Sources

Unemployment Rates, A Broken Economic Barometer

The rapid rise in part-time employment has undermined what was, until now, the instrument of choice to evaluate the job market. What comes in its place?

Deliveroo, the weight of it all
Deliveroo, the weight of it all
Guillaume de Calignon

-Analysis-

PARIS — It's a new puzzle for central bankers in developed countries. Improvements in economic activity and the subsequent drop in unemployment levels over the past two years haven't translated into higher wages, and inflation has thus been almost non-existent.

For those versed in economics, everything is happening as if the Phillips curve no longer existed. This longstanding model is based on the assumption of an inverse relationship between the inflation and unemployment rates: When unemployment is high inflation won't rise because there's no upward pressure on wages. On the contrary, in a full-employment situation, prices are expected to rise quickly. Nothing, in theory, could be more logical.

But this dynamic is no longer registering in developed countries. The three major economies with unemployment rates between 4% and 5.5% — the U.S., Britain and Germany — are experiencing no, or very little, rise in inflation. The Phillips curve, which was in vogue in the 1960s, lost its luster in the following decade as unemployment rates and prices grew together. It returned to favor in the 1990s and 2000s with the independence of central banks and the monetary policy focus on inflation. But 10 years after the financial crisis, this inverse correlation between unemployment and prices seems no longer valid. James Bullard, head of the Federal Reserve Bank of St. Louis, put it dryly: "Low unemployment readings do not appear to be an indicator of substantially higher inflation to come."

The Eurozone has 7 million people involuntarily working part-time.

What, then, is the explanation? For Benoît Coeuré, a member of the Executive Board of the European Central Bank (ECB), reasons are linked to the fact that, in the Eurozone, the proportion of the working population of full-time workers with permanent contracts has declined from 72% in 2004 to 66% in 2016. "Of the net employment created since the crisis, around one-third has been for workers on temporary contracts, and around a quarter part-time," Coeuré said in a speech in May.

The Eurozone now has 7 million people involuntarily working part-time, about 1 million more compared to the pre-crisis economy. "While the main objective for workers in permanent work is typically higher wages, those in temporary or part-time positions may pursue objectives other than wage increases, such as full-time employment or an increase in hours worked," Coeuré added. "Or if they do seek higher wages, they may be less likely to benefit from union representation and thus have less bargaining power."

The mechanism is well-known across the Atlantic, so much so that it recently led Larry Summers, former U.S. Treasury Secretary, to launch a plea in favor of reinforcing trade unions' powers.

There are, nonetheless, other reasons for the absence of inflation. There's globalization, which creates a worldwide competition among workers. The automation of certain tasks thanks to technological advances also plays a part. But the point raised by the ECB executive leads to the following question: What do unemployment figures mean nowadays on a macroeconomic level? The answer, in 21st-century capitalism and given the disruption on the jobs market, is: not much. Though still necessary, unemployment levels no longer appear sufficient to assess the true health of the labor market. "The unemployment rate is based on a rather narrow definition of labor underutilization," ECB economists wrote in a recent study.

Don't blame the measurement.

It's not about blaming the measurement but rather trying to improve it, or to add another one. This is the goal behind attempts to evaluate "labor underutilization" or "labor market slack," by adding to the number of unemployed those who are employed part-time but want to work more hours, and those who are without a job but aren't actively looking for work. These two categories — which are not officially counted as unemployed — each represent 3.5% of the Eurozone's active population. As a result, labor market slack would affect some 18% of the active population.

Miraculously, when the ECB tries to forecast inflation by using this labor market slack rate instead of the unemployment rate, it works: The Phillips curve, thus, becomes valid again.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
Society

Dutch Cities Have Been Secretly Probing Mosques Since 2013

Revelations of a nationally funded clandestine operation within 10 municipalities in the Netherlands to keep tabs on mosques and Muslim organizations after a rise in radicalization eight years ago.

The Nasser mosque in Veenendaal, one of the mosques reportedly surveilled

Meike Eijsberg

At least ten Dutch towns and cities have secretly used a private agency to probe mosques and other local religious organizations, Amsterdam-based daily het NRC reports in an exclusive investigation.

The clandestine operation — funded by NCTV, the National Security Services, the Netherlands' leading counter-terrorism agency — was prompted by the social unrest and uncertainty following multiple terror attacks in 2013, and a rise in Islamic radicalization.


The NCTV, which advises and financially supports municipalities in countering radicalization, put the municipalities in touch with Nuance by Training and Advice (Nuance door Trainingen en Advies, NTA), a private research agency based in Deventer, Netherlands. Among the institutions targeted by the investigations, which came at a cost of circa 500,000 euros, were the Al Mouahidin mosque in the central Dutch town of Ede, and the Nasser mosque east of the city of Utrecht, according to NRC.

Photo of people standing on prayer mats inside a Dutch mosque

Praying inside a Dutch mosque.

Hollandse-Hoogte/ZUMA

Broken trust in Islamic community

Unlike public officials, the private agency can enter the mosques to clandestinely research the situation. In this case, the agents observed activity, talk to visitors, administrators, and religious leaders, and investigated what they do and say on social media.

All findings then wound up in a secret report which includes personal details about what the administrators and teachers studied, who their relatives are, with whom they argued, and how often they had contact with authorities in foreign countries, like Morocco.

Leaders of the Muslim organizations that were secretly probed say they feel betrayed.

It is unclear whether the practice is legal, which is why several members of the Dutch Parliament are now demanding clarification from the outgoing Minister of Justice and Security, Ferd Grapperhaus, who is said to be involved.

"The ease with which the government violates (fundamental) rights when it comes to Islam or Muslims is shocking," Stephan van Baarle, member of the leftist party DENK, told De Volkskrant, another Dutch newspaper.

Leaders of the Muslim organizations that were secretly probed say they feel betrayed. Hassan Saidi, director of one of the mosques investigated, said that the relationship with the local municipality had been good. "This puts a huge dent in the trust I'd had in the municipality," he told the Dutch public broadcaster NOS.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
THE LATEST
FOCUS
TRENDING TOPICS
MOST READ