Spell incidence, spell duration and the measurement of unemployment

The proportion of the population out of work is an unsatisfactory measure of unemployment because it is indifferent to the way in which a given amount of unemployment time is distributed across the population. This paper offers a new way of measuring unemployment which takes account of both the frequency and duration of unemployment spells. The proposed unemployment index may be interpreted as the ‘welfare equivalent’ period of unemployment, and decomposes into the product of three components: a spell incidence factor, a duration factor, and the average unemployment rate.