‘Official’ Unemployment Just the Tip of the Iceberg

Statistics Canada has just released its monthly labour force report for April. It’s the first monthly release that captures the full extent of the COVID shutdowns; the previous report (which covered one week in mid-March) reflected only the initial stages of pandemic-related closures. By the time Statistics Canada did its April survey (during the week of April 12-18), millions of workers had stopped working.

Not surprisingly, the numbers are grim. 2.4 million Canadians were counted as officially unemployed in April. That’s 13.0% of the labour force – bad by any definition.

However, that statistic is only the tip of the iceberg. In fact, the ‘official’ unemployment rate has never been a worse indicator of true unemployment. It doesn’t remotely portray the full extent of non-employment experienced by Canadians, as the pandemic and emergency closures took hold.

To be considered as unemployed in the official statistics, someone has to jump several hurdles. They can’t hold any ‘job’: even if it’s a job where they didn’t work in the week of the survey (this is often true, even in the best of times, for people with irregular working hours). Even working one hour in the week when the Statistics Canada survey is conducted is enough to qualify as ‘working.’ And if they don’t have a job, they have to be willing to work, available to work if a job becomes available, and actively seeking work. Moreover, to satisfy Statistics Canada’s definition of ‘active search’, it’s not enough to just watch the want ads: you must be putting in several active applications every week.

Those strict statistical definitions reflect a rather old-fashioned and somewhat punitive conception of unemployment. It seems influenced by a Friedman-esque assumption that mush so-called unemployment is actually voluntary idleness. Many policy-makers (traditionally including central bankers) are predisposed to discount the extent and consequences of unemployment; they are more preoccupied with other priorities, like suppressing inflation and reducing expenses for employment insurance and other social programs. For them consistently underestimating the true extent of unutilized potential in the economy is politically convenient.

13.0% official unemployment is horrible. But true unemployment in April was 2.5 times higher. That’s a catastrophic level. Let’s walk through the numbers:

In addition to 2.4 million officially unemployed, there were another 2.4 million Canadians who reported being ’employed’ in April, but who didn’t work at all. Millions of workers have been sent away from their jobs because there was nothing to do, but have not yet been formally let go. (Hopefully the Canadian Emergency Response Benefit and other government aid will prevent some of those looming lay-offs.) Over 80% of those who were ‘employed’ but not working (1.9 million) did not get paid. 40% of those were self-employed – most of whom have no way to get paid if they stop actively working. If we include Canadians employed but not working and not paid, the unemployment rate jumps by over 10 percentage points, to 23.4%.

But there’s more.

Another 1.1 million Canadians didn’t work, had recently worked, and wanted to work – but they did not ‘actively’ seek it. There’s that implicit ‘blame-the-victim’ idea again: if you’re not out there promoting yourself, even amidst a pandemic, you’ve got nothing to complain about. But what’s the point of looking for something that doesn’t exist? Adjust both unemployment and the labour force for that group, and the unemployment rate jumps again: to 27.7%

Finally, we should also include workers who lost most but not all of their hours, and other involuntary part-time workers. Remember, if you work just a single hour, then you are ‘employed’. But that’s a ridiculous way to measure work – especially given the rise of part-time work, irregular hours, and precarious jobs. We can count their involuntary hours of non-employment on a full-time-equivalent basis. That takes unemployment to over 30%.

This implies that Canada is already experiencing Depression-level unemployment. The true rate is 2.5 times higher than the ‘official’ rate – which itself is frighteningly high. We don’t want another Depression. To avoid one, we will need a long-term plan to mobilize investment, directly create jobs, and provide crucial services and infrastructure. I call it a post-COVID ‘Marshall Plan’: to reconstruct our economy after the war against coronavirus, just like Western Europe was rebuilt after the war against fascism.

We will also need to develop, and regularly report, a credible and more robust measure of labour market slackness. The official unemployment rate was an increasingly misleading indicator of labour market well-being, even before this catastrophe. Now it’s almost irrelevant.