Cyprus enjoys full employment conditions

The publication of the latest Labour Force figures, showing that the unemployment rate fell sharply to reach 4.1% of the labour force in the second quarter of 2006, compared with 5.4% in the same period of 2005, has sparked a debate about unemployment in Cyprus, not least because of the popular belief that unemployment is on the rise.

Michalis Antoniou of the Employers’ and Industrialists’ Federation (OEV) is adamant that there is no unemployment problem in Cyprus.

“We are enjoying full employment conditions in Cyprus,” he told the Financial Mirror, adding that the real problem in Cyprus is finding people with the right skills to fill the job.

 

When is unemployment not unemployment?

 

So where does the difference in opinion come from?

First, is the difference in standpoint. From the economist’s point of view, Antoniou is quite right.

An unemployment rate of less than 5% is considered “full employment” because 5% is considered to be so low that it reflects just “churning”: people in between jobs who are unemployed only for a short while.

In the days before China’s integration into the world economy, and the subsequent fall in inflation rates, 5% was considered the unemployment rate at which the pressures on wages would start rising.

The Labour Force figures for Cyprus do bear this “churning” theory out to some degree: 54.4% of the unemployed have been so for less than six months, while only 20% have been unemployed for more than 12 months.

 

Why registered unemployment is unrepresentative

 

But there is a second reason why people feel that unemployment has been rising, and that has to do with the registered unemployment figures, which Antoniou says are “misleading”.

While the Labour Force Survey is a globally compatible attempt to capture those people who have genuinely looked for work in the past few weeks, the registered unemployment rate captures only those people who have registered, sometimes merely in order to collect benefits.

The registered unemployment figures include both people who have a new job to go to but sign on for a few weeks and people who have retired early.

It is less likely to capture the young, since they have less faith in the state system for finding them a job and they are unlikely to have worked long enough to be entitled to any related benefits.

Government attempts to abolish the right of early retirees to draw benefits have successively failed.

In the last Convergence Programme 2005-09, it had to admit “There is no consensus for the implementation of the measure.”

But perceptions are perceptions and in January, the registered unemployment figure reached 15,350. It was widely reported as being a record high.

However, of this total, 2,131 were reported to be from the sector of “Public Administration and Defence; Compulsory Social Security”.

Now we all know that hardly anybody in Cyprus is made redundant from the public sector. So this figure is much more likely to reflect public-sector workers who sign on for six months after they retire.

Public-sector “unemployment” seems to peak at the end of the year, perhaps as people prefer to finish around Christmas time, and then fall towards the middle of the year. 

In fact, in recognition of the fact the registered unemployment is now “meaningless”, in the words of one official, the Statistical Service no longer publishes the registered unemployment rate.

 

Youth versus older unemployment

 

However, there are a few other reasons why there is a widespread public perception that unemployment is rising.

First could be an unfortunate by-product of no longer publishing the registered unemployment rate.

Even at 4.1%, the Labour Force Survey unemployment rate is much higher than the 3.0-3.5% registered rate that Cypriots have been used to hearing.

The absolute numbers are also higher. The Labour Force Survey unemployment figure in the second quarter of 2006 was 15,176, while the registered unemployment figure was 11,805.

But another reason could be to do with unemployment among the young.

According to the Labour Force Survey, 21.6% of those aged 15-24, or one in five youngsters, is unemployed and looking for work.

At the same time, the reliable employer of old, namely the government, is on a recruitment freeze, so it is no longer mopping up Cyprus’ high proportion of graduates, who must now contemplate working for the dreaded private sector.

In circumstances when it is harder to get a well paid and secure job, it is easy to see why there is a perception that unemployment is rising, even if the figures do not bear it out.

One of the biggest falls in unemployment in the second quarter was among the young unemployed.

The unemployment rate among young persons aged 15-24 also fell sharply, reaching 8.7% of the labour force of the same age group, compared with 12.0% in the previous quarter and 12.7% in the corresponding quarter of 2005.

 

Fiona Mullen

Sapienta Economics Ltd