The unemployment rate, employment rate, and perceived unemployment rate are distinct indicators that reveal the state of the economy. Let’s easily understand how these three indicators differ and their distinctions using the Korean case.
Why Doesn’t the Unemployment Rate Match Reality?
Among the data released by Statistics Korea, the unemployment rate statistics likely receive the most attention from external parties like the government, businesses, media, and investors. This is because the unemployment rate statistics allow us to check the economic situation by tracking trends in people who are working or who are idle because they cannot find a job. Statistics Korea releases monthly employment trend statistics around the middle of each month, covering the previous month’s employment rate, unemployment rate, number of employed persons, and number of unemployed persons.
Advanced economies overseas also place significant importance on unemployment statistics. The U.S. Federal Reserve primarily bases its decisions on whether to raise interest rates on trends in the labor market, including unemployment figures. Two weeks before its FOMC meeting to set the federal funds rate, the Fed releases an economic report called the ‘Beige Book’. This serves as valuable material offering a preview of the U.S. central bank’s future monetary policy direction. It compiles the findings from surveys of economic conditions in each region conducted by the 12 regional Federal Reserve Banks that comprise the U.S. central bank. One might easily assume this report, authored by world-class research personnel, would be filled with complex formulas and charts. However, upon reading the report, its content and structure prove simpler than expected. The core content covered in the report is the flow of the job market, including the unemployment rate. This is because the unemployment rate is a statistic that reacts sensitively to the economic conditions of a specific country or region.
Employment Rate and Unemployment Rate
In this blog post, we will first examine how unemployment rate statistics are compiled in Korea, then explore why there is persistent criticism that these statistics fail to accurately capture the true number of unemployed people. If you’ve ever wondered, ‘Why are there so many people around me struggling to find jobs when the unemployment rate is only 3-4%?’, you may find answers to your questions here.
First, let’s briefly look at the situation facing the Korean economy. The employment trends published by Statistics Korea clearly reflect the difficulties the Korean economy is facing. The annual unemployment rate for 2023 was 2.7%, a 0.2 percentage point decrease from the previous year, marking the lowest level on record. The youth unemployment rate also fell to 5.9%, a 0.5 percentage point decrease from the previous year, the lowest level since statistics began. However, in December 2024, the unemployment rate rose to 3.3%, an increase of 0.3 percentage points compared to the same month the previous year. The youth unemployment rate also increased by 0.3 percentage points to 5.5%.
Looking only at the statistical figures, one might think, ‘What’s the problem? Isn’t this level acceptable?’ If you calculate that since the unemployment rate is 2.7%, the remaining 97.3% have jobs, then of course there’s no problem. Similarly, a youth unemployment rate of 5.5% means 9 out of 10 young people are working. But as you may already feel, this calculation is detached from economic reality. Why is that?
First, we need to understand the relationship between the employment rate and the unemployment rate. If Korea’s unemployment rate was 2.7% in 2023, what was the employment rate? Was it 97.3%, calculated as 100% minus 2.7%? No. The 2023 employment rate, measured by OECD standards, was only 69.2%. At first glance, one might think that with an unemployment rate of 2.7%, the employment rate should be 97%, but that’s not the case. So why is the unemployment rate 2.7%, not 30.8% (100% minus the 69.2% employment rate)? The reason is that the denominators used to calculate unemployment and employment rates differ.
First, both employment and unemployment rates are calculated using only the population aged 15 and over. The population under age 15, who lack the ability to work, is not included in the statistics. For example, as of 2023, South Korea’s population aged 15 and over was 51.71 million. However, this entire population aged 15 and over is not directly used in the statistics. It is further divided into the economically active population and the economically inactive population based on their ability and willingness to work. The non-economically active population refers to those aged 15 and over who are either unable to work or unwilling to work. This category includes full-time homemakers managing household duties, students attending school, elderly individuals too old to work, and persons with physical or mental disabilities who find it difficult to work. Individuals who have stopped seeking employment, such as discouraged workers, also fall under the non-economically active population. As of 2024, South Korea’s non-economically active population stood at 16,211,000.
Subtracting the non-economically active population of 16,211,000 from the total population aged 15 and over of 451,710,000 yields approximately 354,990,000. This very figure of 35.499 million people constitutes the economically active population, which serves as the basis for calculating the numbers of employed and unemployed individuals. The unemployment rate is the percentage calculated from among those in the economically active population who are unable to find work, i.e., the unemployed. This is why one should not assume that an unemployment rate of 3% means 97% of the entire population has a job. The unemployment rate is calculated only from the economically active population (35.499 million as of 2024).
So how is the employment rate calculated? The denominator for the employment rate is the entire population aged 15 and over. The employment rate is the number of employed persons divided by the total population aged 15 and over. Since these are derived from different bases, adding the unemployment rate and the employment rate does not equal 100%. For reference, the OECD’s method for calculating the employment rate differs slightly from Statistics Korea’s approach; the OECD limits its population to those aged 15 to 64.
The OECD employment rate differs from Statistics Korea’s, which uses the entire population aged 15 and over without an upper limit. Consequently, the OECD employment rate and the Statistics Korea employment rate must differ. Because the denominator is larger, the Statistics Korea employment rate appears lower than the OECD employment rate.
Unemployment Rate and Perceived Unemployment Rate
Let’s return to the topic of the unemployment rate. What conditions must one meet to be classified as unemployed in these statistics? Examining these conditions reveals why unemployment rate statistics are criticized for underreporting the actual number of unemployed. South Korea defines the unemployed according to the criteria used by the International Labour Organization (ILO) when calculating its unemployment rate. The three criteria are: not having worked in the past week, being available to work if offered a job, and having actively sought employment during the previous four weeks.
These conditions seem reasonable enough. However, when applied to reality, several problems arise, with job seekers preparing for employment being a prime example of those classified as economically inactive. As explained earlier, to be classified as unemployed, one must engage in actual job-seeking activities during the four-week survey period, such as submitting job applications or attending interviews. Merely expressing a desire to work is insufficient for inclusion in the statistics. Yet, job seekers don’t submit applications daily. Typically, they submit applications in concentrated bursts during hiring seasons and then prepare for employment at home, libraries, or academies when those seasons end. Similarly, those preparing for civil service exams, which occur only once a year, submit applications just a few times annually. Therefore, when statistics are calculated using ILO standards, job seekers preparing for employment and civil service exam candidates are classified as economically inactive. They are entirely excluded from unemployment statistics.
According to the December 2023 Employment Trends released by Statistics Korea, 687,000 people among the non-economically active population are preparing for employment. While they clearly want and are preparing for jobs, they are excluded from the statistics because they did not submit job applications or attend interviews in the past four weeks, meaning they did not engage in active job-seeking activities. Given that the officially recorded unemployed population in December 2023 was 944,000, the figure of 687,000 people within the non-economically active population who reported preparing for employment is by no means small. If these individuals were counted as unemployed, the unemployment rate would skyrocket.
This is precisely why the unemployment rate suddenly rises every year during the month when applications for civil service exams are accepted. Civil service exam applicants, who are usually classified as economically inactive, are counted as actively seeking employment during the application period. The number of unemployed people in the statistics increases by the number of people who applied for the civil service exam, pushing up the unemployment rate.
There is another reason why the official unemployment rate differs from the unemployment rate people actually feel. When we talk about employment, we usually mean having a job where you can work regularly for at least five days a week. However, the definition of an employed person in statistics differs significantly from the common social understanding of employment. Statistics consider anyone who worked at least one hour per week for pay to be employed. Even someone who worked only four hours over four weeks, at one hour per week, is classified as employed. This is also the standard of the International Labour Organization, but it diverges from reality. Would anyone consider having a part-time job with just a few hours of work per month as being ‘employed’?
According to the December 2023 Employment Trends released by Statistics Korea, the number of employed persons in December 2023 was 28,093,000. However, it is difficult to say that all of them hold regular jobs requiring attendance five or more days a week. Looking at Statistics Korea data, among the 28,093,000 people, 2,254,000 were employed for only 1 to 17 hours over a four-week period. This represents 8.02% of all employed individuals. To put it simply, even someone who works part-time at a convenience store near their home for just two hours a week while preparing for a company job after graduating from university is counted as employed. However, in this case, the individual is highly likely to consider themselves unemployed.
Unless the calculation method changes, criticism that existing unemployment statistics fail to accurately reflect the actual number of unemployed people will persist. Accepting this criticism, Statistics Korea introduced a new statistic called the extended unemployment rate starting in March 2018. This aims to capture aspects missed by the existing unemployment rate statistics. The extended unemployment rate is the broadest definition of unemployment among the unemployment-related statistics released by Statistics Korea. It is calculated by adding to the existing number of unemployed individuals those who have worked less than 36 hours over four weeks but wish to secure a job requiring five or more days of work per week, and further adding the number of economically inactive people preparing for employment.
When viewed through the lens of the expanded unemployment rate, Korea’s employment situation appears worse than the conventional statistics suggest. The 2024 expanded unemployment rate stands at 8.72%, nearly triple the standard unemployment rate. The same holds true for the youth unemployment rate among those aged 15 to 29. While the standard youth unemployment rate for 2024 was 5.3%, the expanded rate was 12.4%. This means that one in eight young people aged 15 to 29, excluding students and others not actively seeking work, could not find a job. While there are still areas needing refinement, this calculation is much closer to reality.
As evident when examining statistics on the job market, such as unemployment rates, statistics sometimes fail to accurately capture reality as it is. This is precisely why professionals working across all sectors of society—government, business, finance, media—must always be vigilant about the risk of falling into statistical traps.
