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Labourers
in Hiding
BY
PETER G. HALL 
EDC Vice-President
and Chief Economist
Of
the myriad monthly indicators that market-watchers dissect, few generate
the palpitations induced by labour force data – both before and after
release. It’s no surprise. Job growth is the anchor of demand, one of
the key determinants of economic well-being. A convincing recovery in
employment has yet to occur, increasing the angst of the monthly
labour-data vigil.
The most recent data is hardly comforting. Nascent increases in Euroland
are generally modest, and too new to be called a trend that will
continue to build. US and Canadian numbers were on the mend, following
impressive GDP growth in the fourth quarter of 2009 and the first
quarter of this year. But in the past two months, the US job count has
retreated by 350,000, and after a string of very decent gains, Canada
shed 9,300 jobs as roughly 130,000 positions shifted from full-time to
part-time work. These recent movements suggest that broader economic
slowing is already affecting hiring activity.
Recession swelled the ranks of the unemployed, and tepid job markets
have offered little balm. At 9.5%, the US unemployment rate is just a
shade below its recent peak, hovering in a range last seen in the early
1980s. The Euro-Area-16 unemployment rate has been stuck at its peak of
10% for four months, within range of its 20-year highs. Japan’s 5.3%
rate looks stellar at first blush, but it’s among the country’s
worst showings in the past 30 years. Canada has fared better than most.
As elsewhere, retreating from the recent peak has been tough, but at
8.7%, that peak was well below past cycles.
The effects on the economy are deeper than even these numbers show.
Those we count as unemployed are out-of-work persons who are actively
looking for work, and in most cases claiming some sort of benefit. But
during recessions, many job-seekers get discouraged. Repeated negative
responses cause the unemployed to give up looking, and simply exit the
labour force. When they do this, they drop out of the headline numbers.
But they are captured in other statistics that we can use to build an
effective rate of unemployment that helps to gauge just how much labour
capacity exists, and the extent of job creation a given economy needs to
get back to true economic health.
Recalculations yield dramatic results. Adding in discouraged workers
moves the US unemployment rate from 9.5% to 11.6%. In the Eurozone, the
number jumps from 10% to 10.6%. Japan’s number also moves up by 1.3
percentage points to 6.6%. Unlike previous recessions, Canada gets off a
bit lighter than most. The current 8% rate effectively rises by 0.6
points to 8.6%.
Revealing these labourers-in-hiding more accurately depicts the fallout
from economic downturns, and the subsequent challenge of restoring
balance. Judging by the modest improvement in the unemployment rate
generated by aggressive GDP growth in the previous October-March period,
much more of the same is needed to soak up the excess labour. Recent
slowing in world economic growth will delay the process, causing more
hand-wringing and nail-biting before we see consistent, solid gains in
monthly job counts.
The bottom line? Unemployment rates are currently higher than the
official data show, normally the case during an economic downturn.
Higher GDP growth and emerging labour market constraints will ferret out
the hidden unemployed and eventually restore unemployment rates to
normal levels.
The
views expressed here are those of the author, and not necessarily of
Export Development Canada.
©2009
EDC
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