Divining Unemployment in China

July 29, 201311:16 am737 views

What to make of China’s unemployment figures? Even as China’s economy slows and companies report they are hiring fewer workers, the country’s official jobless rate hasn’t budged, coming in at 4.1 percent at the end of June—the same level as three months earlier, reported China’s Ministry of Social Security and Human Resources on July 25. (The rate is published quarterly.)

The reality is China’s official urban unemployment rate has long been a near-worthless measure. Even during the global financial crisis in 2009, when tens of millions of workers in China’s export factories lost their jobs, the official rate barely stirred, and it has been moving between just under 4 percent and 4.3 percent for most of the past decade.

That’s because what China’s authorities measure are only those urban workers who are formally registered and thus eligible for unemployment benefits. Among those who are not counted are the 230 million migrant workers who live in the cities. China’s still large surplus agriculture labor force isn’t factored, either. (Despite rapid urbanization, the mainland’s rural population, including non-working young and elderly, still numbers 642 million, or almost half the country’s populace.)

“The official unemployment rate shows how many urban people are officially entitled to unemployment benefits, which is a small number,” points out Hong Kong-based Louis Kuijs, chief China economist at Royal Bank of Scotland (RBS), in a July 23 research note. “Indeed, China’s unemployment rate does not move much even as growth varies.”

That means China hands like Kuijs are stuck having to find alternate measures to get a handle on the real jobs situation. Not surprisingly, a key piece of data watched is the employment component of two manufacturing purchasing managers’ indexes, one compiled by HSBC(HBC) and the second by the official China Federation of Logistics and Purchasing. Those gauges have the advantage of being released on a monthly basis. “The employment components of the PMIs come at a monthly frequency, which makes it tempting to look at,” writes Kuijs.

The latest reading unfortunately does not look good: According to the preliminary HSBC survey released July 24, employment has fallen to its lowest level since March 2009. “This adds more pressure on the labor market,” said Hongbin Qu, chief economist, China and co-head of Asian economic research at HSBC in a statement. Given that China’s leadership recently stressed that it is committed to securing growth of at least 7.5 percent per year, “the flash PMI reinforces the need to introduce additional fine-tuning measures to stabilize growth.” Also watched and now disappointing: a quarterly survey by Manpower Group, whose latest release on June 11 shows mainland companies’ hiring plans are at their weakestsince the first quarter of 2010.

Another important number is newly created urban jobs, a figure that China releases every quarter. That number is holding up, with 7.25 million jobs created in the first half of the year, up 310,000 from the same period in 2012, in part because of strong growth in service industries, according to the ministry’s spokesman Yin Chengji. “Addressing employment-related challenges remains an arduous task,” Yin said at a Beijing press conference, the official Xinhua News Agency reported on July 25, citing a focus on creating jobs for new graduates as a priority.

Closely watched, too, is the growth rate in new migrant workers. In the first quarter, migrant employment rose 1.7 percent, while in April through June, it was up 2.7 percent. Although still growing in 2013, both of these rates are down from the quarterly increases registered over the last few years, however.

Also crucial for getting a handle on the real situation is the ratio of total jobs available to job seekers, at China’s many city employment centers. Except for during the global financial crisis, that ratio has largely stayed above one since 2007, meaning there are more jobs available than applicants looking for them.

Still, even these alternate measures are far from perfect, say those who use them. “None of these labor market indicators is ideal and can give us an up-to-date and accurate picture of the employment situation,” warns Wang Tao, chief China economist at UBS Securities (UBS)in Hong Kong, in a July 23 note. “For example, the official new job creation data does not tell us how many jobs were lost during the same period, while the job center demand-supply ratios may have not properly taken into account a rising number of college graduates entering the labor market.”


Source: businessweek.com

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