On Various Ways of Measuring Unemployment, with Applications to Switzerland

This paper begins with an examination of various ways of measuring unemployment
and, borrowing ideas from the poverty measurement literature, proposes four new
general unemployment indices. The first of these is parallel to the Sen poverty
index; the second, to the Sen index’s generalization by Shorrocks; the
third, to the FGT poverty index; and the fourth, to the Watts poverty index.
The authors then present an empirical illustration based on Swiss data compiled
at the state, or canton, level, using the so-called Shapley decomposition to
determine the contribution of three components—the traditional unemployment
rate, the average unemployment duration, and the inequality in the unemployment
durations—to the differences between the values of the four proposed indices,
both within a given canton and within Switzerland as a whole. The paper concludes
with a discussion of the assumptions made about the maximum unemployment duration
for the purposes of the study, and their impact on the results obtained.