Unemployment rate - Country rankings

Definition: Unemployment refers to the share of the labor force that is without work but available for and seeking employment.

What factors explain the differences in the unemployment rate around the world.

The unemployment rate varies considerably across countries around the world for variety of reasons. We can group these reasons in two categories related to the two broad types of unemployment: cyclical and natural. The cyclical unemployment is related to the current conditions in the economy. When the economy goes into recession, the unemployment rate increases as businesses shed labor. Conversely, the unemployment rate declines as the economy expands and businesses start to hire people. It usually takes about six months to a year of economic expansion before the unemployment rate starts to decline. Similarly, the unemployment rate starts to increase only after a few months of output contraction. So, in any particular year the unemployment rate in a given country may be high (or low) if the country is experiencing a recession (or an expansion).

The natural unemployment rate consists of two types of unemployment: frictional and structural and is not related to the business cycle. The frictional unemployment consists of people who are between jobs as they move from one city to another, enter the labor market after they complete their education, or due to other personal reasons. The structural unemployment is related to the structural shifts in the economy. As some sectors decline, e.g. the textile production in the US, and other sectors expand, e.g. health care, people who were employed in the textile sector lose their jobs and have to enter the health care sector. This requires new education and a new set of skills which take time to acquire. While these people are in the process of transitioning from one sector to another, we call them structurally unemployed.

So, some countries around the world might not be in a recession and still have very high unemployment rates because their natural rate of unemployment is high. In these countries, it may not be easy to move to where the jobs are because of language or culture barriers, employers might be unwilling to hire people because of restrictive labor regulations or other reasons. Then, even if the economy is expanding, the number of people who want to work but have no jobs remains high. You can look on the chart and try to guess what explains the level of unemployment in the various countries.

One more thing to point out. The unemployed are people who are actively seeking work but cannot find a job. Some of them, after looking unsuccessfully for work for some time, eventually give up and drop out of the labor force. We call these people discouraged workers. They are not counted as unemployed but are clearly excluded from the labor market.