Why there are better ways to measure unemployment
The state of the jobs market is best assessed by a number that is not given enough attention by Statistics Canada, and the many media reports based upon its monthly press release.
The headline attention is all soaked up by the unemployment rate and the level of employment, when it really should be something Paul Krugman—the Princeton University economist and New York Times columnist—calls his “favorite gauge” of the employment situation.
The unemployment rate can be an ambiguous indicator because it depends not simply on the number of people without a job, but also whether they are looking for work. Giving up on a job hunt excludes you from the count, so the amount of slack in the labour market can be understated.
At the same time it is possible for the unemployment rate to shoot up when the economy starts producing jobs if a good many of the jobless expect their prospects to be better and begin looking for work. In this way the amount of slack in the market can also be overstated.
This is one reason why Paul Krugman focuses on something called the Employment-Population ratio, or simply the “employment rate”. Using the number of employed is misleading because it takes no account of the size of the population. The employment rate makes this correction: it is the number of employed divided by the population, in other words the fraction of the population that has a job.
Labour economists tend to look at this ratio for those in their so-called “prime” working years, usually men who are 25 to 54 years of age. This highlights business cycle changes, leaving demographic transitions associated with retirement, schooling, and, to some extent, household duties aside.
The picture for Canada shows a clear drop at the onset of the recession in late 2008, and only a tepid recovery. The jobs market has yet to return to the pre-recession level of employment when more than 86% of prime age men were working. From this perspective it appears to have stalled.
Krugman actually looks at the employment-population ratio for both men and women together. But this would change my picture only slightly: a little more continued growth since January 2011, but still no return to pre-recession levels.
The point is that the employment rate leaves us with a very different impression than the lead visual in Statistics Canada’s press release, which is simply the total number of employed. Here it is:
The media are quick to reprint this graphic, as the hard-copy edition of The Globe and Mail did this Saturday in a story that, ironically, was focused on the stalled recovery.
This offers no correction for the size of the underlying population. It shows a complete recovery of the number of jobs lost during the recession by late 2010, and that is certainly one reason why it is a popular talking point for many politicians.