Falling unemployment masks the truth
Some major Western economies are close to full employment, but only in comparison to their official unemployment rate. Relying on that benchmark alone is a mistake: since the global financial crisis, underemployment has become the new unemployment.
In recent months, leaders including Donald Trump, Theresa May and Angela Merkel have bragged about record high employment.
But as economies recovered from the GFC, some relaxed labour regulations, creating more precarious jobs to drive down the headline jobless numbers and get more people off the dole.
In Britain, underemployment peaked in 2012 and 2013 and it’s still not back to the pre-crisis level. In the US, involuntary part-time employment rocketed in 2008-09 before shrinking, but there too, the pre-crisis level hasn’t yet been reached.
Germany remains one of the few major economies that has managed to drive down the number of people who are in precarious, part-time jobs in the years after the GFC.
Measuring underemployment is difficult everywhere. To obtain more or less accurate data, people working part-time should probably be asked how many hours they’d like to put in, and those reporting that they’d like to add a large number of hours should be recorded as underemployed. But most statistical agencies make do with the number of part-timers who say they’d like a full-time job.
The need for governments to show improvement on jobs since the global crisis has led to an absurd situation. Generous standards for measuring unemployment produce numbers that don’t agree with most people’s personal experience and the anecdotal evidence from friends and family. A lot of people are barely working, and wages are going up too slowly to fit a full employment picture.
At the same time, underemployment is rarely discussed and unreliably measured.
Labour market flexibility is a nice tool in a crisis, but during an economic expansion, the focus should be on improving employment quality, not just reducing the number of people who draw an unemployment cheque.
COMMENT: Leonid Bershidsky