17% Of The Unemployed, The Problem Of Calculating Unemployment And The Trend Towards Remote Work

At the end of July, the Centre for Economic Strategy presented a study on the situation on the labor market. One of the loudest figures in it was the number of hidden unemployed in Ukraine. Thus, up to 3.1 million Ukrainians or 17% of the labor force at the peak of quarantine were in a state of hidden unemployment.

In the new issue of the podcast “What about the economy?” Public Radio together with Dariia Mykhailyshyna, an economist at the Centre for Economic Strategy, and Hanna Vakhitova, a professor at the Kyiv School of Economics, discussed how the labor market has changed due to the coronavirus, what to expect in the future and why it is important to calculate unemployment correctly. Moderators: Yulia Mincheva, VoxUkraine Project Manager, and Andriy Fedotov, Communications Director of the Centre for Economic Strategy.

You can listen to the full conversation at the link

Where the data comes from. Official statistics vs polls

Dariia Mykhailyshyna: We used many different data to work on the study. First, these are official statistics, data from the State Employment Service on the registration of the number of unemployed. Secondly, it is the data of the State Statistics Service on the number of employees. However, in addition to official statistics, we also looked at survey data. And saw quite a big difference between the data of opinion polls and data from the State Statistics Service or the State Employment Service. This is logical, because not everyone who loses their job is registered with the State Employment Service.

However, in the media you can often see headlines on the number of unemployed, which are based on data from the State Employment Service, and it seems to me that this is not very correct. According to opinion polls, we see that in fact many more people have lost their jobs. According to our estimates, it is about 2.8 million people.

Of course, opinion polls also have their drawbacks, because a person may misunderstand the issue and say that he or she is not working, even though he or she has not been fired, and that he or she is simply not working right now. We therefore consider this estimate to be the upper limit of how many people could have been fired.

The issue of hidden unemployment is also important. Hidden unemployment is such informal unemployment when a person is sent either on unpaid leave or transferred from full-time to part-time. That is, one continues to receive some income, but it is less than it was before quarantine. Again, based on opinion polls (because, unfortunately, there are no official data for the second quarter, although the State Statistics Service has already started collecting them), we calculated that there were about 3 million or 17% of such people in hidden unemployment. of the entire workforce.

17% unemployed. How bad is it for the economy?

Hanna Vakhitova:. It is important how many people have temporarily lost their jobs, but it is also very important for how long they have lost their jobs. That is, how long they cannot find a new job, or how many of these people decide not to look for a job for a while, and for how long they drop out of the workforce.

If we look at the United States, where an unprecedented number of people have asked for help because of unemployment, it is now beginning to fall. That is, this increase in several times the number of applications for unemployment benefits is very short-lived. And then it does not have such a devastating effect on the economy and for business in general. That’s if unemployment lasts a long time, more than 3 months, more than 6 months – it really causes significant harm in the first place to this person, because it is more and more difficult to find a job – especially with an adequate salary. There have been studies, including in Ukraine, that such an effect on wages can last for three to four years.

Hidded unemployment. USA experience 

Hanna Vakhitova: The labor market is much more flexible in America in terms of conditions for dismissal and employment. There you can be released in one day. There is no requirement to notify the employee in what period he will be fired. And this just allows the system to release at one point a significant number, so to speak, of redundant workers. But they can also be hired very quickly when the danger has passed. There are no profoundly serious requirements for verification, the state does not dictate who should be the manager, whether he must have a master’s degree, whether you can hire anyone you want. This gives considerable flexibility to the American system. However, on the other hand, I would like to reduce a bit the negative that is formed around the policy of non-release of workers, what is called hidden unemployment. In fact, in such a policy, instead of firing an employee, the firm tries to reduce the cost of that employee, but does not part with it in the hope that the situation will improve.

What are the advantages of this method? Many points out that this can be a very good strategy for such short-term crises. Finding the right person is expensive. You need to conduct interviews, selections, you need to teach this person, to understand whether he is right for you or not. The probationary period was not invented yesterday. This is a significant cost. When situation is unstable, it may be much more profitable to leave an employee who suits you. You know that a person likes to be in this company, he is satisfied with the conditions. And for some time, you reduce maintenance costs, and income decreases, respectively, for the employee. However, you have a guarantee, a probability that is more than zero, that you will have a job, that your income will recover, and you do not need to look for a new person. This balance of costs and benefits in this policy is very important, and therefore I do not consider this practice unequivocally negative.

Hidden unemployment. Ukraine’s experience

Dariia Mykhailyshyna: I completely agree that it is better than firing a person completely, because there will be additional costs for hiring a new person. If one is not completely fired, one hopes to return to old job sooner than look for a new one. Although we see that the Government has adopted a mechanism of partial unemployment benefits and the so-called downtime mechanism, when if a person is sent on leave, part of the salary is paid.

However, not many companies have used it, so we believe that the procedure for these payments needs to be improved so that more people can take advantage of it. It seems to me that it is important to pay attention to these figures in order to better assess the economic losses from quarantine and the economic losses in general from the crisis. Because if we just look at the number of unemployed, we don’t see people who don’t work, but are counted. That is, it may not be as bad as it would be if they were fired completely, but these people still lost their income and these companies do not work, so we also need to look at this when we estimate the loss of the economy.

Why is it important to calculate unemployment on time and what is the best way to do it?

Dariia Mykhailyshyna: It seems to me that the problem here is not in accuracy, because there is a methodology of the International Labor Organization, which is used by all, which is globally widespread and accepted. It seems to me that the problem is that it is difficult to quickly understand how many people lost their jobs last week, this week or yesterday. Because of this methodology, these estimates are usually quarterly. You can look at them when the whole crisis is over. When we see this crisis, which was this spring and which continues, we see that the situation has changed very quickly. Hanna said about the United States that very soon companies began to hire workers again, but we see from our analysis of Ukraine (we looked at vacancies and the activity of job seekers according to Work.ua and Robota.ua), that while at the peak of quarantine almost every second vacancy disappeared, in June the number of vacancies almost reached the pre-quarantine level. Therefore, this situation is changing very quickly in the labor market, and we need some more rapid estimates than we can get using a standard methodology.

Hanna Vakhitova: I will comment a little on the issue of access for such operational information. I want to point out that, of course, we would ideally like to have all possible information about everyone, and it is also desirable that no one feels as if he is being followed by Big Brother. However, unfortunately, it is very difficult primarily because it is very expensive. In the United States, where there is a very strong statistical service, unemployment is calculated on a monthly basis, and in Ukraine, as Dariia said, on a quarterly basis. But the United States has the money for it, it has a long history, it has a very efficient statistical service. But even there, economists have raised the question that it is not enough, that we cannot monitor unemployment on a standard basis, because it is delayed. And that’s why they focused on the number of applications for unemployment benefits, which are calculated there weekly, and we calculate monthly. It should be understood that the number of registrations for assistance is not an indicator of unemployment. This is another indicator 

In order to understand what unemployment figure it corresponds to, it must be recalculated. In one situation, when we register – it’s a flow: we have water pouring into the tap and pouring out, someone comes out of unemployment for various reasons. And the unemployment rate is the state of how many unemployed people we have today. And their ratio can be any depending on market dynamics. Therefore, there is some misunderstanding in society, even when the State Statistics Service says that we have additionally registered 300 thousand unemployed, it does not mean that the unemployment rate has increased by 300 thousand, because someone came out of this state for various reasons. 

Maybe his pay period is over, and people don’t always register to look for work, but to get paid for a while. And this period is regulated.

What could the state do with more up-to-date information? For example, if these data were available weekly, as they are available in America.

It would be possible to distribute this aid more efficiently because the Government also needs time. It cannot start paying immediately from tomorrow. This is a change of procedure, that is, in order for us to be able to afford more people to support, we need to change the rules. If we have restricted movement, we cannot require people to come and make a written statement, as was the case before the crisis. It takes some time to change this system, including on the spot. Because civil servants are bound by certain requirements. 

They can’t say on their own: “You know, you don’t have to send it by mail. Just drop us everything by e-mail.” They need to receive a piece of paper on which the Cabinet of Ministers said: “Do so.” But with adequate and more timely information, you can still redistribute support, including financial support, and see how the rules can be changed to help those who need it more effectively. Because if we look at how the Government has identified who can receive aid, in fact it has extended it to those sectors that have not been affected by such a devastating effect as, for example, the restaurant business. And he actually extended it to all sectors. This is not rational.

Labor sectors. Who has suffered the most and who is recovering the fastest?

Dariia Mykhailyshyna: During the study, we looked at 5 sectors that could be identified according to Work.ua, Robota.ua and the State Employment Service. We see that the sectors that have suffered the most – the hotel and restaurant business, retail – they are just recovering very quickly. Because, for example, in the hotel and restaurant business, according to job search sites in the worst period was only 17% of vacancies from the pre-quarantine period, and as of the end of June is already 60-80%. The situation is similar in retail, there is a little less impact of quarantine, and recovery has almost reached the pre-quarantine level. But I am interested in the fact that in the financial and banking sectors, we see that the recovery is slower. And they also suffered quite badly. According to Work.ua and Robota.ua, the number of vacancies in the worst period was 30-40% of the pre-quarantine level, and as of the end of June only 60-65%.That is, they did not start hiring more people. This may be due to general economic uncertainty because our quarantine is not over yet, and a second wave and continuation of the crisis is still possible.

Work and Zoom? The future of the labor market for Ukraine

Hanna Vakhitova:. The World Bank has begun to say that inequality in the world, both between and within countries, will grow. It also affects the labor market. First of all, this is due to the fact that in higher-paying professions there are more opportunities for remote work. It is very difficult to work remotely as a loader, or a driver, or an ice cream vendor, and it is much easier to work remotely in some intellectual professions, which are often paid much better. As for the transformation, I’m pretty skeptical that we’ll all hire robots. Ukraine has a long way to go before robots,. If someone in doubt, let one go to the city hospital and see how many robots there are. But regarding remote employment, I think there will be a growing trend. However, despite the optimistic talk about how cool it is to work from home, for many processes, even where people use computers, there are still significant benefits to communication, especially in the creative industry. If everyone is sitting at home, there are no “small conversations”, no creative collaboration, and Zoom will not replace it.