RSM International - Do the unemployment statistics really stack up?
Whilst statistical releases from the OECD may not meet everybody’s definition of an exciting read, I found the latest OECD figures on employment rates amongst the world’s largest economies really quite interesting.
In headline, what they show is that the OECD overall employment rate - defined as the percentage of the working-age population who are employed – has gone up. It was 65% in Q2 2012, 0.1% higher than Q1 and 0.2% up on a year earlier.
Underneath the headline however, as you would expect, there is significant variation across OECD countries in the second quarter of 2012. The employment rate was stable in the United States (at 67.0%), after increasing for 3 consecutive quarters, and it rose in Canada (by 0.3 percentage point to 72.3%) for the second consecutive quarter.
By contrast, the employment rate fell in the Euro area (by 0.2 percentage point to 63.8%), the fourth consecutive quarter of decline. Unsurprisingly with their current economic performance, Greece was down 4.7% to 51.4%, Spain was down 2.7% to 55.6% and Portugal was down 2.4% to 62.3%. But if you look at some of the other European countries, the picture is different. The figures show a significant increase in employment in a number of countries, including Estonia (up 2.8 percentage points to 67.3%), Luxembourg (up 1.7 percentage points to 65.9%) and Hungary (up 1.4 percentage points to 57.1%).
So are we to conclude that the employment numbers follow the underlying economic trend for that country?
This is where it gets tricky. The OECD employment rate is just 1.5% below its pre-crisis peak yet economic output is lagging much further behind. In the UK, for example, output is about 3% below the pre-crisis peak, but the employment rate is just 1.6% lower, at 69.9%. Contrast that with the U.S., where unemployment is higher than the UK, but where economic growth has significantly outpaced the UK throughout 2012. This begs an important question about productivity. Unlike in previous recessions, employers in the UK and many other European countries do not seem to have responded to the contraction in demand by shedding labour – or at least not to the same extent.
So does this mean the ability of some OECD economies to produce goods and services at pre-crisis levels has been impaired?
I think this is unlikely. There are underlying shifts in employment patterns that are not immediately apparent from the statistics. On closer inspection, it becomes clear there are large disparities among population groups, notably between age groups. Strikingly, the employment rate of older workers, at 55.4% in the second quarter of 2012, was 1.3 percentage points higher than at the onset of the crisis. Many OECD countries have enacted reforms to delay retirement, which have contributed to increase the employment rate of older workers against a true background of rising unemployment. By contrast, the employment situation of young people has continued to deteriorate. At 39.3% in the second quarter of 2012, the youth employment rate was 3.5 percentage points lower than before the crisis.
In addition, it would appear that labour markets have become more flexible as greater numbers of people work part time. Is this reflective of an increasing trend towards better work-life balance, or indicative of underemployment, where people are working fewer hours than they would like, or possibly working in jobs for which they are overqualified? If it is the latter, when the recovery gathers pace, there is likely to be a surge in market liquidity as large numbers of employees look for new, appropriate full-time jobs.
For a network of accountants with more than 32,000 people across the world providing important financial advice to businesses, understanding the implications of market changes is absolutely vital to ensuring our clients prosper. Economic forecasting may seem like crystal ball gazing in the current climate, but as trusted advisers the job of accountants is to help businesses plan and adapt for market changes. With the data often so puzzling, there has probably never been a more important time to be that valued adviser.