Why the 6% unemployment rate is a fallacy

The 6 August 2009 Statistics New Zealand press release for the Household Labour Force Survey told us that…

In seasonally adjusted terms, the unemployment rate continued to rise, reaching 6.0 percent during the June 2009 quarter… Both the number of people unemployed and the unemployment rate have been increasing for the past six quarters.

The unemployment rate rose by 1.0 percentage point during the June 2009 quarter, the largest quarterly increase since the September 1988 quarter.

No major surprises that the unemployment rate is rising but the 6% unemployment rate only tells part of the story.  Here in NZ just like in most other western countries the calculation which determines the unemployment rate is not as simple as who doesn’t have a job taken as a percentage of the population.

Without drowning you in university level statistics a few important and little known facts about the unemployment rate as per the Statistics NZ website include….

You are classed as employed if you work for 1 hour or more a week, even if this 1 hour is unpaid in a family business.

To be considered unemployed you must be “without a paid job, available for work and had… actively sought work in the past four weeks…”

So if you’ve just been down sized from 40 hours to 10 the unemployment rate doesn’t take you into account.  In fact as long as you are still working one hour a week you are still “employed” and so not included in the unemployment rate.  And as per the above definition if you’re a 19 year old whose just lost your job but your parents get you to work at least 1 hour in the family business to help pay for your board, you are also officially “employed”.

You are also not classed as being in the labour force and therefore not included in the survey where you are:

• attending educational institutions
• having personal or family responsibilities such as unpaid housework and childcare
• not actively seeking work

So therefore if you have given up searching for work and instead choose to study further you do not appear in the numbers.  Or if you have simply given up looking for work (i.e. as per the definition – you haven’t actively sought work in the last 4 weeks) you are also excluded.  Also anyone on a sickness benefit is also excluded.

So you can see the definition of employed is very broad, while the definition of unemployed has quite specific provisos placed upon it.

(The video cartoon below gives a humerous take on just who is and who isn’t included in the unemployment numbers…)

All in all, you can see the current rate of 6% likely significantly misrepresents the number of people who have lost their job or had their hours of work reduced.

And we won’t even get into discussing “seasonal adjustments” and how these can skew numbers.

While the specifics of how rates are calculated vary from country to country most, like here in New Zealand, use the international standard definitions specified by the International Labour Organization.  In the USA the official rate is currently running at 9.7%.  However a private company, Shadow Government Statistics, uses previous definitions which have changed over the decades to exclude categories like “discouraged workers” – meaning you’ve given up looking for work – to determine the actual unemployment rate.  Thus they show the true US unemployment rate to be over double the official number at more than 20%!

As Mark Twain said – There are 3 kinds of lies: Lies, damned lies and statistics.

While “numbers don’t lie”, the people who construct the definitions that determine how the numbers are interpreted still can.  So you can see, it pays to look closely at government statistics no matter where in the world you live.