The problems posed by mass unemployment

A sad consequence of the lock downs and the effective closure of some parts of the economy is lower employment and higher unemployment. That type of theme was in evidence very early today as we learnt that even the land “down under” looks like it is in recession after recording a 0.3% decline in the opening quarter of 2020. The first for nearly 30 years as even the commodities boom seen has been unable to resist the effects of the pandemic. This brings me to what Australia Statistics told us last month.

Employment decreased by 594,300 people (-4.6%) between March and April 2020, with full-time employment decreasing by 220,500 people and part-time employment decreasing by 373,800 people.Compared to a year ago, there were 123,000 less people employed full-time and 272,000 less people employed part-time. Thischange led to a decrease in the part-time share of employment over the past 12 months, from 31.5% to 30.3%.

I have opened with the employment data as we get a better guide from it in such times although to be fair it seems to be making a fist of the unemployment position.

The unemployment rate increased 1.0 points to 6.2%and was 1.0 points higher than in April 2019. The number of unemployed people increased by 104,500 in April 2020 to 823,300 people, and increased by 117,700 people from April 2019.

The underemployment rate increased by 4.9 pts to 13.7%, the highest on record, and was 5.2 pts higher than in April 2019.The number of underemployed people increased by 603,300 in April 2020 to 1,816,100 people, an increase of almost 50% (49.7%), and increased by 666,100 people since April 2019.

As you can see they have picked up a fair bit of the changes and it is nice to see an underemployment measure albeit not nice to see it rise so much. The signal for the Australian economy in the quarter just gone is rather grim though especially if we note this.

Monthly hours worked in all jobs decreased by 163.9 million hours (-9.2%) to 1,625.8 million hours in April 2020, larger than the decrease in employed people.

Italy

In line with our “Girlfriend in a coma” theme one fears the worst for Italy now especially as we note how hard it was hit by the virus pandemic. Even worse a mere headline perusal is actively misleading as I note this from Istat, and the emphasis is mine.

In April 2020, in comparison with the previous month, employment significantly decreased and unemployment sharply fell together with a relevant increase of inactivity.

The full detail is below.

In the last month, also the remarkable fall of the unemployed people (-23.9%, -484 thousand) was recorded for both men (-17.4%, -179 thousand) and women (-30.6%, -305 thousand). The unemployment rate dropped to 6.3% (-1.7 percentage points) and the youth rate fell to 20.3% (-6.2 p.p.).

Yes a number which ordinarily would be perceived as a triumph after all the struggles Italy has had with its economy and elevated unemployment is at best a mirage and at worst a complete fail for the methodology below.

Unemployed persons: comprise persons aged 15-74 who:
were actively seeking work, i.e. had carried out activities in the four week period ending with the reference week
to seek paid employment or self-employment and were available to start working before the end of the two
weeks following the reference week;

Some would not have bothered to look for work thinking it was hopeless and many of course would simply have been unable to. We do find them elsewhere in the data set.

In April the considerable growth of inactive people aged 15-64 (+5.4%, +746 thousand) was registered for
both men (+6.0%, +307 thousand) and women (+5.0%, +438 thousand), leading the inactivity rate to
38.1% (+2.0 percentage points).

If we look back we see that there was a similar issue with the March numbers so a published unemployment rate of 6.3% looks like one of over 11% if we make some sort of correction for the April and March issues.

We get a better guide to the state of play from the employment position which as we observe from time to time has become something of a leafing indicator.

On a monthly basis, the decline of employment (-1.2%, -274 thousand) concerned both men (-1.0%, -131 thousand) and women (-1.5%, -143 thousand), and brought the employment rate to 57.9% (-0.7 p. p.)…….With respect to the previous quarter, in the period February – April 2020, employment considerably decreased (-1.0%, -226 thousand) for both genders…….Compared to March 2019, employment showed a decrease in terms of figures (-2.1%, -497 thousand) and rate (-1.1 percentage points).

Oh and in the last sentence they mean April rather than March. But looking ahead we see a 1.2% fall for employment in April alone which has implications for GDP and of course it is before the furlough scheme.

 Italy has furloughed 7.2 million workers, equivalent to 31% of employment at end-2019; ( FitchRatings )

Germany

This morning has also brought news about the state of play in Germany.

WIESBADEN – Roughly 44.8 million persons resident in Germany (national concept) were in employment in April 2020 according to provisional calculations of the Federal Statistical Office (Destatis). Compared with April 2019, the number of persons in employment decreased by 0.5% (-210,000). This means that for the first time since March 2010 the number of persons in employment decreased year on year (-92,000; -0.2%). In March 2020, the year-on-year change rate had been +0.2%.

For our purposes we get a signal from this.

According to provisional results of the employment accounts, the number of persons in employment fell by 161,000 in April 2020 on the previous month. Normally, employment rises strongly in April as a result of the usual spring upturn, that is, by 143,000 in April on an average of the last five years.

Perhaps the headline read a lot better in German.

No spring upturn

Switching to unemployment the system seems less flawed than in Italy.

Results of the labour force survey show that 1.89 million people were unemployed in April 2020. That was an increase of 220,000, or 13.2%, on March 2020. Compared with April 2019, the number of unemployed persons increased by 515,000 or +38.0%. The unemployment rate was 4.3% in April 2020.

There is a clear conceptual issue here if we return to Fitch Ratings.

Germany has enrolled more than 10 million workers on its scheme, representing 22% of employment at the end-2019. This number ultimately may be lower because some firms that have registered employees as a precaution may decide not to participate.

Germany employed the Kurzarbeit to great effect during the global financial crisis when its implementation prevented the mass lay-offs that were seen elsewhere in Europe. While unemployment in Germany remained broadly unchanged in 2008-2009, other countries reported significant increases.

Comment

There are deep sociological and psychological impacts from these numbers and let me give my sympathies to those affected. Hopefully we can avoid what happened in the 1930s. Returning to the statistics there are a litany of issues some of which we have already looked at. Let me point out another via the German employment data.

After seasonal adjustment, that is, after the elimination of the usual seasonal fluctuations, the number of persons in employment decreased by 271,000 (-0.6%) in April 2020 compared with March 2020.

The usual pattern for seasonal fluctuations will be no guide this year and may even be worse than useless but it will still be used in the headline data. But there is more if we switch to Eurostat.

In April 2020, the second month after COVID-19 containment measures were implemented by most Member
States, the euro area seasonally-adjusted unemployment rate was 7.3%, up from 7.1% in March 2020. The EU
unemployment rate was 6.6% in April 2020, up from 6.4% in March 2020.

We have the issue of Italy recording a large rise as a fall but even in Germany there is an issue as I note an unemployment rate of 4.3%. Well after applying the usual rules Eurostat has published it at 3.5%. There is no great conspiracy here as the statisticians apply rules which are supposed to make things clearer but some extra thought is requited as we note they are in fact making the numbers pretty meaningless right now, or the opposite of their role.

The Investing Channel

 

 

 

 

16 thoughts on “The problems posed by mass unemployment

  1. Hello Shaun,

    re: ” in fact making the numbers pretty meaningless right now, ”

    never a truer word said

    Forbin

    PS: may be in 3 months we’ll have a better idea

  2. Shaun,
    Await employer action ( e.g. BA an extreme) as HMG expect NI & pension contributions in future. More redundancies to replace furlough as costs increase?

    • Frankie & Benny’s is an example they are to close over 100 eateries and have yet to say which ones. The staff on furlough will then be made redundant and the same applies to BA.

      https://www.bbc.co.uk/news/business-52899624

      These actions were brought to the attention of daily press briefings on corona-19 last week if I recall the government having to pay furlough when companies intend to make workers redundant. I is a problem as there has to be discussions which businesses or part of the business is viable. The same thing happened to Debenhams a few times, employees were furloughed and them made redundant when the company decided to close stores. What happens is you get a phased passing from furlough to redundancy.

      As forbin says above in 3 months we will have a better picture when furlough ends, but there is a caveat that we don’t have a second wave and second lockdown.

      • 3 months to buy canned food and a shotgun then, and loo rolls…..

        all flu type viruses have 2nd waves – its baked into the cake

        the question is – how big a 2nd wave?

        or move somewhere safer – buy a farm in Wales – no , they’re still in lock down.

        NZ here we come !

        Forbin

  3. This is simply having to face up to the fake economy these clowns have been running since 2009.
    As I said before, I think this is a folk memory from 1992, where people made redundant had to be rapidly reemployed on contracts when the economies picked up in about 1995. With the growth of financial services and more (supposedly) Independent central banks, the economic and political leadership came to believe in its own skills and Ruling Theory took hold. They got through the East Asian crash and Russian default, which were followed by the Al Quaeda attacks of 2001 and the dot.bomb crash of 2003. Believing in their own skills, we had the Greenspan Put and the move to sharply lower rates – dropping below the liquidity trap levels, it set up an asset boom, which turned to bust in 2009 as rates moved up. It was the rate movements that made them believe were were back in 1992. So, the solution seemed to be the same – cut rates and this time, hang on to your workforce for a few years until things pick up.
    It was fine for people, who inherited a house from granny, but even that was financed by someone paying too much on cheap credit. The asset boom sucked the life out of consumption, but it is latter that most private sector jobs depend on. Productivity in most countries (Germany being a notable exception) has flatlined, so there were few pay rises, further dampening demand.
    Now, the evil day has arrived. There is no recovery coming for at least several years and companies have discovered that a lot of people are surplus to requirements. This has led to redundancies or the BA tactic of dramatic cuts in wages.
    It is simply the failure to face up to reality and the belief of our leaderships in their omnipotence and Modern Monetarism that has brought us to this. It will lead to big job losses that should have happened over the last decade.

    Anyway, on a lighter note, here is a Cummings parody I enjoyed. Hopefully, creativity and humour will get us through. https://youtu.be/Nn_8t6iZMgc

    • Cummings is MSM target – I know this is politics but the Labour MPs who also flouted the lock down have gotten an easy ride.

      Forbin

      PS : someone else marked you down- and I fully expect to be marked down too – MSM needs to apply their spot light equally.

      • They couldn’t get Cummings, so the cowardly, despicable scum are going after his parents.
        These parasites we could do without.
        Remember, it was Ferguson who was the lockdown mastermind, Cummings’ sin was far greater; he was the architect of the Brexit (or, as I prefer to call it, “INDEPENDENCE”) vote.
        Seems the sins of the sons will be visited on the fathers.

      • Labour MP’s didnt shut the country down and turn it into a communist dystopian nightmare, this fool who somehow gets credit for Britain leaving the EU; did.

  4. One of the psychological problems with mass unemployment is anger brought about by poverty and debt.

    I would not be surprised if many of the riots in the US have bene exacerbated by the 40 million unemployed when hands are not at work they vent their anger more.

    The UK could also be a tinder box due to high levels of debt high property prices if the government had not have furloughed and given self employed financial support after the lockdown I suspect we would have had riots here.

    What I expect now from the government are some schemes to find work for the unemployed as they come off furlough these have been hinted by the government but whether they will go far enough is another mater.

    Danny Blanchfllower was always of the view in a financial crisis austerity was not the way to go and I think the government has learn that from the last financial crisis or put it this way I hope they have.

  5. Don’t look at me mate, it was the coronavirus wat done it.
    That we’ve been pumping up the economy to stand still since 2008/9 is just a coincidence!

      • Yes, I was listening to Brian Cox earlier and he was saying that we tootle along while everything seems okay, but it is only a sudden impact like RBS or corona that makes us reassess. Lots of people are going to find themselves not required.

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