This morning we received the monthly employment report compiled by Switzerland’s Secretariat for Economic Affairs (SECO). The report came in at 2.8%, one decimal point above expectations. On a seasonally adjusted basis, it stayed at 2.4%.
What’s surprising here is how low the unemployment rate is. This is no fluke. The unemployment rate in Switzerland has never gone above 6.0%, at least since records began.
By comparison, in any other developed country with a complex, advanced economy, structural unemployment is usually no less than 4.0% – and can be quite a bit higher.
In fact, given Switzerland’s reliance on complex economic sectors, such as finance and high-tech exports, one would expect the country to have a much higher structural unemployment level.
Has Switzerland been operating below structural level since, well, practically ever? Or is their economy just so amazingly good?
Well… let’s see.
The Jobs Situation
Arguably, the labor situation in Switzerland is favorable. It’s actually considered quite low, even by Swiss standards. Labor participation rates are high, showing that not only are there lots of people willing to work, but they can also get jobs.
There are two factors that are cited by economists for this. The labor market is very flexible, and the government is highly proactive in ensuring Swiss citizens are trained, and that jobs are made available for them.
But we have to stress the citizens part. Switzerland has one of the strictest immigration systems in the world, including for people wishing to work there.
The system is highly regulated and allows the government to adjust the number of work permits issued in real time. Immigrant visas expire when the job they have in the country is terminated, meaning immigrant unemployment can virtually be kept at 0%.
The Measuring Systems
Secondly, Switzerland focuses on registered unemployment, which accounts for people who are on unemployment lists and are actively seeking jobs.
There is an alternative measure carried by the ILO which includes people who have given up searching or have fallen off the unemployment registry. This figure typically comes in at a further 0.5% higher than the official unemployment rate. But even with this percentage, the rate adds up to just 2.9% in comparison to Germany’s 3.4%.
Although the ILO explains part of the difference, it still doesn’t explain the entirety of the picture. And it certainly remains to be acknowledged that there is something unique about the Swiss economy that keeps their unemployment unusually low.
How is this Connected to Forex?
Because of Switzerland’s unique situation, we can’t apply the same criteria for structural employment and the implications for the economy and inflation that you would for other advanced economies.
An unemployment rate of 2.4% in most other economies would imply strong inflationary pressures and wage growth – but not so much in Switzerland.
That doesn’t mean this gauge is useless in analyzing the effect on the economy. It just means that an interpretation needs to be considered within the unique Swiss context. And we should consider that a decimal move at 2.5% is twice as important as one at 5.0%.