Unemployment rate, employment rate, and perceived unemployment rate are distinct indicators that reflect the state of the economy. Let’s take a look at the case of South Korea to easily understand how these three indicators differ.
Why Does the Unemployment Rate Not Match Reality?
Among the data released by Statistics Korea, unemployment statistics likely attract the most attention from external stakeholders such as the government, businesses, the media, and investors. This is because these statistics allow us to assess the economic situation by tracking trends in the number of people who are working or are currently unemployed and seeking work. 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 abroad also place great importance on unemployment statistics. When deciding whether to raise interest rates, the U.S. Federal Reserve uses trends in the labor market—including unemployment statistics—as its primary basis for judgment. Two weeks before holding the FOMC meeting to determine the country’s benchmark interest rate, the Federal Reserve releases an economic trends report called the “Beige Book.” This serves as a valuable resource for gaining insight into the Federal Reserve’s future monetary policy, compiling the findings of the 12 regional Federal Reserve Banks, each of which has surveyed the economic conditions in its respective region. Since the report is authored by world-class research and analysis teams, one might expect it to be filled with complex formulas and charts. However, upon reading the report, one finds that its content and structure are simpler than anticipated. The core focus of the report is trends in the labor market, including the unemployment rate. This is because the unemployment rate is a statistic that reacts very sensitively to the economic conditions of a specific country or region.
Employment Rate and Unemployment Rate
In this blog post, we will examine how unemployment statistics are compiled in Korea and explore the reasons behind the persistent criticism that these statistics fail to accurately reflect the actual number of unemployed people. If you’ve ever wondered, “The unemployment rate is only 3–4%, so why are there so many people around me struggling to find jobs?” you’ll likely find the answer to your question here.
First, let’s briefly review the current state of the Korean economy. The employment trends released by Statistics Korea clearly reflect the challenges facing the Korean economy. The annual unemployment rate for 2023 was 2.7%, a 0.2 percentage point decrease from the previous year, marking a record low. The youth unemployment rate also fell by 0.5 percentage points year-over-year to 5.9%, the lowest level since records 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, and the youth unemployment rate also increased by 0.3 percentage points to 5.5%.
Looking at the statistics alone, one might think, “What’s the problem here? Isn’t this good enough?” If you calculate it by assuming that since the unemployment rate is 2.7%, the remaining 97.3% are employed, there’s obviously no problem. Similarly, with a youth unemployment rate of 5.5%, it would mean that 9 out of 10 young people are working. But as you’ve likely already sensed, this kind of calculation is far removed from economic reality. Why is that?
First, we need to understand the relationship between the employment rate and the unemployment rate. If South Korea’s unemployment rate in 2023 is 2.7%, what is the employment rate? Is it 97.3%—100% minus 2.7%? No, it isn’t. According to OECD standards, the employment rate in 2023 stood at just 69.2%. At first glance, one might think that since the unemployment rate is 2.7%, the employment rate should be 97%, but that is not the case.
So why is the unemployment rate 2.7% rather than 30.8%—which is 100% minus the 69.2% employment rate? The reason is that the denominators used to calculate unemployment and employment rates are different.
First, both statistics are calculated based on the population aged 15 and older. The population under the age of 15, who are unable to work, is not included in the statistics. For example, as of 2023, South Korea’s population aged 15 and older was 51.71 million. However, this population is not used directly in the statistics; instead, it is further divided into the economically active population and the non-economically active population based on their ability and willingness to work. The non-economically active population refers to people aged 15 and older who are unable to work or have no intention of working. This category includes full-time homemakers responsible for household chores, students attending school, the elderly who are too old to work, and people with mental or physical disabilities who find it difficult to work due to their condition. Those who have given up looking for work—known as discouraged workers—are also included in the non-labor force. As of 2024, South Korea’s non-labor force stood at 16,211,000.
Subtracting the non-labor force of 16,211,000 from the total population aged 15 and older of 45,171,000 yields approximately 35,499,000. It is precisely these 35.499 million people who constitute the labor force, which serves as the basis for calculating the number of employed and unemployed individuals. The unemployment rate is the percentage of people within the labor force who have not found a job—that is, the proportion of unemployed individuals. This is why one should not assume that 97% of the total population is employed just because the unemployment rate is 3%. The unemployment rate is calculated only among 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 older. The employment rate is defined as the number of employed people divided by the total population aged 15 and older. Since these figures are derived from different groups, the sum of 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 that of Statistics Korea; the OECD limits its population to those aged 15–64.
The OECD’s employment rate differs from that of Statistics Korea, which applies to the entire population aged 15 and older without an upper limit. Consequently, the employment rates based on OECD and Statistics Korea standards are bound to differ; since the denominator is larger, the employment rate calculated by Statistics Korea appears lower than the OECD’s.
Unemployment Rate and Perceived Unemployment Rate
Let’s return to the topic of the unemployment rate. What conditions must be met to be classified as unemployed in the statistics? Examining these conditions reveals why the unemployment rate statistics are criticized for underreporting the actual number of unemployed people. In South Korea, the definition of an unemployed person used to calculate the unemployment rate follows the criteria set by the International Labour Organization (ILO). The criteria consist of three conditions: the person must not have worked in the past week, must be available to work if a job is offered, and must have actively sought employment over the past four weeks.
These conditions seem reasonable enough. However, when applied to reality, several problems arise, with a prime example being job seekers who are classified as part of the non-economically active population. As explained earlier, to be classified as unemployed, one must have engaged in active job-seeking activities—such as submitting job applications or attending interviews—during the four-week survey period. Merely expressing a desire to work is not sufficient to be included in the statistics. However, job seekers do not necessarily submit applications every day. Typically, they submit applications in a concentrated burst during hiring seasons and spend the rest of the time preparing for jobs at home, in libraries, or at academies. Even when preparing for civil service exams, which are held only once a year, they submit applications only a few times a year. Therefore, when statistics are calculated according to International Labour Organization (ILO) standards, job seekers and civil service exam candidates are classified as part of the non-economically active population. They are completely excluded from unemployment statistics.
According to the December 2023 Employment Trends report released by Statistics Korea, there are 687,000 people preparing for employment among the non-economically active population. Although they clearly want to work and are preparing for it, they are excluded from the statistics on the grounds that they have not engaged in actual job-seeking activities—specifically, they have not submitted job applications or attended interviews in the past four weeks. Given that the official number of unemployed people recorded in December 2023 was 944,000, the figure of approximately 687,000 people in 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 part of the non-economically active population, are reclassified as actively seeking employment during the application period. The number of unemployed people in the statistics increases by the number of people taking the civil service exam, causing the unemployment rate to rise.
There is another reason why the official unemployment rate differs from the perceived unemployment rate that people actually feel. Usually, when we talk about employment, we mean having a job where one can work regularly for at least five days a week. However, the definition of “employed” in statistics differs significantly from the social norm. Statistics consider anyone who works for at least one hour a week to earn money as employed. Even if someone works just four hours over four weeks—one hour per week—they are classified as employed. While this aligns with International Labour Organization standards, it is out of step with reality. Would anyone consider themselves “employed” just because they have a part-time job that requires working a few hours a month?
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 have regular jobs requiring them to work five or more days a week. Data from Statistics Korea shows that among the approximately 28.093 million employed individuals, about 2.254 million worked only 1 to 17 hours over a four-week period. This accounts for 8.02% of the total employed population. To put it simply, even someone who works just two hours a week at a convenience store near their home while preparing for a corporate job after graduating from college is counted as employed. However, in such cases, 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 continue. In response to this criticism, Statistics Korea introduced a new statistic called the “expanded unemployment rate” in March 2018. This was done to capture aspects overlooked by the existing unemployment statistics; the expanded unemployment rate is the statistic among those released by the Statistics Korea that defines the unemployed most broadly. It is calculated by adding to the existing number of unemployed those who have worked less than 36 hours over the past four weeks but wish to secure a job requiring at least five days of work per week, and further adding the number of economically inactive people who are preparing for employment.
When viewed through the lens of the expanded unemployment rate, South Korea’s employment situation appears worse than in conventional statistics. In 2024, the expanded unemployment rate stood at 8.72%, nearly three times the standard unemployment rate. The same holds true for youth unemployment among those aged 15 to 29. While the standard youth unemployment rate in South Korea was 5.3% in 2024, 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 employment—was unable to find a job. While there is still room for improvement, this calculation provides a much more accurate reflection of reality.
As can be seen when examining statistics on the labor market, such as the unemployment rate, statistics sometimes fail to accurately capture reality as it is. This is why experts working in various sectors of society—including government, business, finance, and the media—must always be cautious of the risk of falling into statistical traps.
