The Creeping Spectre of Underemployment

by Ron Jamieson

Managing Partner

HIRE GRAY MATTER

 

When unemployment statistics are released, the markets listen and respond.  We feel more confident about the future when the unemployment rate goes down and more apprehensive as the rate increases.

Underemployment infographicAccording to Statistics Canada’s June 2014 Labour Force Survey, the unemployment rate rose from 7.0% in May to 7.1%.  This is the same as June, 2013, and down considerably from June, 2009, when the rate was 8.4%.  The data make it sound like things have improved and are stabilizing.

According to the Chief Economist for The Conference Board of Canada, we’re moving towards full employment.  

But wait, the “official” unemployment rate is just one way of expressing what is happening in the labour market. Statistics Canada maintains 7 supplementary measures of unemployment, and we rarely, if ever, hear about these in the press, though they are quite revealing.  The official unemployment rate is called R4.

The R8 rate represents the official unemployment rate, but adds in workers who have given up looking for work and dropped out of the market, workers who are on temporary layoff and, more interestingly, workers who have taken part-time jobs but are not fully employed.  Sometimes, workers are taking part-time jobs to fill in employment gaps on their resumes and to supplement EI benefits. Others are doing so strictly for survival.  Older workers are taking part-time jobs to supplement pension income, and, for them, it’s more of a lifestyle choice because part-time work allows more time for recreation.

The R8 Rate tends to be about 3 points higher than the official rate, so would be approximately 10%.

According to a paper released in March, 2014 by the Canadian Labour Congress,  Statistics Canada only counts the volume of underemployment, meaning the total hours of underemployment divided by average weekly full-time hours.  The international consensus on reporting time-related underemployment is the count of individuals who fall into this category, so Statistics Canada’s data under-report underemployment because they do not measure the actual number of people affected by this phenomena.

The CLC paper stated, “In 2013, the total number of employed persons seeking more hours was over 910,000, and the amount counted by Statistics Canada was only 445,000. That considerably alters the level of underemployment reported by Statistics Canada.”

When these underemployed people are factored into unemployment numbers, the unemployment rate increases to about 14% – double the official rate.

There has been growth in the number of jobs, but, according to  Paul Ashworth, chief North American economist at Capital Economics in Toronto “Over the past 12 months, full-time employment has actually declined by a cumulative 3,100, while part-time employment has increased by 118,500.”

Public policy seems to be driven by the official unemployment rate, R4, but this rate oversimplifies and understates how bad the employment climate is in Canada.  We should be hearing more about the R8 rate as well.  Additionally, Statistics Canada should reconsider how it calculates underemployment so our methodology is comparable to other countries, and the higher rate that would result might increase the impetus to get the government to more actively promote job growth.

 

 

 

Other Articles of Interest

 Carol Goar article in the Star

http://www.thestar.com/opinion/commentary/2014/03/13/why_canadas_job_market_hasnt_recovered_goar.html