BANGKOK, Thailand (ILO News) - The unemployment rate is probably the most widely used measure to assess the performance of a country’s labour market. Yet, it has considerable limitations as a signal of an economy’s health in the Asia–Pacific region. The unemployment rate should be assessed among a broader array of indicators to generate an accurate picture of the labour market situation at the country level.

Many countries in the region are characterised by an unemployment rate that is low by international comparison. At the regional level, the unemployment rate of 5.2 per cent remains considerably lower than the global unemployment rate of 5.7 per cent. However, the unemployment rate gives only a partial idea of how the labour market is doing in a country and is at times even misleading. The following discussion summarises why.

The unemployment rate technically decreases whenever an unemployed worker is leaving the labour market and moving into inactivity. 

There are various reasons that can explain transitions from unemployment into inactivity. One potential reason for an unemployed worker to move into inactivity is the lack of prospects to find a job and the resulting discouragement, eading the worker to give up the job search. A decrease of the unemployment rate through this channel is not an indication of a favourable labour market development.

During the COVID-19 crisis, millions of workers who lost their job became inactive, not unemployed.

Some workers managed to keep their job but had to reduce working hours, with associated labour income loss. Changes in the unemployment rate hence provided an incomplete picture of the overall labour market impact during the crisis.

The unemployment rate does not give any indication of the quality of jobs in a labour market.

Having a low unemployment rate when the majority of workers work in jobs with high decent work deficits does not mean economies are functioning well. Most countries in the Asia–Pacific region are characterized by weak social protection systems that do not provide any unemployment insurance. This implies that large parts of the population cannot afford to be unemployed and, in the case of job loss, they take on the next best job available for them instead. Typically, these are jobs in the informal labour market, characterized by low and volatile labour incomes, a lack of social protection and lack of access to social dialogue.