The United Kingdom unemployment rate was far lower than the United States that got an employment rate of 4.6% in 2007 and 8.5% in 2009 as per the figures obtained by the CEPR from the OECD.
Figure 1 above indicates that the unemployment rate of the UK is getting a lot better compared to the unemployment figures of both the Euro Area and the OECD countries. This is indicative of a better macroeconomic management of the UK compared to the US, Euro Area, and the rest of the OECD countries.
Compared with her neighbours, UK’s management of her economy seems to be better because the gap between actual and potential output has been generally closing historically since 1995 as indicated by Begg et al. (2002, p. 359). A lower output gap means that the economy approaches the full employment level. Full employment, however, does not mean that all have work.
Whether one is classified employed or unemployed largely depends on whether one is actively looking for work. For instance, based on the definition of the International Labour Organization to which the international community refer to in defining their own national concept of unemployment, the unemployed are those “without a job, want a job, have actively sought work in the last 4 weeks and are available to start work in the next 2 weeks” or “out of work, have found a job and are waiting to start in the next 2 weeks” (United Kingdom Office for National Statistics 2009, p. 4). Thus, based on this definition, one may argue that the official unemployment figures are much lower than the actual figures because some may have quit looking for work because they had consistently failed to find one.
Citing OECD studies, Miles and Scott (2005, p. 143) pointed out that the natural rate of unemployment of the United Kingdom is about 5.5% recently. The 5.5% estimate is consistent with Figure 1