The Unemployment Rate Doesn't Matter

Once a month Statistics Canada releases the Labour Force Survey.  This is a report designed to provide insight into the labour market across Canada and includes a breakdown by province and various census divisions and subdivisions showing the size of the labour force as well as the number of people who are employed and unemployed.  For most people, the Labour Force Survey is a way to keep track of how many people do and do not have jobs.  What this means in practical terms is that the media reports a limited subset of the data in the report and that is all that the average citizen has to go on.  While the media does report increases or decreases to the overall number of jobs, the most common number that people pay attention to is the unemployment rate.  Unfortunately this is the statistic included in the Labour Force Survey that has the least value and is misused more than any other figure.

A Mark Twain quote about how numbers can be misleading comes to mind whenever I think about the usefulness of the unemployment rate.  You are probably already familiar with the following quote: “There are three kinds of lies: lies, damn lies and statistics”.  To understand why paying any attention to the unemployment rate, allow me to provide to you the official definition explaining what the rate actually measures:

Unemployed persons are those who, during reference week:

1. were on temporary layoff during the reference week with an expectation of recall and were available for work, or
2. were without work, had looked for work in the past four weeks, and were available for work, or
3. had a new job to start within four weeks from reference week, and were available for work.

Let’s consider for a moment the implication of parts b and c of this definition.  Imagine a factory worker is laid off due to a factory closure.  Rather than immediately seek work, this person decides to take a month long vacation and live off of his severance package.  As far as Statistics Canada is concerned, this person is not unemployed.  Now imagine that a year later that same worker is without work and has had to spend all of his savings in order to pay the bills.  He is tentatively hired for a seasonal position but will not be able to start work for another two months.  Still, Statistics Canada does not consider this person ‘unemployed’. 

Similarly, those who are retired are not considered unemployed, those who are in school or pursuing training are not considered unemployed, and those who are ‘self-employed’ in order to make ends meet (e.g. odd-job-jacks) are not considered unemployed.  That teacher’s college graduate you know who tutors the kid down the street for $50 a week – employed.  The carpenter restoring his neighbour’s furniture in the garage for $5 – employed.

 

Ultimately, there are going to be a number of people who do not have work, but that Statistics Canada does not consider unemployed.  When we pick up the local newspaper and read that unemployment has been dropping or rising rapidly, these individuals are excluded.  Over the past few months the London-St. Thomas area has seen unemployment rates ranging between 6% and 10%.  However, there is a complimentary and much more meaningful figure that paints a much more accurate picture.

What the media reports on a much less frequent basis – or at the end of articles and as a side note – is that there is an ‘Employment Rate’.  Now anyone with basic arithmetic should be able to figure out that a 10% unemployment rate should mean that there is a 90% employment rate.  Not so hasty.  The employment rate is calculated separately and measures those who actually have work.  What may surprise you is that the London-St. Thomas area has enjoyed an employment rate that has remained virtually unchanged since January 2012.  Now to be fair, it has been sitting at around 58% over the past two years with some peaks and valleys and this means that in actuality 42% of individuals are without work.  That being said, the stability in the employment rate demonstrates that the downwards spiral suggested by the unemployment rate is purely a creation of statistics.

More importantly I think is the fact that the employment rate paints a very different picture of the region.  A focus on the unemployment rate tells a story of a region mired by job loss and downturn; where fewer and fewer people have jobs.  The employment rate however suggests that this is not the case.  In order for employment to remain exactly the same it means that for every job lost, another is created.  This indicates that although there is undeniably job loss in London, there is also very active job creation.

To me, this indicates that we desperately need to change the song we are singing.  If you were buying a new home, would you choose a city with a reputation for unemployment or the city with a reputation for opportunity?  The answer is obvious.  I suggest to you that businesses think the same way.  Businesses will set up shop in places with reputation for economic strength.  By consistently focussing on the negative stories we could actually be driving business away.  The message we put out about our local economy needs to be one of stability and readiness for growth and investment. 

Typically we criticize our media and our politicians for not putting out the message that we are ‘open for business’.  However, this allows a group of people who arguably have as much – if not more – impact on the perception of the economy.  These people are the business owners and operators who are already here.  This is a group effort.  We need local businesses to share their success stories, their expansions, their grand openings.  We need the media to spread these stories as far as their reach can go.  We need the politicians to point to these stories when they interact with outside businesses.  Most importantly however, we need the citizens to look beyond the negativity that is permeating most of Southwestern Ontario and to embrace the Canadian pioneering spirit and try to seek out whatever opportunities are available.

Once we are all on-side and start spreading a positive message will the local economies return to their full strength.