Adjusting Unemployment

Yesterday’s release of the the QNHS saw the headline rate of unemployment fall from 14.8% in Q4 2010 to 14.0% in Q1 2011.  This “improvement” must be examined in the light of the continued FALL in the numbers employed which fell from 1,823,200 to 1,804,200.  The unemployment rate fell but the numbers employed fell by nearly 20,000.

Another issue to consider is the fact that it is the seasonally adjusted rate which is usually given the most weight when assessing changes in unemployment.  However, over recent quarters this seasonally adjusted rate has exhibited a volatility which may not be reflective of actual outcomes in the labour market.  Here are the adjusted and unadjusted unemployment rates.

Over the past three quarters, the adjusted rate has gone from 13.5% to 14.8% to 14.0%.  Over the same timeframe the unadjusted rate has been 13.9%, 14.1% and 14.1%.  The volatility in the adjusted rate suggests that labour market conditions deteriorated markedly in Q4 2010 and then improved again in Q1 2011.  It is likely that neither occurred and there has been no significant change in unemployment as reflected in the unadjusted rate.

There seems to be some problem with the Q4 adjustment made by the CSO.  If we look at the 2009 numbers we see that in Q4 another gap emerged between the adjusted and unadjusted rates.  This also happened to a lesser extent in 2008.

It may be that the CSO itself needs to adjust its adjustment method for the unemployment figures to better reflect the muted performance of the Irish economy in recent years.  The headline unemployment rate may have gone from 14.8% to 14.0% but I don’t think we’ll be cheering it just yet.