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Monthly Unemployment Estimates and alternative COVID-19 Adjusted Measure of Unemployment – Updated Technical Note for July 2020

Introduction

A range of measures have been introduced by the Government to provide income support for those whose employment has been affected due to the COVID-19 pandemic in Ireland. The available schemes are being administered by the Department of Employment Affairs and Social Protection (DEASP) and the Revenue Commissioners.

The Central Statistics Office (CSO) has worked to identify the detail available from the different sources and how the different schemes should be classified for statistical purposes. This technical note was originally written to outline how those benefitting from the schemes were being treated for the purposes of the Monthly Unemployment Estimates release for March 2020. This update to the technical note has been created to update information regarding the link between the COVID-19 income supports and the Monthly Unemployment Estimates release for July 2020.

At the time of publishing this update to the technical note (05 August 2020) the latest available figures show that, at end of March 2020, the majority of those whose income from employment has been affected due to COVID-19 were being facilitated through the Pandemic Unemployment Payment (283,129) which is administered by the DEASP while a smaller cohort (53,971) were being facilitated through the Temporary Wage Subsidy Scheme (or the COVID-19 Refund Scheme which it replaced). By the end of April 2020, the number of persons in receipt of the Pandemic Unemployment Payment had increased to 602,107 and it has been falling each month since then down to 438,933 by the end of June 2020. The latest available estimates for the Temporary Wage Subsidy Scheme show that the numbers being supported by the scheme increased sharply from March to 437,627 in April and increased again to 451,652 in May 2020 before falling to 382,018 in June 2020. The estimates for the number of persons covered by the schemes for July 2020 will be published as an Annex table to the Live Register release for July 2020 on 07 August 2020.

Monthly Unemployment Estimates methodology governed by EU Law

The CSO are obliged, under EU Law, to apply certain definitions and methodology when calculating the standard measure of Monthly Unemployment for Ireland. Those in receipt of the COVID-19 income supports do not meet the criteria to be considered as unemployed for the purposes of the compilation of the results for the standard Monthly Unemployment Estimates release (see details below).

As the CSO is obliged to follow standard definitions and methodology when calculating the estimates of Monthly Unemployment volumes and rates, it was decided to compile the March 2020 Monthly Unemployment Estimates in the standard way and provide separate estimates that take those receiving the COVID-19 payments into consideration and the CSO have continued on that basis since then.

Calculation of standard Monthly Unemployment Estimates

The Labour Force Survey (LFS) is the official source of labour market statistics for Ireland including the official rates of employment and unemployment. The LFS provides benchmark estimates of employment and unemployment for each quarter since the beginning of 1998. These quarterly benchmark estimates are then used to compile monthly data using the Proportional Denton method. The main characteristic of this method is that the monthly Live Register series is used as an indicator to disaggregate the quarterly LFS unemployment series into a monthly series in such a way as to minimise the differences between two consecutive months. It also ensures that the average of three months in each calendar quarter is equal to the corresponding LFS estimate for that quarter.

For months where the quarterly unemployment data is not yet available, the ratio of the LFS monthly estimate to the Live Register monthly estimate (i.e. the benchmark to indicator ratio) is forecast forward in order to extrapolate a monthly LFS estimate. This approach adheres to agreed international practice.

To correct for typical seasonal patterns, the data series included in the standard Monthly Unemployment Estimates release are concurrently seasonally adjusted. This seasonal adjustment is completed by applying the X-12-ARIMA model, developed by the U.S. Census Bureau. In the case of these Monthly Unemployment estimates, seasonal adjustment is conducted using the indirect approach, where each individual series is independently adjusted.  To preserve consistency between the individual and aggregate series, the series for gender, age group and total monthly unemployed are then created from these component series. The different series of Monthly Unemployment rates are likewise created from these component series.

Supplementary COVID-19 Adjusted Measure of Unemployment

An alternative COVID-19 Adjusted Measure of Unemployment, first introduced for the March 2020 Monthly Unemployment Estimates release, estimates the share of the labour force that are not working due to unemployment, or due to COVID-19 related absences.

This approach preserves the methodology of the standard Monthly Unemployment Estimates series while at the same time providing transparency around the impact of COVID-19 on the Labour Market within Ireland.

When calculating an alternative COVID-19 Adjusted Measure of Unemployment we need to consider which of those in receipt of the emergency COVID-19 payments might have been officially classified as “unemployed” if the emergency arrangements did not exist.

The CSO has decided that those in receipt of the Temporary COVID-19 Wage Subsidy Scheme, having an attachment to their employer, are not included in the calculation of the COVID-19 Adjusted Measure of Unemployment.

The Pandemic Unemployment Payment currently consists of two levels of payment (€203 and €350). It originally started out as a flat rate paid to all those who have lost income from employment, including casual employees who may be in receipt of another payment from DEASP as well as part-time workers and students, etc. There is no information available to the CSO to indicate which of those in receipt of the Pandemic Unemployment Payment would be officially classified as “unemployed” if the emergency payment did not exist.

Calculation of COVID-19 Adjusted Measure of Unemployment

The CSO cannot estimate how many persons in receipt of the Pandemic Unemployment Payment for the last week of each month would have been classified as unemployed if the emergency payment did not exist. Therefore, the CSO created alternative COVID-19 Adjusted Measure of Unemployment to supplement the standard Monthly Unemployment measure. Together these measures can be considered as being the upper and lower bound respectively of the true unemployment rate.

The lower bound is the non-seasonally adjusted Monthly Unemployment Rate based on the standard methodology. That is, the lower bound is based on the assumption that none of those in receipt of the Pandemic Unemployment Payment would have been classified as “unemployed” if the payment did not exist.

The new COVID-19 Adjusted Measure of Unemployment is the upper bound. The number to be considered as unemployed for this measure is calculated by adding all persons in receipt of the Pandemic Unemployment Payment for the last week of the reference month who are not already included on the Live Register for that month on to the non-seasonally adjusted volume of unemployed persons for that month.

The COVID-19 Adjusted Measure of Unemployment is then calculated by dividing this new COVID-19 adjusted number of unemployed persons by the volume of the Labour Force for the reference month as estimated from the non-seasonally adjusted time series for the standard Monthly Unemployment Estimates methodology. That is, the upper bound is based on the assumption that all those in receipt of the Pandemic Unemployment Payment who are not already included on the Live Register in the last week of the reference month would have been classified as “unemployed” if the payment did not exist.

By keeping the same labour force total to calculate the COVID-19 Adjusted Measure of Unemployment there is also the assumption that these persons are moving into unemployment from employment, i.e. they move within the labour force from employment to unemployment, so the labour force total is unaffected.

As both scenarios are highly unlikely, it is important that users view the traditional non-seasonally adjusted measure as the lower bound while the new COVID-19 Adjusted Measures of Unemployment is the upper bound for the true rate.

International Labour Organisation (ILO) status and COVID-19

The official measure of unemployment, based on the International Labour Organisation (ILO) concepts and definitions, comes from the quarterly Labour Force Survey (LFS). The ILO measure of unemployment is the international standard and all EU Member States are legally obliged to compile and provide this data to Eurostat on a quarterly basis.

A definition of the LFS concept of labour force status that currently applies to EU member states which is based on the ILO concepts and definitions is available at the following link: https://ec.europa.eu/eurostat/statistics-explained/index.php/EU_labour_force_survey_-_methodology.

Based on this definition, if those "laid-off" due to Covid-19 indicate in the LFS that they have an assurance or expectation of a return to work within a period of 3 months, or receive greater than or equal to 50% of their wage or salary from their employer, then those persons should be classified as “In Employment” on an ILO basis.

If an individual "laid-off" due to Covid-19 does not indicate an expectation or assurance of return to work with their employer, then they are asked two further questions in the LFS questionnaire to determine their ILO status.

The two questions assess the individual persons availability for starting work within the next two weeks and whether the person has been actively seeking work within the past four weeks. If the answer to both questions is “Yes” then the individual is classified as “Unemployed” i.e. they are out of work, are available for work and actively seeking work.

On the other hand, if the answer to either of these two questions is “No” then the person is not deemed to be unemployed but “Inactive” and as such outside of the Labour Force.

Further Revisions

The Monthly Unemployment Series is a seasonally adjusted series and, as always, is subject to revision when more information becomes available.

The COVID-19 income supports were originally set up as short-term emergency income supports but they have been extended several times and there have been changes made in terms of the eligibility criteria and how they are being administered. While the Pandemic Unemployment Payment and the Temporary Wage Subsidy Scheme were both expected, until recently, to cease in August 2020, the latest announcements have indicated that the Pandemic Unemployment Payment is expected to continue into 2021 while the Temporary Wage Subsidy Scheme will be replaced by the Employment Wage Subsidy Scheme from 01 September 2020. The CSO will continue to evaluate the current income support schemes and any new schemes to determine whether any changes are required to the methodology for our traditional or COVID-19 adjusted estimates. Any changes we may make to the methodology will be clearly outlined in further updates to this technical note as well as in the statistical releases themselves and accompanying material.

The alternative COVID-19 Adjusted Measure of Unemployment will only be published for months where COVID-19 income supports exist and for as long as the CSO deem it to be necessary.

The CSO will continue to engage with users around all releases and users can contact labour@cso.ie for further information or clarification in relation to the Monthly Unemployment Estimates release if required.