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Job fair (Matthew Sherwood for The Globe and Mail)

Job fair

(Matthew Sherwood for The Globe and Mail)

Economy Lab

Unemployment is actually worse than numbers show Add to ...

Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. The full version of this post is available at milescorak.com.

This morning, Statistics Canada reported that the unemployment rate increased to 7.6 per cent, confirming a rising trend since July of last year and still significantly above the low of about 6 per cent just before the recession took hold in the autumn of 2008.

This statistic is probably the closest a number can come to having a human face; it relates directly to the hardship Canadians experience in providing for their families, saving for their retirement, and just meeting their day-to-day needs.

But in the end we can't clearly see the faces of real people behind this number, which at best is an incomplete picture of waste and hardship.

Statistic Canada measures unemployment in a very specific way, asking a representative sample of Canadians if they did anything during a four week period to look for a job.

If you are not actively looking, then you are not considered unemployed.

Incorporating those who are not looking for work, but certainly want a job, into the calculations- -- those who are waiting for a recall from a previous employer or waiting for a reply to applications already made; those who have given up looking for jobs because they believe none are available; and those who are working part-time but want and can't get more hours of work--- leads to a much higher unemployment rate.

According to official calculations the average monthly unemployment rate during 2011 was 7.4 per cent, but the more comprehensive measure implies 10.6 per cent.

The official rate understates the waste of human resources, but it also doesn't tell us about the hardship being experienced.

A given unemployment rate could be due to rapid turnover in the labour market, with any one person experiencing a short spell of a job search, with a different group next month going through the same experience and also finding a job within a couple of weeks. Or it could reflect the same individuals being jobless each and every month of the year, and suffering very long spells of unemployment.

In the first case, unemployment does not entail much hardship; in the second it does.

In fact, the job losses triggered by the recession have led to much longer spells of unemployment.

Only 12 per cent of all the unemployed in 2008 had spent six or more months looking for a job. But in 2011 more than one-in-five, fully 21 per cent, were in this situation. Between these years the average length of an unemployment spell jumped by a month and half, from 14.8 weeks to 21.1 weeks.

All this said, the official unemployment rate is calculated using accepted international principles, and offers a good sense of how the job market is changing from month-to-month and year-to-year.

It also offers a basis for comparing the situation in our country to that in others.

While all statistical agencies follow the same principles in calculating these numbers, there remain subtle but important differences in how they are put into practice. This is the case in the comparison that is of most relevance to Canadians, that with the United States.

During 2011 the official unemployment rate in Canada was 1 1/2 percentage points lower than the U.S. rate (7.4 per cent versus 8.9 per cent).

But Statistics Canada offers an alternative calculation that follows as best as it can the procedures used by the Bureau of Labor Statistics, and when this alternative is used the gap in the unemployment rates is even larger: almost 2 1/2 percentage points (6.5 per cent versus 8.9 per cent).

This is one case in which the official measure is painting a less rosy picture than it should.

Statistics Canada is certainly aware of the fact that no one statistic can offer a full portrait of the unemployed even though it never presents a more nuanced analysis in any of its monthly reports. In fact the text of today's press release mentions the word "unemployment" only once.

The official measure is no doubt central to any story about unemployment, but if you look hard you will find this well written article on its website, " Inside the labour market downturn", that uses all eight unemployment rates that Statistics Canada in fact calculates every month.

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Follow on Twitter: @milescorak

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