In Canada and the USA and in fact most of the West unemployment is determined from a telephone survey. There is a gray area of people that drop out of the labour force and are not then considered unemployed. The table below illustrates just how terrible these telephone surveys are and how high the real unemployment currently is.

In 2011 in Canada about 8% of the labour force has dropped out (for 15% real unemployment) and in the USA it's 10% (for 19% real unemployment). These figures are estimated by looking at what happens to the labour force when a city reaches full employment. In a better economy these gray area people return to the labour force over time. Minneapolis in 2005 and the province of Alberta pre-world recession are rare examples of regions at full employment. The USA, Canada, the UK, Australia and New Zealand all have cities at full employment at some point and it turns out the labour force level has gone up above what is normally considered full employment in every case of a good city economy. In fact the peak labour force level was the same in the best cities in all five countries, 72% - correcting for demography. It’s rather a startling and important statistic with several policy implications.

The Two Unemployment Indices

Statistics Canada reports labour force data monthly and economists depend on it but it very oddly turns out to be significantly inaccurate. It misses dropouts from the labour force, the long term hidden unemployed. In the modern situation many people have support and opt to stay at home or do other things long term if the labour markets are soft and it’s difficult to find a suitable job. Statistics Canada surveys the work force with telephone interviews but this does not effectively capture these people. The labour force survey defines the unemployed as people looking for work and calls people who “might like a job” but are not looking “discouraged workers”. However the telephone survey turns out to be entirely ineffective at capturing the long term effect, the “hidden discouraged workers” who have turned to doing other things for several years. There are numbers of people that would change there mind about not working if the economy improved. A telephone poll is not an adequate method for testing a sensitive issue such as a family member not working and then for guiding the economy. The “working age participation in the labour force” is collected by statisticians around the world as a supplement to the official unemployment figure and can be used to derive the real unemployment. Strangely this is never done.

As an example of how volatile the labour market level is and how large an oversight Statistics Canada survey makes I worked out the changes to the hidden data in all the major Canadian cities there is information for in the deep recession of the early 1990s. This is derived from the employed data and participation in the labour force rates. In all the surveyed cities, 100% of the data, hidden workers dominated the unemployment changes. This is changes in the hidden work force only and does not include structural hidden unemployment. The data is the best to worst years for each city, not a specific time period, a tricked up analytical technique.

 …..unemployment increase but hidden………….hidden increase 

 …………and not reported…………………………as a percent

………(percentage of labour force)………………of total increase

St. John’s…………………...5.2..............................59%

Halifax……………………...5.1.............................76%

St. John……………………..6.6..  ………….…….78%

Saquenay……………………10.4………………….77%

Quebec………………………5.9…………..………69%

Trois Rivieres………………..4.8…………..………83%

Sherbrooke…………………..8.8………..….………86%

Montreal……………………..4.5………….……….71%

Ottawa……………………….7.5………….……….85%

Sudbury………………………3.5………….………60%

Oshawa……………………….7.4………………….78%

Toronto……………………….7.6…………..………64%

Hamilton……………………...7.6…………………..87%

St. Catherine’s…………………7.1…………………82%

London………………………..6.1………………….88%

Windsor……………………….8.6…….……………99%

Kitchener………………………8.4…….…..……….82%

Thunder Bay…………………..6.0….………………67%

Winnipeg………………………1.5% (only)…..……92%

Regina………………………….4.9…………….….. 115%

Saskatoon………………………3.2…………………147%

Calgary…………………………4.9………………….69%

Edmonton………………………3.6…………………96%

Vancouver………………………4.6………………..85%

Victoria…………………………2.2…………….….74%

In these main cities over the period of prolonged economic slow down the weighted increase in hidden unemployment was 77% of the real unemployment increase of 7.9% - for 6.1% more unemployment in hidden. The unweighted population increase was a significant 9.9% and this partly accounts for the high figures going undetected as statisticians don’t know how, don’t bother rather, to correct for the population increase.

In these times of economic duress it’s of interest what actually happens to the unemployed. Over a few years people become discouraged and stop looking for a job if they have family support. People that have to feed a family find work, albeit maybe at a low wage. The churn in employment is very high so this winnowing mechanism is rather efficient. It's a form of job sharing, an alternative to a social program.