Saturday, January 05, 2013

Employment v. Unemployment

If you haven't already noticed, I'm a bit of a numbers geek, so I love looking at Statistics Canada when it comes out.  One of the more interesting monthly reports is of course the Labour Force Survey that comes out on the first Friday of each month.  The more I read through the tables, the more I'm convinced that we use the wrong number to describe the health of the job market.  The unemployment rate which is the headline grabbing number is kind of a silly number.  It's taken as a percentage of the labour force and this means it only counts people who are considered to be "actively looking for work."  What is really important for a society isn't so much how many people are "actively looking for work" but how many people are actually working.  The Employment Rate also called the Employment-Population Ratio (by the Bureau of Labor Statistics in the US for example), tells you what percentage of the working-age population is actually working.  After all, it is the people working that pay the taxes.  The more people working the more easily governments can provide services to those who aren't working and the fewer people who may have to rely on government assistance.

December provides a particularly good example of this when you compare Canada's job market to the one south of the border.  Even allowing for slightly different methodologies, the unemployment rate really fails to illustrate the difference between the two economies.  The American unemployment rate is 7.8% and the Canadian unemployment rate 7.1%.  That alone would give you the idea that the two job markets are pretty similar.  The employment rate for Canada in December was 62.1% or 61.7% depending on whether or not you adjust for seasonal differences.  In the US the Employment Rate was 58.6%.  All of a sudden you can see that the 0.7% gap in the unemployment rate is hiding the real story.  Even with the unemployment rate dropping over the last couple of years, the employment rate in the US hasn't really come off of recession lows.  Take a look at the chart below:
Employment Rate at Year End

2006 2007 2008 2009 2010 2011 2012
Canada 62.7 63.2 62.7 61.1 61.4 61.4 61.7
US 63.4 62.7 61 58.3 58.3 58.6 58.6
Data retrieved from Statistics Canada and the Bureau for Labor Statistics for Canada and US respectively

As you can see, Canada never really suffered the job losses that the US did, and has recovered much closer to pre-recession highs.  The unemployment rate just doesn't show this kind of weakness.  The reason is pretty simple: people dropped out of the job market.  Part of this is demographic.  However, demographics should be impacting Canada and the US relatively evenly.  After all, we both had baby booms after World War II and we both still actively allow immigrants into our countries in large amounts.  Birth rates are also fairly comparable.  So while we may ascribe part of the decline to demographics, most of the decline is purely economics.  This is shown in greater detail when you look at the provincial breakdowns:

Employment Rate for December 2012
Newfoundland and Labrador 54.2
Prince Edward Island 59.5
Nova Scotia 57.4
New Brunswick 55.3
Quebec 60.0
Ontario 61.5
Manitoba 65.6
Saskatchewan 66.0
Alberta 69.4
British Columbia 60.1

As you can see, there's a huge gap between top and bottom.  Job markets that are going full tilt like Alberta can have an employment rate of almost 70% even with the demographic pressures at play.  That's why I don't buy a demographic argument for the steep decline in the US.  I think this is a much more revealing picture of the state of the North American job market than the Unemployment Rate you'll read about elsewhere.

1 comment: said...

There are benefits to both measures in showing the relationship between the economy and employment. But even together both provide an incomplete picture. The argument that one should be preferred is missing the critical point that more information should be preferred.

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