The UK underemployment rate rose as high as 18%

At a time of great uncertainty and not a little worry for many we should be able to turn to official statistics for at least a benchmark. Sadly the Covid-19 pandemic has found them to be wanting in many respects. Let me illustrate this with an example from the BBC.

The UK unemployment rate has risen to its highest level for two years, official figures show.

The unemployment rate grew to 4.1% in the three months to July, compared with 3.9% previously.

There are all sorts of problems with this right now which essentially come from the definition.

Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.

During this period many will not bother to look for work as for example some think they still have a job.

Last month, we reported on a group of employees who, because of the impact of the coronavirus (COVID-19) pandemic, have reported that they are temporarily away from work and not getting paid. Similarly, there is a group of self-employed people who are temporarily away from work but not eligible for the Self-Employment Income Support Scheme (SEISS). Although these people consider themselves to have a job and therefore are consistent with the ILO definition of employment, their lack of income means that they may soon need to look for work unless they are able to return to their job.

A sort of job illusion for some with the problem being is how many? I would like all of them to return to their jobs but also know they will not. The concept though can be widened if we add in the furlough scheme which was designed to save jobs but as a by product has driven a bus through the employment and unemployment data.

The number of people who are estimated to be temporarily away from work (including furloughed workers) has fallen, but it was still more than 5 million in July 2020, with over 2.5 million of these being away for three months or more. There were also around 250,000 people away from work because of the pandemic and receiving no pay in July 2020.

So we are unsure about 5 million workers which dwarfs this.

Estimates for May to July 2020 show an estimated 1.40 million people were unemployed, 104,000 more than a year earlier and 62,000 more than the previous quarter.

So we see that the number is simply way too low which means that all of the estimates below are at best misleading and in the case of the employment rate outright laughable.

the estimated employment rate for all people was 76.5%; this is 0.4 percentage points up on the year and 0.1 percentage points up on the quarter…….the estimated UK unemployment rate for all people was 4.1%; this is 0.3 percentage points higher than a year earlier and 0.2 percentage points higher than the previous quarter…….the estimated economic inactivity rate for all people was 20.2%, a joint record low; this is down by 0.6 percentage points on the year and down by 0.3 percentage points on the quarter

The economic inactivity measure is perhaps the worst because the worst level of inactivity in my lifetime is being recorded as a record low. This embarrasses the Office for National Statistics as we are in “tractor production is rising” territory.

What can we use?

A measure which is working pretty well seems to be this.

Between February to April 2020 and May to July 2020, total actual weekly hours worked in the UK decreased by 93.9 million to 866.0 million hours. Average actual weekly hours fell by 2.8 hours on the quarter to 26.3 hours.

This shows a much larger change than that suggested by the official unemployment measure. We can in fact learn more by looking further back.

Over the year, total actual weekly hours worked in the UK decreased by 183.8 million to 866.0 million hours in the three months to July 2020. Over the same period, average actual weekly hours fell by 5.8 hours to 26.3 hours.

On this measure we see that if we put this into the employment numbers we would see a fall approaching 6 million. So in effect the underemployment rate was in fact heading for 18%. If we simply assume that half of it was unemployment we have an unemployment rate of 11% which in economic terms I am sure we did. Now the economy is more open perhaps it is 7-8%.

The 8% unemployment rate does get some support from this.

Between July 2020 and August 2020, the Claimant Count increased by 73,700 (2.8%) to 2.7 million (Figure 10). Since March 2020, the Claimant Count has increased by 120.8% or 1.5 million.

It is hard not to have a wry smile as I type that because back in the mid 1980s Jim Hacker in Yes Minister told us nobody believes the unemployment figures and those are the one he was referring to. There are other references to that sort of thing as well.

Hacker: The school leaving age was raised to 16 so that they could learn more, and they’re learning less!

Sir Humphrey: We didn’t raise it to enable them to learn more! We raised it to keep teenagers off the job market and hold down the unemployment figures.

Pay

The opening salvo is less than reassuring.

The rate of decline in employee pay growth slowed in July 2020 following strong falls in the previous three months;

We find that the pattern is what we would be expecting.

Growth in average total pay (including bonuses) among employees was negative 1.0% in May to July, with annual growth in bonus payments at negative 21.4%; however, regular pay (excluding bonuses) was positive at 0.2%.

It has been the public sector which has stopped the numbers being even worse.

Between May to July 2019 and May to July 2020, average pay growth varied by industry sector . The public sector saw the highest estimated growth, at 4.5% for regular pay. Negative growth was seen in the construction sector, estimated at negative 7.5%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 3.2%, and the manufacturing sector, estimated at negative 1.7%.

However there was an improvement for many in July.

 For the construction, manufacturing, and the wholesaling, retailing, hotels and restaurants sectors, the July 2020 estimate of annual growth shows sign of improvement when compared with May to July 2020.

If we look at the construction sector then weekly wages rose from £573 in June to £620 in July so there was quite a pick-up of which £10 was bonuses.

Switching to an estimate of real pay we are told this.

In real terms, total pay growth for May to July was negative 1.8% (that is, nominal total pay grew more slowly than inflation); regular pay growth was negative 0.7%.

Although those numbers rely on you believing the inflation numbers which I do not.

Comment

We have found that the official ILO ( International Labor Organisation) methodology to have failed us in this pandemic. Even worse no effort has been made to fix something we have been noting ( in this instance looking at Italy) since the third of June.

and unemployment sharply fell

If you actually believe unemployment fell in Italy in April I not only have a bridge to sell you I may as well sell the river as well.

Looking at the data suggests an underemployment rate of the order of 20% in the UK giving us an actual unemployment rate perhaps double the recorded figure.

If we switch to pay and wages we need to remind ourselves of those who are not counted. For example the self-employed and companies with less than ten employees. Such omissions did not bother the Dr.Martin Weale review back in the day but perhaps one of the ONS Fellows could help like er Dr.Martin Weale. We are back to reliving Yes Minister again.

Meanwhile according to Financial News some are resorting to desperate measures to get GDP rising again.

‘It could get really messy’: Finance workers’ cocaine use spikes in lockdown

The spectre of mass unemployment is starting to haunt us

Today’s topic is one that I hoped never to have to write. If we look back to the last century then mass unemployment scarred the economic landscape on several occasions and particularly so in the Great Depression. The credit crunch era initially brought higher unemployment but fortunately we managed to reduce that over time. Indeed from around 2013 we saw considerable improvements on that front in mnay countries. The leader of the pack in this regard has been Japan where the unemployment rate has fallen as low as 2.2%. The UK and US saw strong improvements too with the unemployment rate falling below 4%. More latterly the Euro area has seen unemployment fall too although its progress has been slower leading to its unemployment rate being more like 7%

That was the good news section of the labour market as employment rose and unemployment fell. Although there always was the issue of under employment as a cloud in the sky as we wondered what jobs were being taken and how employment is defined? The waters also had something of a shark in them as the strong quantity numbers were accompanied by at best weak real wage growth something my country the UK has been particularly affected by. Especially troubling is the way the establishment has responded which is to impose poorer measures of inflation  ( the Imputed Rent driven CPIH ) to flatter the figures and mislead the unwary. Along the way the economic Ivory Towers had plenty of troubles too as the unemployment rate fell below their definitions of “full employment ” and made their “output gap” theories crumble. I am sure many of you still remember when Governor Carney of the Bank of England signposted a 7% unemployment rate as significant before exhibiting the sort of behaviour that led to him being called the “Unreliable Boyfriend ”

The US

Last week this provided something of a forerunner of what we can now expect.As Politico points out below even that shock may have been an understatement.

Last week’s headline number of 3.28 million claims — itself a more than 1,000 percent increase — is also expected to be revised upward, in part because of stark discrepancies between data that states reported at the ground level and what the Department of Labor recorded.

Florida’s initial claims hit a record for the week ended March 21, and then tripled to 222,054 for the week ended March 28, according to the state Department of Economic Opportunity.Florida’s initial claims hit a record for the week ended March 21, and then tripled to 222,054 for the week ended March 28, according to the state Department of Economic Opportunity…..Florida’s initial claims hit a record for the week ended March 21, and then tripled to 222,054 for the week ended March 28, according to the state Department of Economic Opportunity.

So as you can see the situation in the United States looks as though it may be even worse than we feared even last week. The old saying that a week is a long time in politics is being outdone by economics at the moment.

The UK

Yesterday brought a moment to the UK which we had feared was about to arrive.

Nearly a million people have successfully applied for universal credit in the last fortnight, in a rush to welfare support that reveals the depth of the jobs crisis caused by the UK’s lockdown.

Despite the government’s job support schemes offering 80% of earnings to employees and the self-employed who cannot work, 950,000 people applied for the main income support benefit between 16 and 31 March. There are normally about 100,000 applicants for the benefit in any given two-week period.

Applications started flooding in as soon as Boris Johnson told the nation to stop non-essential contact with others and cease all unnecessary travel. ( The Guardian)

Care is needed here as these are social security payments rather than a labour force measure or indeed a claimant count but we do get a very string hint from the data here.Out of it there is at least a small positive.

The DWP said it had moved more than 10,000 staff to deal with claims and was recruiting more.

The numbers above compare to a situation only a couple of weeks ago when we were told this by our official statisticians.

For November 2019 to January 2020, an estimated 1.34 million people were unemployed. This is 5,000 more than a year earlier but 515,000 fewer than five years earlier. The small increase on the year is the first annual increase in unemployment since May to July 2012, and it was caused by a 20,000 increase for men.

Sadly we seem set to go through 2 million fairly quickly and maybe 3 million. However the numbers will need some interpreting because it looks as though those who are “furloughed” will continue to be counted as in employment. Personally I think it would be better if a new category was created.

Let me welcome the effort by the Office of National Statistics to produce some new data although sadly even the new weekly measures are of course now well behind the times.

Over a quarter (27%) of responding businesses said they were reducing staff levels in the short term in the period 9 March to 22 March 2020, while 5% reported that they were recruiting staff in the short term.

Spain

This mornings news from Spain was grim too.

MADRID (Reuters) – The rise in Spanish jobless numbers in March is the highest monthly increase ever recorded, Labour Minister Yolanda Diaz said at a news conference on Thursday.

The number of jobless jumped 9.3% from the previous month bringing the total number of unemployed people to around 3.5 million. That total number was still below record highs of 2013.

The recent better phase of economic growth for Spain had played its part in bringing unemployment down from a bit over 5 million to just over 3 million last summer. But sadly the mood music had changed and is now dark.

Comment

This is a grim phase with echoes of the 1920s and 30s. I fear for the unemployment numbers that will come from Italy which had its own economic problems ( the essentially 0% economic growth of our “Good Italy: Bad Italy” theme ) before the pandemic started. Some yesterday were promoting this as good news.

The unemployment rate slightly decreased to 9.7% (-0.1 percentage points) while the youth rate stayed stable to 29.6%.

Sadly they did not seem to have read this bit.

This press release is referred to February 2020, therefore it is related to the pre-COVID-19 health emergency phase.

Italy and many other countries are about to see a tsunami of unemployment and our best hope is that it will be brief.

Meanwhile maybe attitudes will change as the other day I looked up at a residential care home where a worker was assisting an elderly lady on her balcony. As she had no protective clothing I could see she put herself at risk. I was thinking of that as I read this from Sarah O’Connor in the Financial Times.

This precarious army labours around the clock. On Monday I spoke to a domiciliary care worker who visits bed-bound clients in their homes (she did not want to be named for fear of punishment by her employer). She was in the middle of a 10-hour shift, having worked 14 hours on Saturday and 14 on Sunday. “We’re all putting the effort in,” she said. She is paid £9.75 an hour at weekends and £8.75 in the week, which amounts to about £1,700 a month.

It got worse.

Unison, the union for many care staff, has been raising concerns about the lack of personal protective equipment. The care worker I spoke to had gloves but no mask; she had purchased her own hand sanitiser. Her company, which employs her on a zero-hours contract, would only pay statutory sick pay of £94.25 a week if she developed symptoms and had to self-isolate. “Before, I would have gone into work with a cold or a cough — now I’d have to stay off but then I don’t know how I would pay the bills.”

Let me say welcome back from maternity leave to Sarah who is easily the FT’s best journalist.

The Investing Channel