“Suspiciously stable”: How China’s unemployment rate is calculated

Image: Reuters/Thomas Peter
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The most politically sensitive number in China right now arguably isn’t its coronavirus case count, but its unemployment rate.

In a sign of just how much of a hot potato job numbers are for the Communist Party, a Chinese brokerage firm was last month forced to retract an analyst report that estimated the country’s unemployment rate at over 20%—multiple times higher than the official count. A few days later, the nationalistic tabloid Global Times published an “investigation” for the purposes of “debunking” foreign allegations that China’s unemployment data is unreliable.

As China’s National People’s Congress gathers tomorrow for its annual Two Sessions meeting, Beijing is under immense pressure to reboot the economy. One of the most urgent challenges will be to create jobs for the tens of millions who have suddenly found themselves unemployed after the economy shut down for weeks to fight the coronavirus outbreak.

The latest official jobs data released by China’s national bureau of statistics on May 15 put the unemployment rate in April at 6%, up slightly from 5.9% in March and a notch lower than the record 6.2% in February. Many experts think that is a gross underestimate. Analysts at the Economist Intelligence Unit and Société Générale put the unemployment rate closer to 10%.

An unemployment rate as high as that would be anathema to the Communist party, not least because it undermines the regime’s very legitimacy.

“The Chinese government, in some sense more than any government in the world, worries about their legitimacy,” said Jin Li, a professor of economics at the University of Hong Kong. “One source of the legitimacy is to offer a pact, a social contract: you trust us, we give you a good economic outcome.” Rampant unemployment and a stalled economy pulls the rug out from under that promise, shaking the party’s claim to absolute authority.

The official unemployment rate is core to the party’s central narrative of economic prosperity in return for public acquiescence to authoritarian rule. It’s also why the quality of China’s unemployment data has long been questioned, even after a change in methodology in 2018 that was supposed to make the jobless rate more accurate.

The official unemployment rate is inexplicably steady—or “suspiciously stable,” as economists Shuaizhang Feng, Yingyao Hu, and Robert Moffitt put it in a 2017 research article. From 2002 to 2017, for example, unemployment hovered within a very narrow band between 4.3% and 3.9%. Even the upheavals of the 2008 global financial crisis only registered as a slight blip on jobless data, pushing the unemployment rate in 2009 up slightly to 4.2%, despite an estimated loss of a staggering 20 million migrant worker jobs out of a migrant population of 130 million.

Because of this detachment from reality, some economists have dismissed China’s official unemployment rate to be “almost useless.” Numerous have tried to come up with more accurate measures. Using national household survey data to estimate unemployment rates, for example, Feng, Hu, and Moffitt calculated the actual jobless rate to be much higher than the official rate.

For years, China’s urban unemployment rate was calculated as the total number of people who registered as unemployed over the total labor force. There were several major problems with this form of calculation, leading to a persistent undercounting of unemployment levels. The biggest distortionary factor was the fact that the unemployment rate didn’t take into account China’s tens of millions of migrant workers. Another problem was that even those who are qualified to report their unemployment status may not do so because the paperwork is a hassle, there’s social stigma attached to being out of work, and unemployment benefits are paltry.

The change in methodology in 2018 was supposed to address some of these problems. Instead of relying on self-reported unemployment of qualified urban workers, the new approach was based on surveys of urban residents and included migrant workers who had lived in cities for more than six months. But it still only tracked urban areas, leaving large parts of the country unaccounted for. The first release of the new measure showed a 5.1% national unemployment rate for March 2018, up just one percentage point from the previous two months. And while the new measure was an improvement, some analysts cautioned that the quality of the data still lags behind those of other major economies. An analyst at research firm Gavekal Dragonomics wrote that the new rate remains “implausibly low and stable in a way that suggests political manipulation of the jobless figures has not ended.” 

Now, with the Chinese economy emerging from its months-long shut down and much of the global economy still at an effective halt, unemployment has shot up far above 4% for the first time in decades. One of the most worrying trends for Beijing is the millions of college graduates who will struggle to find jobs this year. Already, universities are racing to find as many placements as possible for graduates, keenly aware of how the urgency of this political task. In remarks last week (link in Chinese), the Chinese premier emphasized the importance of graduates’ employment for social stability.

Li at the University of Hong Kong explained that the Communist party has long presented young people in China with the image of the country as “great, indomitable, and fantastic in all these ways.” The youth internalize this message, believing that if the country does well, then so too will workers and graduates on an individual level. “Given this experience, if the young people are disappointed, the pain will be particularly strong,” said Li.

Hence the government’s obsession with an official unemployment rate that almost all economists know is a poor reflection of reality. ”They want to manage the belief in some way,” he added. “It’s a truth they don’t want to give away easily.”