The COVID19 crisis has unleashed an economic crisis that is unprecedented in its speed and in its depth, making these very interesting times to study macro-economics.
Lecture 9 of Economics for Everyone describes the anatomy of the business cycle, and relates these swings in macroeconomic activity to a statistic that, as much as any other, speaks directly to the lives of citizens, the unemployment rate.
So in this lecture we describe the anatomy of the business cycle, how macro-economists link changes in GDP from its potential to changes in the unemployment rate, and finally just exactly what is this statistic called the “unemployment rate” and how is it measured by statistical agencies.
In this eighth lecture of Economics for Everyone, we begin our discussion of macroeconomics, the study of the overall level of economic activity.
The lecture offers some background and motivation by examining the sharp increase and sluggish fall of the unemployment rate during the 1930s, the Great Depression. This led to a crisis in economic thinking, and to the publication of John Maynard Keynes’s “General Theory”. Thus macro-economics was born.
Our first challenge involves a host of measurement issues, and in this lecture we examine the meaning, the measurement and the use of Gross Domestic Product. This statistic is nicely presented, reviewed, and evaluated in Diane Coyle’s book, GDP: A Brief but Affectionate History, and it is the major reading on your list for this lecture.
In a medical sense, COVID-19, as highly contagious as it is, can be thought of as the great leveller. No one has immunity, and we face the health risk of this virus with a sense of our common humanity.
But in a socio-economic sense, it is not as contagious. The jobs some of us hold give us an economic immunity, and we face the economic risk of this virus with a very different sense of our interconnectedness.
Normally, I don’t venture into to predicting month-to-month changes in the unemployment rate, but this month is an exception for two reasons. The changes are certainly going to go well beyond the statistical noise inherent in the Statistics Canada survey, so there is no chance that the picture will be clouded. And history really isn’t a guide to what is coming next (in the very short term), so sophisticated models based on past data don’t have a particular advantage. My bets are on an almost doubling of the Canadian unemployment rate between February and March, with even this being an understatement because the official survey preceded some of the more dramatic shutdowns that happened later in the month. I’m suggesting that we are even probably close to 15% right now.
On Thursday, April 9th Statistics Canada will release the results of the Labour Force Survey for the month of March 2020. COVID19 makes this one of the most scrutinized releases in the 75 year history of the survey, reporting as it will on jobs and unemployment during the week of March 15th to March 21st. Here’s what you need to know, and what to look for.