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Guiding Trend 26 June Jun 2017 0951 26 June 2017

What is the difference between an inactive and an unemployed person? A guide to a correct reading of employment data

In a period of ever-increasing unemployment, we are overwhelmed by employment statistics. But we are sure that all these figures give us a correct perspective? A brief guide to avoid misunderstandings and misinterpretations.

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If the rate of youth unemployment is at 34%, does it mean that 34% of boys and girls in Italy do not have a job? And if unemployment is growing, is it really bad news? Not really. Employment data published by Istat (the Italian National Institute of Statistics) are not so easy to read and require some clarification.

When we say that the unemployment rate in Italy is at 12%, it does not mean that 12% of Italians do not have a job, but that 12% of the labour force (employed and unemployed) are looking for a job and cannot find one. The percentage is considered in relation to the labour force. The employment and inactivity (activity) rates are calculated in relation to the reference population.

Also for the youth unemployment rate, referred to the age groups ranging from 15 to 24 years, the percentage should be related to the number of job seekers. A youth unemployment rate at 34% does not indicate that 34% of the youth in Italy do not have a job.

To interpret employment data accurately, also the inactive are to be taken into consideration. If unemployment falls, it does not necessarily mean that there are more employed people. It is in fact possible that unemployment decreases due to the effect of an increase in the rate of inactivity, i.e. when individuals stop actively searching for a job, owing to discouragement. In the same way, if unemployment soars, the number of employed people could remain unchanged. A rise in unemployment may be accompanied by a reduction of inactive seekers. This could be good news, since people first discouraged may have started looking for a job again.

Also for the youth unemployment rate, referred to the age groups ranging from 15 to 24 years, the percentage should be related to the number of job seekers. A youth unemployment rate at 34% does not indicate that 34% of the youth in Italy do not have a job. In this age group the calculation of the unemployment rate does not consider by definition inactive seekers, since in most cases they are still completing their education. The incidence of young unemployed people on the total of young people of the same age group is instead of approximately 9 per cent. This means that less than a youth in ten in Italy is unemployed.

We should also take into account the difference between ISTAT and INPS data. ISTAT data are based on a sample survey of the labour force, acquired on a monthly basis, with quarterly and annual trends. INPS data instead take into account mandatory communications sent by companies when they hire or dismiss a worker and are a useful tool to study the patterns of the different types of contract. The two sources complement each other. They should be both analysed without being juxtaposed. This is another trick used by those who misread data.