The Staggering Unemployment Rate

Is 73% for women and 62% for men according to Gallup International. These shocking numbers are a little over-inflated as they include people in the informal economy (e.g. traders or small farmers) that don’t have secure income but aren’t typically viewed as “unemployed.” While it’s unclear what the “real” unemployment rate is, it’s certainly higher than the official unemployment rate of 6% as reported in December 2011. The official rate is viewed as dramatically under-representative because the government essentially only counts those who are receiving unemployment assistance as “unemployed.” All those that don’t qualify for the assistance but are seeking jobs are not included. The IMF estimated an unemployment rate of 19% for 2011. While a high number, the number is only 0.3% higher than the IMF’s pre-economic crisis unemployment rate. This makes me think that the real unemployment rate is even higher than 19%.

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2 Comments

Filed under Economics

2 responses to “The Staggering Unemployment Rate

  1. Christian

    But of course you are assuming that the economic crisis had large (and continuing) effects in Armenia, but I am not sure that is a good assumption.

  2. Gabe Armas-Cardona

    You’re correct that I’m assuming it had a large and continuing effect, and while I do believe it has, those effects are intermixed with Armenia’s high pre-crisis unemployment rate.

    Armenia was experiencing consistent double digit GDP growth until the recession brought that down to a nadir of -14%. The biggest effects were not in the financial market but in construction, the value of the dram and in small and medium sized businesses. Fortunately for Armenia their financial industry was well insulated and had already had high levels of capital reserves, so not even a single bank fell into a jeopardized status.

    Construction was a mass employer of men and shrank by 52%. This flooded the market with lots of unemployed, generally less educated, men that would scramble to take any job, work in the informal sector, or emigrate to Russia for jobs. My host-mom’s husband, who is now in Russia, is one such person.

    The crash in the value of the dram could lead to long-term stability (admittedly at a lower purchasing power), but it’s sudden drop lead to a destabilizing scramble. On March 3, 2009 the dram lost 22% of its value against the US Dollar. This sudden devaluation completely upset contracts and small and medium sized employer’s ability to pay employees. It also lead to dollarization (cars, even used cars, are still regularly advertised in dollars and not drams), further destabilizing the local monetary system and leading to a credit contraction. The average armenian does not heavily rely on credit systems but any contraction would make it harder for small and medium sized employers to grow and hire new employees.

    The amount of poor grew significantly and without sufficient government welfare, many people did whatever they had to do to survive. The amount of poor (less than $90 USD a month income) grew from 27.6% to 35.8%, while the government’s welfare programs could not cover basic essentials (i.e. the combined cost of food, basic clothes, and utilities was higher than the welfare benefits). Thus even people receiving government welfare were pushed into the already inflated informal economy, decreasing possible earnings for everyone.

    Overall, Armenia weathered the financial storm well, but the storm did add to Armenia’s already significant unemployment problem. One caveat to my original post is I didn’t consider how many people emigrated because of joblessness, so if a ton of people did, perhaps a 0.3% growth is correct.

    (Citations available upon request)

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