Economic Governance: Using unemployment rates as an indicator

This morning I suggested that we could use comparative GDP growth stats to shed light on economic governance (how governments are exercising the authority citizens give them to support the goal of economic growth). I noted that GDP growth should be one of a number of indicators of economic governance as citizens are not only concerned about growth.

Unemployment is another potential indicator of economic governance. It reflects on whether government is using its authority to ensure jobs are provided for those needing them. Note I am not suggesting how government uses its authority to do this, just that it has authority and unemployment rates show if this is being used (could be in providing jobs through fiscal expansion or changing regulations to promote small business, etc. etc.).

I used a similar method as the one discussed in the last post to compare unemployment rates in countries. First, I looked at whether unemployment rates were higher between 09 and 11 than they had been in the prior decade (as a measure of whether unemployment had crept above levels considered acceptable). My own country South Africa shows lower unemployment rates (23%) in the 09 to 11 period than the higher rate (27%) between 00 and 09. Second, I looked at whether the unemployment rate was higher or lower than that in comparable income countries. When compared with forty countries around South Africa's income level, the nation turns out to have higher than average rates (about 11% higher).

As with the analysis this morning, one end up with four categories:

• Countries in green (with scores of 3) have unemployment rates in the 2009-2011 period that were below the ten year average before. They also have unemployment rates lower than those in comparable income countries. The analysis does not suggest that this is because of 'good' governance but governments in these countries are bound to face less pressure than others. A critical outcome citizens often look for (jobs) is in good shape, compared with the past and with other countries, indicating that government is using its authority appropriately. Denmark and Norway are here right now.
• Countries in orange (with scores of 2) have unemployment rates that are lower than they were in the prior decade but higher than they are in comparable countries. Governments in these countries face the challenge of exercising authority in a way that enhances the country's economic competitiveness. They probably have the political room to do this given that unemployment rates are down from the past--more people are in jobs than before in relative terms.
• Countries in yellow (with scores of 1) have unemployment rates that are higher than they were in the prior decade but lower than they are in comparable countries. Governments in these countries have the challenge of dealing with a higher percentage of people out of work who will likely perceive that government is not using its authority to create jobs.
• Countries in red (with scores of 0) have higher unemployment rates than they had in the past and that comparable countries are experiencing. Governments in these countries are likely under a great deal of pressure to show that they can use the authority citizens have given them to deal with this problem. It does not suggest 'bad' governance as the causes of unemployment are not always directly attributed to the actions of government. This situation does create a severe economic governance challenge, however, that is common in many countries right now. The USA, Portugal, Ireland and Georgia are in this territory right now.

We should always question unemployment data like this, and there are some countries I am unsure of when I look at the data, but this kind of comparative analysis is useful--I think--in revealing what kind of governance challenges different countries are likely facing. The differences in colors should show how much variation there is in challenges. These varied challenges should be the basis of varied reforms.

 

Comments

[Nazanin]

What about the countries in gray?

[Matt Andrews]

Limited data...means I lack either data for 9 to 11 or for decade prior. All data from World Development Indicators. Amazing how many countries lacking basic data like this.