Wednesday, August 19, 2015

The Chinese unemployment rate

I wrote awhile ago about Chinese economic statistics (CPI and NGDP) not seeming terribly suspect. Alex Tabarrok points to the stillness of the Chinese unemployment rate as a sign that the statistics can't be trusted. And I tentatively agree -- there appears to be something wrong with the reported Chinese unemployment rate.

Combining the China model linked above with this post on employment growth, I thought I'd try to estimate the Chinese unemployment rate.

Here are the nominal shocks (see the post on employment growth):

And here is an estimate of the resulting unemployment rate (making an assumption of 5% for the "natural rate" and a 50% employment-population ratio):

The yellow line is the 'official' rate (from here).

This result is consistent with the unemployment rate rising to 11% in 2002 in the estimate presented in Tabarrok's post. That analysis says that unemployment stays high through 2009. However, my model seems to think that the unemployment rate dropped to 4-5% before 2009. My model is more consistent with the burst of NGDP (and RGDP) growth between 2005 and 2010 (using e.g. Okun's law). And it puts unemployment nearer to 4% before the recent economic trouble.

This is not to say unemployment isn't high today in China (the last NGDP data I have is from 2014). And China does not appear to be reporting the unemployment spikes from recessions. This of  course could be a difference due to the economic systems. While it seems to operate a large capitalist economy nowadays, the country is officially communist. Involuntary unemployment during recessions may not be the same thing there as it is in the US.

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