Why Australia's unemployment is worse than it looks

12 September 2016 2:07 pm

So the big news for the week was Australia’s unemployment slipping down to 5.6 per cent, the lowest rate in three years.

The Coalition has been bragging about it with Christopher Pyne telling Parliament that the Government had create over 200,000 jobs over the last 12 months (actually the figure is closer to 190,000 but why let facts get in the way of a good story?).

The reality is there’s nothing to brag about. Australia’s unemployment levels are growing and it’s being masked by data from the Australian Bureau of Statistics data.

Consider this: the fall in unemployment came as a surprise because 3900 jobs had vanished during the period.

The loss of 3900 jobs was the big surprise, as economists had forecast a 15,000 gain.

The fall in the numbers despite the job losses can be partly explained by the labour participation rate – the number of people actually looking for work - falling by 0.2 percentage points to 64.7 per cent. With fewer people looking for work, it means there would be fewer appearing in the ABS stats.

The figures also show that monthly hours worked fell by 3.9 million in August and the underemployment rate climbed to 8.7 percent.

Indeed, underemployment — where people are in work but want more hours — has now reached record levels suggesting there’s a lot of pain below the surface of August’s relatively stable employment data.

And the figures were bad in various parts of Australia. Tasmania recorded the nation's highest unemployment rate for August, leaping by almost one per cent on the previous month, to 7.2 per cent.

The reality is if you work one hour a week, you’re not counted as unemployed.

To be considered officially unemployed, a worker can’t work at all during the week covered by the monthly Australian Bureau of Statistics survey. If they work even a single hour, then they’re not unemployed. They are classified as a part-time worker.
Moreover, an unemployed worker need to see work vigorously enough to meet the ABS definition of “active search” and count in the participation rate. That test is relatively strict. You have to register with an employment agency, submit active applications, or start a business. Under-employment is a growing trend and it hit women the hardest.

So just reading newspaper ads or scanning employment websites is not enough. Someone not working but not sufficiently active to meet that standard disappears from official unemployment statistics.

The growth of part time employment, ie the undemployed is critical here. Overall this year, full-time employment jobs have fallen by an average of 9000 per month, while part-time jobs have risen by an average 19,000.
Pessimism about the availability of jobs would explain the decline of labour force participation in Australia.

Male participation has fallen by almost two percentage points since the global financial crisis hit in 2008. Female participation has plateaued, it’s going nowhere.

As a result of this, hundreds of thousands of Australians who want work, or who want more work, are excluded from the official unemployment number.

All that could put the official unemployment rate at close to 17 per cent, almost three times higher than the official rate.

So don’t believe the spin that’s put on the unemployment figures.