Tuesday, 21 March 2017

Jobs and spin

Politicians everywhere spin the economic data, and the labour market data in particular. So it's no surprise that the Trump administration does it, too, nor that the Trump numpties do it with more more ineptitude and hypocrisy than most. Having claimed on the election trail that the official American employment and unemployment numbers were variously either bad measures or outright faked, the Trump team is now claiming the latest official data (a big rise in jobs and a fall in the unemployment rate in February) are mysteriously unfaked after all, and the right things to focus on.

Plus they've dissed a Federal regulation saying that Federal officials can't comment on official data until an hour after their release - a quid pro quo for the dubious practice of giving the President (via the Chair of the Council of Economic Advisers) advance access to the numbers, since it would be all too easy otherwise for incumbent Presidents to use that access to screw the first impression scrum.

We haven't followed the Americans down that path to privileged access for the executive, and good job, too. We do have pre-release 'lock ups' for the media for important statistics, which I see as a useful evening-the-playing-field device to ensure that independent, informed comment goes out at least as quickly as Executive spin. From that perspective it's also a shame that some thoughtless nerk led the Reserve Bank to cancel its lock ups for the Monetary Policy Agreements: not everyone agrees, but the Governor's take having the airwaves to itself for an uncontested hour is a step backwards, compared to the previous arrangements where journalists had a way to put out their own considered view at the same time.

Not that we're always saints and the Americans always sinners: if, for some great sin in a previous life, you listen to our Parliamentary Question Time long enough, you'll find the same smart-alecking going on about our own employment and unemployment numbers, though not to the shameless Trump standard. Some Minister will point to the low official unemployment rate, and some Opposition member will say "Aha! But if you look at the underemployment rate...". And they will of course swap positions on the data when they swap roles.

So as a bit of an air-clearer, here's how we've been travelling, based on our new and improved Household Labour Force Survey.

The graph shows three ways of looking at unemployment. The green line is the headline, official, unemployment rate. The orange line adds in people who are underemployed - people working part-time but who are available to work full-time, and would like to. And the red line adds in what Stats calls the 'potentially available' workforce, which is made up of two groups: people who aren't actually looking for a job right now but would be available and willing to take one on if it cropped up, and people who are looking and willing and will be able to take up a job in the coming month, but not right now.

All these are valid ways of looking at unemployment and underemployment, and depending on what you're most interested in, you'll follow one rather than another. But what's also very clear is that the trend is almost exactly the same across all three series. So next time you hear a politician saying, "Well, the official unemployment rate may be getting better, but the underemployment rate isn't", or some variation thereof, you'll know that you've got a gasbag talking his partisan position, just like the Yanks have been doing.

The other thing that occurred to me as I trawled my way through the data is that I'm left unsure about the solidity of estimates of the 'natural' rate of unemployment. That's the rate when the labour market has become so tight that employer competition for scarce staff starts to bid up pay rates and eventually the national rate of inflation.

There are sophisticated ways of measuring it: the latest I'm aware of is Weshah Razzack's Treasury Working Paper 'New Zealand Labour Market Dynamics: Pre- and Post-global Financial Crisis', which estimated the natural rate in recent years to be around 4.5%. But I wonder. Let's suppose that the official unemployment rate did indeed start going below 4.5%: is it really likely that wages/inflation would start accelerating at that point, when there are currently 115,000 people who are working part-time and would like to work longer hours? A more likely initial response is more employers wanting, and more employees agreeing, full-time hours.

Or another way of putting it is that I suspect the sky would not fall if our unemployment rate went into the low 4s or even below. Sure, institutional arrangements vary, and you can't always (or even often) say that what works in one country will work everywhere else. But there are countries, as you can see in the table below, which have got their unemployment rates down to lower levels than ours, without inflation starting to roar away (or even raise its voice much).

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