You likely heard of the frightening unemployment number from the US on Friday their time: the unemployment rate rose to 14.7%, with 20.5 million jobs lost in April. Just two months ago, the unemployment rate was 3.5%, a 50-year low. The rise means the jobless rate is now worse than at any time since the Great Depression.
Except, it was worse. Much worse. And not just in an obscure way that’s only of interest to labour economists.
There was a mistake in the classification of some of the jobless, which meant the unemployment rate should have been 19.5% instead of 14.7%. The US Labor Department revealed in a note to the figures that its survey-takers erroneously classified millions of Americans as employed in April even though their employers had closed down.
“If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical April) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been almost 5 percentage points higher than reported,” the BLS said.
There’s no conspiracy here (though Wall Street did rise on the basis that 14.7% wasn’t quite as horrific as expected). It’s the kind of error that’s not unexpected when you leap from surveying for a tiny proportion of the workforce out of a job to tens of millions of unemployed in the space of two months.
The problem does point to a statistical challenge that we’ll face on Thursday when the April jobless numbers are published by the Australian Bureau of Statistics (ABS): how many people are technically unemployed versus how many are unemployed but still in a job courtesy of the JobKeeper program.
Other countries that have started wage subsidy programs face the same problem. In Ireland two jobless rates have been published. Excluding the pandemic payments, the jobless rate rose to 5.4% in April from 5.3% in March. Sounds like another Celtic Tiger miracle — except the number is actually 28.2% when you include those receiving emergency jobless benefits, the highest rate on record.
Ireland’s Central Statistical Office last month confirmed that people in receipt of Ireland’s wage support payment, the PUP, “do not meet the internationally agreed criteria to be considered as unemployed” and therefore can’t be counted in the usual seasonally adjusted rate.
The figure for Australia on Thursday will also adhere to the international definition of unemployment, which means workers on the JobKeeper payment won’t be counted, though the ABS is continuing to try to provide estimates of real joblessness. It’s something to note, but not to complain about — the government is absolutely right in trying to keep people in place employment-wise until we can fully emerge from the crisis.
The US figures indicate why the US Federal Reserve has repeatedly said that further fiscal stimulus may be needed. Late last week, high-profile retailer Neiman Marcus filed for bankruptcy — only the latest casualty of what is becoming an apocalypse for US retailers, and following clothing chain J Crew earlier in the week. US retail employment fell two million jobs to 13.5 million between March and April.
There’ll be US retail sales data out this week for April, which is expected to show an 11% fall in sales, on top of a 9% fall in March. Apple has just announced it will soon start reopening some stores, but there’s likely to be worse to come for American retailers, which will feed into further grim employment figures in the weeks ahead.
March’s Australian Bureau of Statistics ‘Labour Force’ employment / unemployment figures of 5.2%, must be taken with a massive grain of salt. Indeed all ABS Labour Force unemployment / employment surveys have little or nothing much to do with reality and are really a political definition of employment / unemployment, not an actuarial one.
There are many reasons for this but the following examples should suffice:
1: The ABS only regard you as unemployed if you are “actively looking for work” in the four weeks prior to the survey period. But just what work is there to look for right now and indeed for many years, particularly since the GFC? Not only are businesses not hiring now, many are being forced to not operate at all. Persons who only looked in newspapers or at job advertisements on the internet are seen as passively, rather than actively, looking for work and so are not considered unemployed by the ABS. How or why job seekers are supposed to actively apply for a job that they are unqualified for or simply doesn’t exist, in order to be regarded as an ‘active’ job seeker, is beyond me. Similarly, just checking noticeboards is not considered an active job search step.
2: JobSeeker (dole) recipients, due to COVID-19 restrictions, do not currently have any mutual obligation requirements, ( e.g. “actively looking for work”) because the requirements have been suspended until May 22, 2020,” so no one on JobSeeker allowance (1.6 million – early May) at present and no one on the JobKeeper allowance will be counted as unemployed. As of early May, 730,000 employers, with 5 million employees, are covered by JobKeeper. ANZ Job Vacancy survey for April show that there were 64,000 vacancies, down from 136,000 in March and 62% lower that a year ago.
Commentator Alan Kohler has asked in “Pick a number, any number: It’s a hard job calculating the real unemployment rate”, ‘The Australian,’ 25/4: “Six million people are budgeted to get it (JobKeeper), which is 46% of the workforce. Would they have been unemployed without it? Does that mean unemployment would have been 56%, not 15%, without the Job Keeper Allowance”?
3: If you have worked for one hour during the week before the survey period you are regarded as being employed. In Germany and Singapore however they only count a person as being employed if they work 15 hours or more. In Holland, 12 hours. The ABS gives the same status to people who work one hour and those who work 40 hours plus and comparing other countries figures is of little value!
4: If you are not ready to start work during the week after the survey you are not counted as being unemployed. For example, short term health problems, moving house or cannot immediately obtain child care, don’t count. You are not unemployed.
5: People stood down who receive even a week or two or more of annual / long service leave will also be counted as employed.
6: A falling rate of participation (employed and unemployed divided by the working age population) in the labour market – a double edged sword that will flatter or lower the unemployment figure.
7: Youth Allowance (youth dole) recipients who are studying part time as a requirement of receiving the dole, are not counted as being unemployed.
8: If you receive JobSeeker (dole) but are allowed to engage in volunteering, work part time or are homeless, you are not counted as being unemployed.
9: If you have worked without pay in a family business during the survey week you are counted as being employed.
When you allow for the above, the real figure for March was around 2 million unemployed or around 17%, with underemployed 1.3 million or 9.4%. All up around 25% plus. It is thought the real unemployment figure for April will be, as the Grattan Institute reports, Roy Morgan Research or the Reserve Bank view that there is likely to be a 20% decline in total hours worked from January to June this year, may result in a worse case scenario of another 3 million or an unemployment rate of 28.5% on top of the 718,000 ‘claimed’ by the ABS to be unemployed in the first two weeks of March. Million of other workers have had their employment situation changed (e.g. fewer hours, reduction of pay).
Unemployment figures are always a backward (3-4 weeks) looking figure. They don’t tell us the present or future.
I believe that the dramatic understatement of Australia’s unemployment and underemployment figures by the ABS causes major distortions in handling the Covid 19 virus, economic planning and policy making and the current ABS ‘Labour Force’ survey is a waste of time and must be abolished. Certainly, Senator Kenneally wasn’t ‘dog whistling’ when she recently called for a review of Australia’s temporary work visa system.
Thank you for that summary, Marcus…lots of necessary information there. I am not an economist or expert on anything, but have long suspected that the Jobkeeper program would allow the government to boast about all the jobs they have saved…Joke number one, by the sound of things!
Also interested in your comment about Senator Keneally, because I suspected she was talking about ‘short-term’ migration…the non-permanent visa type, who come into the country to work for a defined period of time (supposedly)! It made sense to me that if we had large numbers of people, who reside permanently in this country, out of work, surely we should be training some of them to take up these so-called ‘skilled’ positions. What on earth that has to do with ‘racism’ I have NO idea…but the usual suspects made it so!!
Apart from the evil bastards who employ legions of tax lawyers & accountants – may the Devil east the hindquarters – anyone not paying income tax should be regarded as unemployed or so woefully underemployed that they’d be better off going to the beach… oh wait, that’s not allowed.
Apart from the statistical nonsense that one hour a week is employment – a fudge of the richest chocolatey goodness purely political in design & intent – the other hoops & rings of fire imposed by CES make it something to be avoided unless in the direst of straits.
And don’t get me started on GDP as a measurement of anything of value to man or beast!
“Just two months ago, the unemployment rate was 3.5%, a 50-year low.”
Really, comparing 1970 USA, with its relatively prosperous working class and booming middle class, with neoliberal impoverished 2020 USA.
Lies, damn lies and statistics indeed.