International Law

Questions About China?s Unemployment Rate

By Stan

Great post on the WSJ blog about the uncertainties with China’s unemployment statistics. The problem most often discussed is how to account for the gigantic migrant worker population:

The most readily available and most official statistic on unemployment in China is the one that just about everybody ? including government officials ? agrees tells you the least. The registered urban unemployment rate was 4.2% at the end of 2008, according to the Ministry of Human Resources and Social Security (in Chinese). But that only means 8.86 million urban residents were registered to receive unemployment benefits; the statistic doesn?t even attempt to count the actual number of people without work. Nor do the figures include migrant workers, a major component of China?s labor force.

Since the onset of the current crisis, the government has tried to get a better grasp of the situation, sending officials fanning out across the country to try to count the number of migrant workers without jobs. Results varied, but a survey by the Ministry of Agriculture got the most attention. It put the number of lost jobs at roughly 20 million, out of a total migrant population of about 130 million, by early 2008.

So there perhaps has been some progress on getting some better numbers for migrant workers. On the other hand, a lot of questions are still out there, at least for me.

Seems to me that the main use of these statistics are in formulating domestic economic policy. Before a policy can be put together based on these numbers, you need to put them in context. In the U.S. (my econ background is U.S.-based), you look at the Bureau of Labor Statistics numbers, specifically a measurement of unemployment called U3, and then you compare that with what folks at the current time agree is the Natural Rate of Employment for that economy (at the moment, roughly 5%). If U3 is significantly higher than the natural rate of employment, maybe something should be done to help the labor sector.

One thing that always seemed strange to me is that the current stat used by the government as the official rate of unemployment was overhauled in 1994. Prior to that time, a broader measure of unemployment was used, which includes discouraged workers. Just keep in mind that the change to U3 meant that, magically overnight, official unemployment in the U.S. went down. Experts knew the difference, but your average reporter didn’t, and so therefore the average U.S. citizen was never clued in on this. (Reporters also never make distinctions between the U.S. and European systems of reporting unemployment, and therefore the unemployment rate in Europe is consistently (in the U.S.) reported as much higher than the American stat. This is has been used by American nationalists as evidence of the superiority of the American economic system. {sigh})

So when the current stories are written about the unemployment rate in the U.S., I guess they are looking at U3, not some of the broader measures, even when they make comparisons to earlier historical periods. And no, I have no idea how unemployment was calculated back in the 1930s.

Which brings us back to China. While everyone seems to be focusing on migrant workers, I am just as concerned about non-registered unemployed urban workers, which the WSJ post pointed out. What kinds of numbers are we really looking at over here? No clue.

Moreover, let’s say that somehow we can come up with a decent stat on unemployment in China. What then? Is there a natural rate of unemployment with which to compare that figure? Given that the natural rate of unemployment changes over time and that China’s economy has gone through an amazing period of development in the past thirty years, this seems to me quite a difficult task.

All of this is quite academic of course. When economies are in freefall, the last thing you need to worry about is whether your rate of unemployment is anywhere near the natural rate. We should be so lucky.

If you think this stuff is so cool that you need more info, here are a few links:

1. Wiki page, also a good place to start.
2. Bureau of Labor Stats
3. Good post on the subject by a prof at the Stern School (NYU).

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Full post as published by China Hearsay on April 02, 2009 (boomark / email).