[The Pitfalls of Statistics]④ Unemployment Rate at an All-Time Low... Why It Doesn't Feel That Way

Unemployment Rate Falls to 2.7% but Feeling Remains Tough
Employment Growth Led by Seniors Aged 60+...Youth Employment Declines
Statistical Illusion...Long-term Job Seekers and Short-term Part-timers Excluded
Youth Expanded Unemployment Rate at 16.5%...Outlook Remains Gloomy

"The economy is tough and youth employment is still difficult, so do you find the announcement that employment is at an all-time high believable? I'm struggling like this too..."

This is the sentiment expressed online in response to a recent article reporting that South Korea's unemployment rate has dropped to 2.7%, marking a historic low. Despite the economy slowing due to steep interest rate hikes in major countries and sluggish exports to China, employment indicators continue to soar day by day, yet public opinion remains cold. Contrary to the government's announcement of an 'employment boom,' there are still not many good jobs around, and finding employment is not easy. Especially since many experienced the 'fake employment rate' created by 'short-term and elderly jobs' during the COVID-19 pandemic, trust in the statistics is also low.

Unemployment Rate Is Low... But Many 'Hidden Unemployed'

According to the monthly employment trends released by Statistics Korea, the unemployment rate has steadily decreased from 3.6% in January this year to 3.1% in February, 2.9% in March, 2.8% in April, and 2.7% in May. The 2.7% unemployment rate is the lowest ever recorded for May. Despite concerns about an economic downturn, the positive employment indicators have increased the government's confidence in economic recovery. Last month at the National Assembly, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho emphasized, "We can be confident about jobs," adding, "The current unemployment rate is the lowest ever." In the economic policy direction announced on the 4th, the government also forecasted that the downward trend in unemployment would continue.

However, experts say it is inappropriate to optimistically evaluate the job market based solely on simple indicators. First, there are too many de facto unemployed people not included in the statistics. The unemployment rate is the proportion of unemployed people within the economically active population (employed + unemployed), so the non-economically active population who 'have no intention to work' are not included in the calculation at all. Those who 'intend to work' are classified as unemployed and reflected in the unemployment rate, but those grouped as non-economically active do not affect the unemployment rate.

There are several conditions to be classified as unemployed, but the most important is that one must not be currently working and must have actively sought a job in the past four weeks. Therefore, long-term job seekers who temporarily pause their job search, civil service exam candidates, and discouraged job seekers are all classified as non-economically active, not unemployed. The more people who do not seek jobs due to lack of good opportunities, the more a 'statistical illusion' of a low unemployment rate can occur. In fact, the unemployment rate suddenly dropped in March-April 2020 when COVID-19 began spreading, not because the economy was good, but because job-seeking activities themselves decreased.

From this perspective, a meaningful statistic is the number of young people who are not seeking jobs and are resting. According to a Statistics Korea survey, the number of people in their 20s who answered that they were 'resting' in terms of economic activity was 357,000 as of May, an increase of 36,000 compared to the same month last year. Including those in their 30s, the number exceeds 600,000. This is about a 32% increase compared to 10 years ago. All of these are non-economically active people, not unemployed. Although the youth population is steadily decreasing due to low birth rates, the number of young people leaving the economically active population is increasing as quality jobs decrease and the number of NEETs (youth not in employment, education, or training) rises.

Even If Doing Short-Term Part-Time Jobs While Job Seeking... Statistics Count as 'Employed'

Additionally, there is analysis that South Korea has more hidden unemployed people not reflected in statistics compared to advanced countries. Han Yosep, head of the Labor Market Research Team at the Korea Development Institute (KDI), said, "In advanced countries, unemployment benefits and official vocational training systems are well established, so unemployed people are well captured, but in South Korea, the blind spots in unemployment benefits are wide and coverage is weak, so short-term unemployment is less captured." He added, "Among youth preparing for exams, they are not counted as unemployed normally, but once they register for the exam, they are counted as job seekers. During civil service exam application periods, the unemployment rate even 'dances'."

According to statistical standards, working just one hour a week classifies a person as employed, and even if there is no income, working 18 hours or more per week at a family-run business or farm also counts as employed. Therefore, short-term part-time workers are all counted as employed in statistics. Also, if a person has ambiguous characteristics between unemployed and employed, they are always considered employed. For example, a student who does short-term part-time work to earn living expenses while submitting job applications is already counted as employed. Statistics Korea explains, "Subjectively, one may consider themselves unemployed, but if the conditions are not met, they are not unemployed."

Of course, these unemployment rate criteria follow the International Labour Organization (ILO) standards. Due to weak unemployment support systems and the high concentration of youth preparing for public service exams ('Gongsi-jok'), South Korea's unemployment rate appears relatively low compared to advanced countries, but this is not Statistics Korea's fault. Nevertheless, as criticism that our unemployment rate is detached from reality increased, the government has been compiling broader employment auxiliary indicators 1 to 3 since November 2014. Among these, the employment auxiliary indicator 3, called the 'perceived/expanded unemployment rate,' was 8.8% as of May, 3.26 times higher than the official unemployment rate, but it is not well highlighted as it is buried under the official rate.

The expanded unemployment rate includes additional time-related potential workers and potential economically active population excluded from the official unemployment rate. Among these, time-related additional potential workers refer to typical unemployed people who work short-term part-time jobs under 36 hours per week while seeking jobs. Limiting to youth (ages 15-29), as of May, there were 138,000, increasing monthly since 99,000 in January this year. The youth expanded unemployment rate is 16.5%, 2.8 times higher than the official youth unemployment rate of 5.8%. This is the other side of the youth employment rate (47.6%) which set the second-highest record as of May.

Elderly Lead Employment Growth... "Hard to Be Optimistic About Indicators"

Even if the 2.7% unemployment rate is accepted as is, a detailed look shows the employment market outlook is not bright. Employment is mostly concentrated among the elderly aged 60 and over. Compared to the same month last year, the number of employed people in their 20s has decreased for seven consecutive months, while those in their 60s have maintained a large increase of 300,000 to 500,000 people each month. This could be seen as a phenomenon of population decline in the 20s and population increase in the 60s and older, but the 40s age group, whose population is increasing, has also been decreasing for 12 consecutive months since July last year. By industry, manufacturing, the core of our economy, has steadily decreased employment, while jobs in health, welfare, and accommodation sectors are leading the increase.

Kim Yoo-bin, senior research fellow at the Korea Labor Institute, said, "There is an average trap. The health and social sectors have high demand due to COVID-19, but manufacturing, which is heavily affected by trade balance, has seen a relatively large decrease in employment. Also, the youth have been in a bad employment situation for a long time, and the 40s are not doing well either." Kim added, "Usually, when the economy worsens, it takes about one to one and a half years to reflect in employment, but now the lag seems longer. Since interest rates started rising seriously in the first half of last year and US-China relations began to deteriorate, it seems employment has not yet reflected these."

Han Yosep said, "Employment indicators show a good situation continuing, but overall, including self-employment, the economy is not good, so it may be reflected in employment indicators relatively late. Also, the slightly better recovery after COVID-19 is gradually fading, so it is hard to be optimistic." He explained, "Although employment indicators are good, the perceived quality of jobs is not good. The situation is not as good as the numbers suggest."