the number of unemployed. Unemployment in Germany is not statistically recorded by the ILO itself. Instead, the Federal Statistical Office determines the number of unemployed in a sample survey of the population as part of the microcensus, the labor force survey. The results of this survey are then extrapolated to the population as a whole. This procedure is based on the assumption that the respondents (can) provide truthful information about their employment status and their job search and that unemployment is just as widespread among the respondents as it is among the rest of the population who were not interviewed.

According to the ILO concept, people over the age of 15 to under 75 count as unemployed who are not employed, have actively sought a job in the last four weeks prior to the survey and can take up employment within two weeks. However, registration as an unemployed person at a BA office or a job center is not a prerequisite for unemployment. In contrast to the BA's measurement concept, not only employment relationships subject to social insurance count as work. Rather, employment is defined by the ILO as paid work with at least one hour per week. This also includes self-employed and marginal employment as well as activities as family workers. As a result, the ILO's broader definition of employment or work means that the number of unemployed is significantly lower than the number of unemployed according to the BA concept.



The different definitions of terms from BA and ILO indicate normative differences in the measurement concepts. The BA emphasizes the socio-political character of its definition of unemployment, whereas the ILO definition reflects an economic perspective. This is particularly clear in view of the weighting of employment subject to social insurance contributions in the BA survey: The fact that marginally employed persons (so-called “mini-jobbers”) can also be counted among the unemployed in the BA statistics indicates the normative assumption that not everyone Type of wage labor is equivalent in terms of a person's employment status. In the ILO's concept of unemployed people, on the other hand, the definition of work is more broadly defined, so that even small jobs lead to an end to unemployment.

The measurement of unemployment in Germany is subject to changes by the legislator due to its anchoring in social law. Furthermore, the statistical recording of unemployment varies between the different nation states. This complicates both temporal and international comparisons of the number of unemployed and the unemployment rate. These influencing factors are excluded when measuring unemployment according to the ILO definition, so that many nation states use this measurement concept either additionally or exclusively. The international comparability of the number of unemployed people calculated with this means that the ILO's measurement concept is not only used by the Federal Statistical Office, but also by the Statistical Office of the European Union (Eurostat) and the Organization for Economic Cooperation and Development (OECD).




How is the unemployment rate calculated?

Formula for calculating the unemployment rate (& copy bpb)

The rate that is disseminated in the media is the unemployment rate based on all civilian labor force. In this calculation, all dependent civilian labor force, self-employed and family workers are included in the labor force. Alternatively, the BA calculates the unemployment rate on the basis of the dependent civilian labor force. In this case, only employees subject to social insurance contributions, including trainees, marginal employees, people in work opportunities (so-called “one-euro jobbers”), civil servants (excluding soldiers) and cross-border commuters are included in the workforce. With this method of calculation, the number of economically active persons is correspondingly lower and the unemployment rate is thus higher.

The unemployment rates for an entire calendar year are each the average of the twelve monthly values ​​for a year. While the monthly figures are subject to seasonal fluctuations in the labor market, these are offset in the annual rate by calculating an average for the entire year. In order to still be able to map short-term changes in the labor market, the BA also calculates a seasonally adjusted unemployment rate for each month.



How is the duration of unemployment measured?

The number of long-term unemployed has a special place in the observation of the labor market. The development of long-term unemployment in relation to unemployment as a whole is used, for example, to examine the hardening of unemployment in certain groups of people. However, the number of long-term unemployed, as recorded by the Federal Employment Agency, is only of limited informative value due to the measurement concept used. Since the legal provisions for measuring the duration of unemployment have been changed several times, it is even more difficult to look at long-term unemployment over time.

According to Section 18 (1) SGB III, long-term unemployed people who have been registered as unemployed with the Federal Employment Agency or a job center for at least one year. The counting of the long-term unemployed takes place in the same way as the number of unemployed monthly on a predetermined reference date and is also obtained from the BA's business data. The problem with this measurement, however, is that, according to Section 18 of Book III of the Social Code, unemployment can be ended not only by taking up employment (subject to social insurance), but also by other so-called “harmful interruptions”. As a result, the duration of unemployment is not recorded seamlessly and thus the extent of long-term unemployment is statistically signed.

Taking up employment of at least 15 hours per week leads to an interruption of unemployment from the first day of taking up work, regardless of how long the employment relationship subsequently exists. In addition, inability to work that lasts longer than six weeks or participation in a labor market policy measure (except measures for activation and professional integration) are listed as harmful interruptions in the Third Social Code. Even unemployed people who look after relatives or children for more than six weeks and are therefore not available for the labor market are not (no longer) included in the number of long-term unemployed. After a harmful interruption, the duration of unemployment begins again - at least in the statistical sense. In many cases (long-term) unemployment is ended without taking up work.

In order to get a more complete picture of hardened unemployment, the long-term unemployment statistics according to the ILO concept can alternatively be used. In this, unemployment can only be interrupted by employment, whereby the threshold from short to long-term unemployment is set for a period of one year. In addition, the use of the unemployment statistics according to the ILO definition enables an international comparison again. According to a survey by the OECD, 41 percent of all unemployed in Germany were unemployed for 12 months or more in 2018. Compared with the other member states, Germany was 12.4 percentage points above the OECD average.




Why aren't all people without work officially unemployed?

If one follows the logic of the legal definition, the prerequisite for unemployment is that the person concerned is fully available to the labor market. This relates not only to a person's willingness to take up employment, but also to the external living conditions such as their state of health or the responsibility for care work in the family. Employable people without paid work who complete school, university or fully qualified vocational training consciously withdraw from the labor market and, like people who care for or raise household members, are not counted among the unemployed.

In addition, there are those able to work who do not offer their labor for a short period of time, such as those taking part in labor market policy measures and those who are temporarily unable to work. That is why the Federal Employment Agency differentiates between unemployed people, people who are unemployed in the broader sense, people who are close to unemployment status and people who are far from unemployment status. In this way, the BA wants to map the deficit in regular employment without the use of labor market policy instruments leading to distortions, and publishes these results in the statistics on underemployment.

Components of underemployment according to the Federal Employment Agency

Underemployment is made up of three groups of people:
  • Unemployed according to § 16 SGB III,
  • Participants in a labor market policy measure,
  • People in a special status due to the labor market.
These special statuses include:
  • Unemployed people over the age of 58 who have either not received a job offer for more than a year or receive unemployment benefits or benefits from basic security for jobseekers ("Hartz IV") under simplified conditions due to expiring early retirement-like regulations,
  • Unemployed people who were on sick leave on the day of registration and
  • People in short-time work or part-time work for older people.
Participation in labor market policy measures covers a broad spectrum. Both publicly subsidized employment relationships such as job opportunities (“one-euro jobs”) and, since 2019, subsidized employment with compulsory social insurance in the so-called “social labor market”, as well as retraining or short application training, mean that the participants are not counted as unemployed.

In 2018, the number of underemployed totaled around 3.26 million and was thus almost 923,000 people above the official number of unemployed. If short-time workers and people who received financial support to set up their own business are also taken into account for underemployment, in 2018 there were even just under 3.33 million underemployed. The following graphic shows the distribution of the individual special categories and labor market policy measures as an annual average of the twelve monthly values ​​from 2018.







The hidden reserve

The data from the BA statistics relate exclusively to people who have notified the employment service that they are looking for a job. But not all people who are de facto unemployed can be registered with an employment agency or a job center. This also applies to those already employed who are still looking for work. However, according to current social law standards, none of these persons can be recorded in the BA's labor market statistics. In order to still be able to correctly map the workforce potential of the population, the Institute for Employment Research (IAB) therefore determines the hidden reserve, which for various reasons does not appear in the BA statistics. The IAB differentiates between the silent reserve in the narrower sense and the silent reserve in terms of measures. The values ​​determined by the IAB are based on an estimate.

The hidden reserve in the narrower sense describes people who are not actively looking for a job at the time of the survey, but would take up a job if the framework conditions changed. The hidden reserve in measures, on the other hand, includes people who take part in labor market policy measures but are not gainfully employed. For example, participants in “one-euro jobs” do not count towards the hidden reserve in measures. The following figure shows the development of the level of registered unemployment and the hidden reserve in recent years.

In 2018, the extent of underemployment and hidden unemployment in the hidden reserve was made up as follows: Around 2.34 million unemployed were registered as unemployed with the employment agencies and the basic security providers.In addition, there were around 828,000 participants in certain labor market policy measures, which are therefore not listed as unemployed in the official statistics. The IAB counts 344,000 people as hidden reserves in the narrower sense. In total, the number of people without work in 2018 was more than 3.51 million people. Furthermore, people would have to be added who only work part-time and would like to extend their working hours, as well as short-time workers.

Unused labor potential

Once a year, the Federal Statistical Office determines the total amount of unused workforce. This is composed on the one hand of employees who want to expand their scope of work and on the other hand of people without work. The Federal Statistical Office calculates the unused labor potential from three key figures: the unemployed according to the ILO concept, the underemployed and the hidden reserve as defined by the Federal Statistical Office. The definitions of hidden reserve and underemployment used here differ from the respective concepts of the BA and the IAB.

According to the definition of the Federal Statistical Office, the term underemployed exclusively refers to those who are already employed who want to increase their working hours and could actually implement this. Their number amounted to around 2.19 million in 2018. On the other hand, there are just under 1.42 million overemployed people who would like their working hours to be reduced. However, they are not included in the calculation. For 2018, the Federal Statistical Office names a number of 925,000 people in the hidden reserve. In contrast to the IAB, the Federal Statistical Office not only takes into account those people who could take up a job but do not actively seek work and register as unemployed, but also people who want a job, but not within two weeks could actually record. Together with the almost 1.47 million unemployed, the Federal Statistical Office shows an unused workforce of almost 4.59 million people for 2018.

Data:Swell:
  • Federal Agency for Employment, Unemployment and Unemployment Rates - Germany and Länder (time series annual figures from 1950), December 2018.
  • Federal Agency for Employment, Unemployment and Underemployment - Germany, West / East and Länder (annual figures), December 2018.
  • Federal Employment Agency, Long-Term Unemployment - Germany, Länder, regional directorates, employment agencies, districts and job centers (monthly / annual figures) - November 2019.
  • OECD, Incidence of Unemployment by Duration.
  • OECD, Unemployment by Duration.
  • Eurostat, Harmonized Unemployment Rate by Gender.
  • Federal Statistical Office, unemployed and employed.
For further reading:
  • Federal Employment Agency, Basics: Definitions - Glossary of Statistics from the Federal Employment Agency (BA), July 2019.
  • Federal Employment Agency, methodological notes on duration in the statistics of the unemployed and jobseekers.
  • Fuchs, Johann; Gehrke, Britte; Hummel, Markus; Hutter, Christian; Klinger, Sabine; Wanger, Susanne; Weber, Enzo; Zika, Gerd (2019): IAB forecast 2019 - Despite the economic downturn: the labor market stays on course. IAB short report 7/2019. Nuremberg.
  • Fuchs, Johann; Walwei, Ulrich; Weber, Brigitte (2005): Labor market analysis: The "silent reserve" belongs in the picture of the labor market. IAB short report 21/2005. Nuremberg.
  • Kolf, Ingo (2004): Numbers can be deceptive. Changes in the unemployment statistics through the Hartz laws and the employment statistics ordinance. Social Security 8-9 / 2005: 254-262.
  • Federal Statistical Office, What do the ILO labor market statistics describe?
  • Federal Statistical Office, unemployment according to the labor force concept - unemployment according to the social security code: similarities and differences.
  • Rengers, Martina (2012): Unused labor potential in the hidden reserve. Results for 2010. Economy and Statistics April 2012: 299-319.
  • Federal Statistical Office, labor force participation. Technical series 1 series 4.1, 2018.
  • Federal Statistical Office, Unused potential workforce fell by 9.3% in 2018, press release No. 409 of October 18, 2019.