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March 9, 2015

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Home » Business » Finance Special

China needs a better unemployment gauge

By Chris Leung | March 9, 2015, Monday | Print Edition

With GDP growth down to 7.4 percent in 2014, China finds itself in uncharted waters. Premier Li Keqiang has revealed that the central government can tolerate slower growth as long as employment conditions remain stable. The trouble is, reliable, high frequency labor market data are lacking. The official registered unemployment rate has barely budged over the past decade, despite fluctuations in GDP growth.

The official urban registered jobless rate fails to reflect labor market conditions, mainly because it includes those unemployed who voluntarily register with the authorities. It excludes the rural population, migrant workers and new graduates. In China, many urban workers who lose their jobs have no incentive to register, particularly if they are getting by or if they’ve moved back to rural areas.

From time to time, government officials reveal an internally calculated unemployment rate, or surveyed unemployment rate. This rate is typically higher than the registered unemployment rate, and is regarded as a more accurate measure of actual employment. This rate was 6 percent in 2003, about 5 percent from 2005 to 2007, and climbed to 6 percent in 2008 and 2009 before stabilizing at around 5 percent thereafter.

At the beginning of this year, Ma Jiantang, head of China’s National Bureau of Statistics, said unpublished internal data put the unemployment rate at 5.1 percent in 2014. At present, there is no timetable of when the surveyed unemployment rate will be announced again. In the meantime, one must look to employment surveys to gauge the situation.

If accurate, the surveyed employment rate suggests employment conditions have remained largely stable.

Many are worried however that employment has risen due to slower growth. This corroborated the central bank’s quarterly survey on urban depositors. In the survey, depositors were asked about the employment situation.

The findings were consistently of a difficult employment situation. Another survey that raises concern is the PMI. The non-manufacturing PMI (employment) dipped into contraction territory for six consecutive months ­— the longest on record since the global financial crisis.

These surveys seem inconsistent with the surveyed unemployment rate. When sentiment was poor, the surveyed unemployment rate was steady at 5.0-5.2 percent over 2013-14. Poor sentiment could well be driven by perception that falling aggregate demand decreases firms’ demand for labor. However, an opposite force is also at work — a declining labor force. In 2014, city labor demand dropped 2.2 percent, but city labor supply dropped even more — by 4.4 percent.

In fact, city labor demand has exceeded city labor supply since the third quarter of 2012. By this gauge, large-scale unemployment does not seem to be a near-term possibility.

At the present time, clues from employment surveys and relevant labor market data do not indicate a serious threat to employment.

However, ad-hoc surveys are no substitute for a transparent and regularly published gauge. As leaders repeatedly emphasize, it is only with reference to employment that it can establish a lower tolerance on GDP growth.

Plainly, with growth continuing to slow, regular and accurate measures of unemployment have increased in importance. Going into 2015, the government’s new GDP growth tolerance lies in 7 percent.

Government officials have quoted the surveyed unemployment rate with increasing frequency in 2014, and the State Council hinted in July 2014 that the surveyed rate could start to be published on a regular basis.

This could only make economic management easier and more effective. It would also represent a big step forward for transparency.

Finance Special


 

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