Skip to content

The burden of unemployment is worse than Statistics Canada’s official number suggests

February 3, 2012

This morning Statistics Canada reported that the unemployment rate increased to 7.6%, confirming a rising trend since July of last year and still significantly above the low of about 6% just before the recession took hold in the autumn of 2008.

This statistic is probably the closest a number can come to having a human face; it relates directly to the hardship Canadians experience in providing for their families, saving for their retirement, and just meeting their day-to-day needs.

But in the end we can’t clearly see the faces of real people behind this number, which at best is an incomplete picture of waste and hardship.

Statistics Canada measures unemployment in a very specific way, asking a representative sample of Canadians if they did anything during a four-week period to look for a job.

If you are not actively looking, then you are not considered unemployed.

Incorporating those who are not looking for work, but certainly want a job, into the calculations—those who are waiting for a recall from a previous employer or waiting for a reply to applications already made; those who have given up looking for jobs because they believe none are available; and those who are working part-time but want and can’t get more hours of work—leads to a much higher unemployment rate.

According to official calculations the average monthly unemployment rate during 2011 was 7.4%, but the more comprehensive measure implies 10.6%.

The official rate understates the waste of human resources, but it also doesn’t tell us about the hardship being experienced.

A given unemployment rate could be due to rapid turnover in the labour market, with any one person experiencing a short spell of job search, with a different group next month going through the same experience and also finding a job within a couple of weeks. Or it could reflect the same individuals being jobless each and every month of the year, and suffering very long spells of unemployment.

In the first case unemployment does not entail much hardship; in the second it does.

In fact, the job losses triggered by the recession have led to much longer spells of unemployment.

Only 12% of all the unemployed in 2008 had spent six or more months looking for a job. But in 2011 more than one-in-five, fully 21%, were in this situation. Between these years the average length of an unemployment spell jumped by a month and half, from 14.8 weeks to 21.1 weeks.

All this said, the official unemployment rate is calculated using accepted international principles, and offers a good sense of how the job market is changing from month-to-month and year-to-year.

It also offers a basis for comparing the situation in our country to that in others.

While all statistical agencies follow the same principles in calculating these numbers, there remain subtle but important differences in how they are put into practice. This is the case in the comparison that is of most relevance to Canadians, that with the United States.

During 2011 the official unemployment rate in Canada was 1 1/2 percentage points lower than the American (7.4% versus 8.9%).

But Statistics Canada offers an alternative calculation that follows as best as it can the procedures used by the Bureau of Labor Statistics, and when this alternative is used the gap in the unemployment rates is even larger: almost 2 1/2 percentage points (6.5% versus 8.9%).

This is one case in which the official measure is painting a less rosy picture than it should.

Statistics Canada is certainly aware of the fact that no one number can offer a full portrait of the unemployed even though it never presents a more nuanced analysis in any of its monthly reports. In fact the text of today’s press release mentions the word “unemployment” only once.

The official measure is no doubt central to any story about unemployment, but if you look hard you will find this well written article on its website, “Inside the labour market downturn“, that uses all eight unemployment rates that Statistics Canada in fact calculates every month.

Advertisements

From → unemployment

13 Comments
  1. I am very confused about the blogger’s comments. He is an economist. It seems he mistakenly states that people who are between jobs and waiting for an answer, are not counted. They are called frictional unemployed, and are counted as unemployed even though they do not formally continue to seek employment. Also according to statistics Canada people who are on layoff or those with firm commitment to have a job in the relatively near future are counted as unemployed by Statistics Canada even if they do not record seeking a job formally. Forced part time and discouraged job seeker are part of the unemployment definition for decades and is accepted in almost all countries of the world. It is hardly justified to count people as unemployed if they do not seek employment for whatever the reason is.

    • Thank you for your comment. Let me clear up the confusion by making explicit reference to a Statistics Canada publication called Guide to the Labour Force Survey.

      In making reference to how unemployment is measured Statistics Canada says:

      Given the concept of unemployment as the unutilized supply of labour, the operational definition of unemployment is based primarily on the activity of job search and the availability to take a job. In addition to being conceptually appropriate, job search activities can, in a household survey, be objectively and consistently measured over time. The definition of unemployment is therefore the following.

      Unemployed persons are those who, during reference week:

      were on temporary layoff during the reference week with an expectation of recall and were available for work, or
      were without work, had looked for work in the past four weeks, and were available for work, or
      had a new job to start within four weeks from reference week, and were available for work.

      Active job search is the core of the definition, but there are a couple of exceptions: those on temporary layoff with a clear expectation of recall, and so-called “future starts”.

      Here are the implications for some of the things you have written:

      (1) If a survey respondent does not fall into one of these exceptions and has stopped looking for work because of discouragement that individual is not counted as unemployed.

      (2) If someone is in a paid employer-employee relationship they are considered employed and not even asked about their availability for work or their job search activities. “Forced part time” workers are not part of the definition.

      (3) If someone is between jobs and not looking for a job then that person is also not counted as unemployed.

      (4) Statistics Canada makes no reference to categorizing the unemployed into conceptual groups that are often used by economists, like frictional unemployment or structural unemployment.

      Finally, as I mentioned in my post Statistics Canada recognizes that the official unemployment statistic does not fully measure the under-utilization of labour resources, and it produces 7 other unemployment rates that incorporate people like those waiting for replies, who are discouraged, or who are involuntarily part-time employees. To get a sense of this I offered readers at the end of my post a link to a short analytical article by Statistics Canada researchers that clearly defines these alternatives and puts the official measure into a broader context.

      I hope this helps to clear up any confusion you are having.

  2. B. Lawton permalink

    I am not surprised that economists are constantly being surprised if they rely on StatCan who don’t seem to know the difference between extrapolation and making figures up. You can extrapolate when a few houses on a block refuse to fill in census forms; you can’t if entire districts are completely untouched due to lack of staff. Are they any more reliable with unemployment statistics?

    As autumn has its signs, such as birds flying south, so does recession. The amount and quality of unpurchased Christmas treats this year is remarkable; in February I am still buying the stuff. A local restuarant, noted for the extreme nastiness of its jobs, used to have a card in the window offering jobs every month. No more, nothing since September. A friend from the suburbs says his drive into town takes half the time it used to because there are so few cars on the road. He thinks it’s due to unemployment. It feels like a really cold winter’s coming.

    • Thank you for raising these concerns and posting them. But I wonder if my article has mislead you. I certainly don’t want to leave the impression that there is anything wrong with the Statistics Canada data on unemployment and the labour market.

      In fact just the opposite. Statistics Canada has a track record of producing high quality data for a long period of time on the unemployment rate.

      My article was about the correct way to interpret and communicate this information. If we want to get a complete picture of the unemployment situation in the country we need to rely on more than just one statistic. And Statistics Canada produces all of the numbers we need; we just don’t tend to use it all.

      The official unemployment rate, the measure that garners all the headlines each month, is a consistent and well established statistic that follows the best international practice. It is used to tell us about how the labour market is changing from month-to-month, year-to-year, and indeed decade-to-decade. It is also used to compare our situation with other countries.

      It doesn’t and can’t do everything. It is not a full picture of the under-utilization of labour supply, and it is not a measure of the duration of unemployment.

      But Statistics Canada produces those numbers too. And it produces a whole series of 8 unemployment rates each defined slightly differently to round out the official number. Unfortunately it does not communicate this as broadly and regularly as the official number, and therefore journalists and others are not as familiar with them.

      I was trying simply to raise this awareness, not in any way to question the credibility of the numbers.

      I hope this helps.

  3. One thing that I find remarkable is that if one looks at long-term stats on unemployment in Canada, the current rate is below the average for the past thirty or so years. I don’t know why Canada’s unemployment rate seems to be permanently lower today than it used to be.

    e.g. http://www.statcan.gc.ca/pub/71-222-x/2008001/c-g/c-g-p3-eng.gif

    • Good question.

      There are a number of reasons that have to do with what economists call the “natural rate” of unemployment, which we can think of as the unemployment that would prevail because it takes time to find a job — either because unemployed need, quite literally, to find them; or because they don’t have the skills to fill them just yet; or because they are available in another location. Searching, training, and moving all take time, so there will always be some unemployment in the economy for these “frictional” and “structural” reasons.

      This is different than the unemployment that has been the focus of attention during the last few years, that due to a business cycle downturn reflecting a fundamental mis-coordination between the sectors of the macro-economy.

      The trend in unemployment has been downward in Canada because the natural rate has been falling. In part, this is due to changing demographics: as more young people enter the labour market this will tend to increase the frictional unemployment. The young need to search for new jobs, and also tend to move between jobs at a great rate than others since they are on the way to settling into a career position. It also used to be the case the women were new entrants of this sort. As the fraction of young people in the population falls, and as more and more women have job experience and are not new or re-entrants we would expect the natural rate to fall.

      Also the natural rate can be influenced by government policy. For example, many economists have suggested that more generous unemployment insurance payments will raise the natural rate of unemployment because the unemployed don’t have as much incentive to accept the first job offer than comes along, or because it reduces incentives to move to jobs, or because it slows other structural changes. In the mid 1990s the federal government severely cut the generosity of these benefits. So this is another force for a lower natural rate.

      Finally, it should be noted that the way we search for jobs has changed tremendously over the last couple of decades. The rise of the internet and its use for job search would suggest that vacancies can be found more quickly, leading to a lower frictional unemployment rate. (Though I have not seen studies that have explicitly put a number to this.)

      These are all reasons why the trend is downward. Understanding this also helps us appreciate the significance of the current unemployment rate, which is about 7.5%. This might be low compared to some points in the past, but it needs to be judged relative to the current natural rate. If the natural rate is a good deal lower then the current unemployment rate is in some sense too high.

      The interesting graph you link to offers a comparison between Canada and US unemployment rates, the difference between them being a topic that merits discussion. I will try to post something on this in the near future.

      Thanks for raising the question.

      • That’s a great answer. I appreciate it – I thought of changes to government benefits, but I wasn’t thinking of technological and demographic changes. The demographic one seems really important to me and causes me to see the data in a new light.

  4. I don’t see any mention of “Employable Social Assistance Recipients” here. Based on the “Ottawa’s Hidden Workforce” report of Fall 1998, Employable Social Assistance Recipients would account for additional unemployed people numbering roughly 1.1 times the number of so-called “discouraged workers” referred to in the article; see page 9 of the “Ottawa’s Hidden Workforce” report which is downloadable from my web site at http://www.unempgeninfo.com

    And that is not all.

    In addition to this, based on the Statistics Canada “Work Hours Instability in Canada” report of March 2006 (long before the 2008 financial “crash” and its subsequent fallout), only one third of those “officially” employed between the ages of 25 and 49 had “standard full-time work” (considered to be between 34 and 46 hours per week). This too is downloadable from my web site at http://www.unempgeninfo.com Among other things, it indicates a truly massive “under-employment” problem in Canada which gets insufficient discussion or action to cure it.

    Overall, therefore, we have a massive unemployment and under-employment problem and a corresponding failure or refusal to see the potential scope for improvement in the performance of the economy – based on how well or how badly it uses the skills of its people. Dealing with this properly has NEVER been more important than it is now, based on – among other things – its implications for the tax dollars that will be available for essential services such as health care and education, relative to anticipated needs.

    It also has obvious and big implications for immigration policy and speedy/proper integration into the Canadian work force for foreign-trained professionals and trades people. This is also basic to re-integrating people already in Canada and out of work back into employment, so that they will become taxpayers again. It also serves to highlight the importance of adequate help to “startups” who have the potential to create new jobs to replace those that have been lost as a result of continual “down-sizing” by corporations, or bankruptcies such as the Nortel one.

    Constantly fobbing off people out of work based on such legalistic “excuses” as “lack of insurable weeks” or “lack of Canadian experience”, or not quite meeting “…the requirements of the position…” will not work and never has worked. This type of mess is being caused by the numbers of people looking for every job posted (since 2003 I have seen figures between 70 and 5,000 quoted) combined by dysfunctional rules and regulations (connected with federal EI and provincial social assistance) restricting who can access the retraining that they might need to get a job.

  5. In case someone chooses to dis-believe what I said – based on the link to the “Ottawa Citizen” article no longer working – here is another place where the Nobel prize win referred to was reported:-

    http://www.guardian.co.uk/business/2010/oct/11/nobel-prize-for-economics-three-winners

    I checked to see that this was working a couple of minutes ago.

  6. Gary Peck permalink

    My lady friend is desperate for a job, sending dozens of applications daily. Her EI ran out in December and she will lose her house soon.
    According to EI she is one of those “no longer looking for work” that they use to massage their numbers because they no longer send her benefits.
    Times are more desperate than they appear.

  7. Gary Peck’s comment above about the plight of his lady friend comes as no surprise at all to me. See also the comments in my previous postings. From what I have seen going on throughout my 30 years in Canada, the E.I. system is “broken” to a large extent, and so are the provincial social assistance systems. A system that arbitrarily classifies some people out of work as “no longer looking for work” or “dropped out of the labour force” – with no surveys and no analysis to justify such classifications as descriptions of the people referred to – is totally unsatisfactory because (a) it causes everybody to adopt incorrect and pejorative opinions about the people referred to, and (b) it automatically results in continual and massive understatements about the numbers of jobs actually needed to employ everybody who wants to work, thus ensuring that nobody realises the degree to which the performance of the economy falls short of the optimum. This in turn automatically leads to a lack of motivation on everybody’s part to do anything about the situation. This state of affairs in Canada is unsustainable – and a bloody disgrace at the same time, that Canadians should be ashamed of.

  8. The problems connected with the economy in Canada go much deeper – even compared with what I said in my previous postings. There is a parallel set of problems with corruption in business accompanied by cover-ups on the part of those responsible for the corruption referred to. I posted something about this earlier today at:-

    http://rabble.ca/news/2012/03/reimagine-cbc-canadians-come-together-think-big-troubled-times

    – “Reimagine CBC: Canadians come together to think big in troubled times”
    By Tyler Morgenstern | March 9, 2012

    We have no option BUT to “….think big in troubled times….” – and stop others from trying to confine us all to little boxes with certain labels on them, just to suit their own administrative convenience and social prejudices.

  9. JMKM1910 permalink

    I am a 55 year old with an engineering degree from an Ivy League University and I have been unemployed for almost 8 months. I have applied for about 50 jobs. Despite having solid references, I have yet to find work. What explanation would you offer other than age discrimination?

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: