Honey, I Shrank the Unemployed

What if we just pretended that society’s problems had already disappeared?  It sounds dicey, but that’s often how things are done.  People who are struggling with unemployment are having a hard time explaining their lives.  And if you’re sitting in a job in human resources, you know that you have to understand this crowd.  Whether you’re administering layoffs and terminations, sorting through a long list of unqualified job applicants, or talking to friends and family who have a little problem at work, you know that the bewildered masses are your people.  But thankfully, you can make their problems disappear through government statistics.

An article from June 1, 2017 in the Huffington Post notes that the share of Canadians with a job has hit  a record high.  The content can be dense and confusing, but at issue is that people wrongly think the unemployment rate is a meaningful indicator of how well the economy is doing.  For labour economists, unemployment rates border on being a garbage statistic.

The unemployment rate is the number of people who have jobs divided by the number of people in the labour force.  But people have all kinds of reasons for not being in the labour force.  These include: discouragement from a long unemployment spell, disability, the decision to stay at home with kids, retirement, financial independence, postsecondary studies, prison, and travel.  Governments can also reduce unemployment by deciding that certain people aren’t trying hard enough to get a job and, therefore, they aren’t really in the labour market.  There’s a lot going on that has nothing to do with economic statistics.  Since the labour force is half of the equation, the unemployment rate itself is of debatable value.  You can still use it occasionally (i.e. for month-over-month comparisons), but only with caution.

A far better statistic is the employment-to-population (EP) ratio.  We know who has a job, and we know how large the population is.  Take these totals, divide one by the other, and suddenly the data is clean and interesting.

The Huffington Post article notes that the EP ratio in Canada is now 78.6 percent, its highest level since Statistics Canada first started measuring this in 1976.  That’s good for Canada.

It’s also interesting to look at the second diagram in the article, which describes the labour force participation rate.  The labour force participation rate takes those two denominators we described earlier and combines them.  It is the number of people who are in the labour market divided by the population (within the relevant age group).  The labour force participation rate disregards whether the person actually has a job; it’s an indicator of how involved people are in the world of work.

Canada has a high participation rate relative to the US.  Amongst the working-age population, over 77 percent of Canadians work or are looking for work.  Labour force participation rates in the US used to be 77 percent, back in the late 1990s.  In the twenty years since, participation has slipped 5% to 72 percent.  The decline happened during three different presidents, and only half of the decline was during that nasty recession that started in 2008.

Long story short, the US has an unemployment rate of 4.1%, but they have an extra 5% of the population that could work but doesn’t.  It’s the tale of two economies, two Americas.  There is one America where things are bright and sunny, people aspire to career growth, and they talk about red wine and heirloom tomatoes.  But in the other America, things are not so great.  Theirs is a world where people lost their jobs to globalization or technology, lost their homes to the mortgage fiasco, and are now losing family members to the opioid crisis.  This is a crowd for whom voting for Donald Trump is totally rational.

Yes, we can pretend that society’s problems don’t affect us, and that those who don’t fit into the new economy are not our concern.  But those who don’t fit in get to speak their mind, and it’s not in a way that some find pleasant.