Beware of structural unemployment despite modest fall in unemployment rate

Year: 2021

This post is written as a brief comment to an article on Today Online titled: Unemployment rate falls for first time since start of pandemic, as labour market recovers (8 January 2021).

“FMG welcomes the news of the marginal decline in Resident Unemployment from 4.9 to 4.7%.

However, as we have repeatedly forewarned, the danger lies in a rise in the number of structurally unemployed. Sure enough, the number had gone up steadily, from 0.6% a few months ago to now at 0.9%. Another way to frame it is that this is a 50% increase, not a 0.3% increase.

The explanation for the reduction in unemployment is also more complex and less cheery than an unambiguous sign of a recovery. The number of those who have given up seeking jobs may have gone up. The number who have taken up further studies as places have expanded have also gone up. And the number placed in the traineeships and internships has gone up, but these are all short term measures.

Finally, the Public Service has needlessly expanded again as a counter-cyclical measure. The government pledged to make 10,000 hires. This just increases the wage bill for the taxpayer and artificially reduces unemployment as only Residents can be employed by the public sector. But at what cost to productivity and to the fiscal balance?

So taking all these conditions and measures, a 0.2% reduction is actually a very poor ROI.”

– Devadas Krishnadas

CEO, FMG