Wednesday, October 07, 2009

The true extent of unemployment

Most people don't know how the official unemployment rate is calculated. Most are surprised when they find out.

The government, via Statistics New Zealand, conducts a survey called the Household Labour Force Survey. Citizens are recruited into the survey and must participate for two years. Every three months they are phoned and questioned about their work habits and those of other household members. Through the questions it is ascertained whether or not the participant (and any other adult members of the household) is employed. At any given time 15,000 households participate.

The current official unemployment rate gleaned from the survey is 6 percent.

The unemployment rate is not a reflection of people registering at Work and Income. If it was, the number would be considerably higher. For instance, at June 2009 310,000 working-age (18-64 years) people were receiving a benefit (unemployment, sickness, invalid or domestic purposes, etc). That represents around 12 percent of the working age population or 1 in 8 people.

There is good reason to assert this figure is a better representation of the true unemployment rate. Regardless of the reason somebody is reliant on welfare they are unable to support themselves through paid work or other means . They are not employed.

It would also be a fair suggestion to add to this figure those people who are long-term ACC claimants. During the year to June 2008 there were around 108,000 people claiming weekly compensation from ACC; 23,000 had been receiving compensation for 1 year or more. If last year's figures are similar, that would add another 1 percent the 12 percent who are on benefits. Perhaps an accurate unemployment rate hovers around 13 percent.

Certainly there is nothing scientific about these rough calculations . But they serve to show that an unemployment rate of 6 percent is not telling us a great deal about the ratio of dependent working-age people to non-dependent.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Prior to the creation of the HLFS the only source of information about unemployment was the census or the number of unemployment benefits claimed. It is rather sobering to take a look at what those figures looked like in the mid-1960s.

5,125 males were unemployed on census night in 1966. Most of the unemployment must have been a temporary affair however given that throughout the sixties there were only ever a couple of hundred people on the unemployment benefit. In 1965 there were only 28,000 people receiving working-age benefits - the majority, a Widow's benefit. There was no ACC. The population was around 2.6 million.

Fewer than 30,000 dependent people then, compared to over 300,000 today. A ten-fold increase with less than a doubling of the population.

How the world has changed. New Zealand's modern benefit system reminds me of the famous quote, "Build it and they will come.

8 comments:

Lucy said...

Yep!

Lawrence of Otago said...

Hi Lindsay

This is sobering stuff, have you considered formalising your workings into a regular press release?

You have the credability to warrant attention from MSM.

The timing of your releases should obviously co-incide with the ministries propaganda release.

I agree the true definition of unemployed are those adults who claim a benefit irrespective of the name of that benefit.

Superannuatients (sp?), solo parents and teriary students are obvious subsets of the above, but still a subset even if they are worthy of a discreet percentage calculation.

I suggest your ACC cut off (one yaer) should be expanded to include anyone who is claiming a loss of income compensation. Be it 1 week or 1 month.

LoO

PC said...

You know, someone should really bankroll you to do a local welfare version of the US Shadowstats site.

The lies need to be exposed every day.

Anonymous said...

When there were no unemployment benefits there we no unemployed

It really is that simple. The number of unemployed (across the whole cycle) is directly proportional to the size of the benefits

Zero the benefits - again, this can be done in a couple of days in NZ via an order in council - and you'll zero the number of "unemployed" too

Keith Ng said...

But they serve to show that an unemployment rate of 6 percent is not telling us a great deal about the ratio of dependent working-age people to non-dependent.

The unemployment rate does not claim to say anything about the ratio of dependent working age people to non-dependent.

The unemployment rate is an economic indicator that shows how much labour capacity is unutilised in the economy. Excess labour capacity affects a whole bunch of decisions, such as hiring, expansion, wage rates, etc.

People who are not actively looking for work (including stay-at-home parents, students, retirees, invalids, and yes, dole bludgers) do not influence these decisions. e.g. If the number of people on the invalids benefits grew by 100,000 tomorrow, it does not change my ability to hire new staff or the cost of hiring new staff. Whereas if the number of unemployed people looking for work grew by 100,000, it would.

The unemployment rate is constructed this way for the benefit of people making economic decisions - not because there is any attempt to hide the "true unemployment rate".

--

As for your comparison, it's probably true that a much greater percentage of the population receive government support today than in 1965.

But what's the implication of that?

The trouble is, having more people on benefits does not necessarily mean having fewer people in gainful employment. For example, according to the HLFS, we currently have 138,000 unemployed and over 1m not in the labour force. As you point out, we have over 300,000 beneficiaries - much of this 300,000 are people who are not part of the workforce.

These same people existed in 1965, though they may have been supported by family or by charities. The fact that they are supported by the government now is neither here nor there - they haven't become less productive simply because it's the government that's supporting them.

If you want to compare the ratio of dependent working-age people to non-dependent, it's really simple: Just take the ratio of employed (or EFTS, if available) people in the working-age population. Don't faff around with these benefit comparisons.

But here's the rub - a modern, dynamic economy needs more unemployed people than we did in 1965. Having a pool of unemployed people enables businesses to respond rapidly to the market across geographies and in time. It also makes our workforce more competitive, and provides more opportunities for upskilling, changing careers (again, improving responsiveness of the workforce).

Just thought your post needed some economic context.

Lindsay said...

Keith, I understand what the unemployment rate is a measure of in technical terms. But the point of my post is to explain to lay people what it is not. I could have gone into the 'jobless' rate (which is often confused with the 'unemployment' rate by media even) but it would only have confused the issue. I could have gone into how being 'employed' is defined - undertaking one or more hour of paid work in the survey-specified week. Also surprising to the general public.

"These same people existed in 1965, though they may have been supported by family or by charities. The fact that they are supported by the government now is neither here nor there - they haven't become less productive simply because it's the government that's supporting them."

That is fraught with difficulties. For instance, upwards of 100,000 single mothers did not exist in 1965. If these females were today part of a tax-paying family unit then they would be economically productive. They would be part of the contributing sector.

It is also highly arguable that the same number of incapacitated people would have existed - for instance, there certainly weren't as many people (as a proportion of the population) institutionalised as there are now relying on sickness/invalid benefits with a primary incapacity of psychiatric/psychological conditions.

My use of the word 'dependent' intends dependent on government - not on a partner's income or other family's income. Hence my reference to the ratio of dependent to non-dependent including beneficiaries. In my experience most people think in quite simple terms about the productive sector supporting the non-productive and how sustainable the ratio makes it. And when considering that, they think about how many people are unemployed and on benefits.

Lindsay said...

As well,

"If the number of people on the invalids benefits grew by 100,000 tomorrow, it does not change my ability to hire new staff or the cost of hiring new staff. Whereas if the number of unemployed people looking for work grew by 100,000, it would."

At June 2009 the percentage of people on invalid's benefit that had participated in paid work during the year was 13.3 - higher than for those on the unemployment benefit at 10.3 percent. You are assuming that invalids are not available for work. Some are.

Anonymous said...

Of course Lindsay you're discounting the vast numbers of dependents in "employment" - anyone on WFF, all civil servants, all state "employees", and all private contractors living primarily off the public tit - i.e. Off MY TAXES.

People think about dependent bs productive - buttes realize eg that the teacher at the state school is unproductive while someone doing exactly the same job down the road at a private school is productive. (ok yes I know they're not doing the same job but you gt my point)