The jury is still out on unemployment

Yesterday’s upbeat employment data left many readers questioning the veracity of the alternative Roy Morgan Research employment survey, which registered a very large jump in unemployment in January (see here and here).

While it is true that the results for January were contradictory, I believe it is too early to discount the Roy Morgan numbers, and readers should wait a few months before forming any conclusions.

Professor Steve Keen wrote an excellent article last week comparing the two measures:

According to the ABS definition, a person who has worked for one hour or more for payment or someone who has worked without pay in a family business, is considered employed regardless of whether they consider themselves employed or not.

The ABS definition also details that if a respondent is not actively looking for work (ie: applying for work, answering job advertisements, being registered with Centre-link or tendering for work), they are not considered to be unemployed.

The Roy Morgan survey, in contrast, defines any respondent who is not employed full or part-time and who is looking for paid employment as being unemployed.

Since Roy Morgan uses a broader definition of unemployment than the ABS, it neccessarily reports a higher unemployment figure. In addition, Roy Morgan’s measure tends to be far more volatile, owing to the fact that it draws on a smaller sample than the ABS and is not seasonally adjusted.

The issue of seasonal adjustment is particularly important in the context of January’s employment figures. January is a month where a large number of school leavers hit the job market, which typically causes the number of unemployed and the unemployment rate to spike. And since Roy Morgan’s figures are not seasonally adjusted, part of the increase in the unemployment rate in January relates to the school-leaver effect, as noted by Gary Morgan:

“Unemployment traditionally rises in January — the Roy Morgan unemployment estimates tables below show unemployment numbers have risen in 9/11 years since the turn of the century. The rise is because young people emerging from school are waiting for University offers — especially second round offers, and other young people are yet to decide whether to continue further University study and seek employment while they consider their options.

“Recent University graduates looking for work are also uncertain about the year ahead as post-graduate job offers are yet to be made and many people who may be offered a job in February are themselves job-hunting in January just in case the post-graduate job offer doesn’t materialise. The Roy Morgan unemployment estimates show that unemployment consistently drops in February (7/11 years) as students receive formal job offers and transition into full-time work.

The school-leaver effect is also evident in the non-seasonally adjusted (NSA) figures from the ABS, which showed an increase in the unemployment rate to 5.5% from 5.0%, compared with a 0.1% fall in the seasonally adjusted (SA) figure:

Nevertheless, when the NSA ABS unemployment rate is compared against the Roy Morgan number, the divergence is striking:

Given the inherent volatility in monthly series, I often like to smooth the data by applying a 3-month moving average (3MMA). The result is shown below for both the ABS and Roy Morgan series:

As you can see, the two series are highly correlated. But something weird happened in January, with both series diverging by 5.2% – the greatest margin in 11-years and well-above the average divergence of 2.2%:

Which measure is right or wrong with respect to the direction of the labour market remains to be seen. Either Roy Morgan’s unemployment rate will retrace sharply in coming months (beyond usual seasonal movements), the ABS figure will deteriorate toward Roy Morgan’s, or some combination of the two.

Turning back to yesterday’s ABS employment analysis for a moment, one of MacroBusiness’ many insightful readers, Magpie, pointed to an important quote from the ABS regarding the sharp fall in aggregate number of hours worked, which was the largest fall since February 2009 (see below charts) and basically took us back to the previous January:

According to the ABS:

Aggregate monthly hours worked… can sometimes be more revealing of what is happening in the labour market, particularly in a weakening economy where a fall in hours worked can usually be seen before any fall in the number of people employed.

As I said yesterday, the fall in the aggregate number of hours worked was the only blemish on an otherwise strong set of numbers. And it also fits with the explanation that the Roy Morgan method will pick up a loosening in the labour market more quickly than the ABS method owing to its greater sensitivity to limited hours.

The media response to yesterday’s figures was rightly quite circumspect. It’s only one month’s data in what can be a volatile series. Given the uncertainty around the sharp divergence between the Roy Morgan measure and the official ABS measure, as well as the spate of announcements of job cuts, I’ll wait for a few more months of data before forming any strong opinions either way regarding the direction of the labour market.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. The ABS figures are rubbish – not the Roy Morgan ones. I worked for many years in Job Network and I know for a fact that they use lots of dirty tricks to get people classified as ‘outcomes’ so they get paid. Steve Keen is not entirely correct – you can be registered as unemployed with Centrelink AND still be counted as employed if you work more than one hour per week; there are thousands of people out there doing just that.

    An example is a homeless guy I met recently who sells the ‘Big Issue’ one day a week; he’s not actually counted as unemployed although to most people with common sense he actually is. A friend of mine works casually 8 or 10 hours per week – he’s desperate for more hours from his employer but can’t get them. He’s not officially unemployed; he’s UNDER-employed. Roy Morgan’s measure, despite the methodological shortcomings, successfully captures the rate of under-employment whereas the ABS figures only measure people who are ‘technically’ unemployed but who might be actually on the dole and/or looking for more work.

    There’s a big motivation for Job Network agencies to register tiny amounts of incidental work that their clients do because they get paid for that no matter what the quality of the outcome is like for the participant; Johnny Howard’s privatisation of the CES had the perverse effect of wiping off a whole lot of people who would have otherwise been looking for F/T work because there’s no incentive for the agencies to find unemployed people proper incomes when a few hours a week will do.

    The other problem with Job Network (or Jobs Australia as its now known in the Rudd/Gillard era) is that lots of people who were otherwise encouraged to find work were dumped onto the Disability Support Pension with the help of the provider because often it was easier for Job Network to do that than it was for them to help the individual with rehabilitation or job-seeking (which often takes time or money that the provider simply doesn’t have). It’s all very well for people in the media to go crook about bludgers on the Dole or the DSP but it’s entirely another thing to give them meaningful help to overcome their barriers or help them find work that actually gets them OFF the benefit… there just isn’t any structural incentive in the system to provide these individuals with the assistance they actually need.

    • +1 and Dido Sean G.

      I have done some on and off work/help, here and there for what are now called JobService providers too, nothing substantial. The things they do to get you off the Unemployment count is amazing. And when they do so, they receive some kind of payment.

      A few years back my next-floor neighbour was working for MissionAustralia JobServices wing, she told me to come in (hence that’s how the help started) to witness the torrent, avalanche of people coming in to register with them as a CentreLink requirement. That was from July 2009, and that was just one JobService Provider in one Area. Salvation Army, Campbell Page, ORS where also experienceing this torrent in the same area.

      The killer was the ‘Work for the Doll’ scheme. YOur JobService Provider sends you off the Epping CentreLink to write the CentreLink Newsletter. Giggled for a good few minutes when I heard that. Oh yes, one isn’t counted as unemployed for this, you’re working!

    • I could be wrong, but I’m pretty sure the ABS does an independent sample and doesn’t use Job Network/Centrelink data. If that is the case, your comment is inaccurate and if you dont like the results, you should be, as UE is, questioning the methodology or sample size of the two surveys. I suspect there is a reasonable standard error on both, but given that Roy Morgan doesn’t even have enough data to attempt seasonal adjustment, I suggest that its survey is little more than a marketing ploy, compared to the independent ABS, which probably has around 30 times the number of people working on devising methodologies and understanding the results

      • Check out Bill Mitchell’s December comparison of the ABS and Roy Morgan employment surveys (click here). I certainly do not agree with your claim that the Roy Morgan survey is a ‘marketing ploy’. Both measures are valid but different in how they conduct their surveys and how they define “unemployed”.

        • Good point Leith, it’s just a qualitative difference in what they each measure; I just think the ABS measure of defining unemployment as less than an hour a week of work is not really measuring anything meaningful. Up until the mid-1980’s (as I recall) the government used to use the official Department of Social Security information about who was actually registered for the dole. It was Bob Hawke’s bright idea to use the ABS figures instead because they were always consistently lower and ever since then there have been numerous schemes to artificially lower the unemployment figures, such as ‘Work for the Dole’ (which is counted as employment because participants are paid an extra $20 a week on top of their dole for tram/train fares).

          • The one hour per week is global system for counting unemployment (just one part of it). I will hunt down that professor’s name. He explains it so well.

        • Thanks for the link, but doesn’t it reinforce the issue ? Would you sooner run policy on a survey with a sample size of 1/4 of the ABS survey, an uncalculated/undisclosed sample error and no seasonal adjustment or rely the ABS stats. I know it’s not as big a headline, but as a guide to your readers about the direction of policy, it is a little disingenuous. Comments by later readers that the ABS is fudging the stats probably need correcting (unless you think they are fudging the stats)

          • What exactly is disingenuous about how I have reported the unemployment numbers? Please tell me as I would like to know. You have made the accusation that I have somehow mislead readers, so you need to back it up.

            Secondly, are you suggesting that I censor people for claiming that the ABS is deliberately fudging the stats? I certainly don’t believe this – they are merely following internationally accepted norms – but if others want to believe that it’s their perogative. As long as they aren’t being abusive, defaming anyone, or being deliberately annoying, what do I care? If you disagree with their views, debate the point yourself.

      • I’ll try find out the Professor’s that has stated the methodology used by the ABS in determining the unemployment rate. He has done several interviews up to know.

        The ABS does count what is ticked on a benefits claim form, relative to what those boxes are defined as.

        Those definitions are also defined by what a JobService Provider may have offered you. Coarse, Work for the doll, upskill semina’s.

        All those resources at hand and the ABS’ is stil… who is a maketing ploy?

        • BotRot,

          “The ABS does count what is ticked on a benefits claim form, relative to what those boxes are defined as.”

          No it doesn’t. The ABS does not access people’s benefit claim forms. Its measure of un/employment is based on the Labour Force Survey, a survey of a random sample of households, not a sample of Centrelink customers.

          “Those definitions are also defined by what a JobService Provider may have offered you. Coarse, Work for the doll, upskill semina’s.”

          To be defined as unemployed you have to meet 3 criteria:
          1) Unemployed
          2) Looking for work
          3) Available to start work

          There are no additional criteria. Indeed, the ABS “does not ask any questions directly related to participation in labour market programs. Such information is neither necessary nor sufficient to determine labour force status. Individual participants are counted as employed, unemployed or not in the labour force according to economic (work-related) activity undertaken in the survey reference period.” (ABS)

          • I’ll put a reference to the Professor’s name and possibly the interview where here stated how the ABS determines unemployment. I have put a request in for this info. I’ll post it here when I receive it.

            I should clarify that the plan of action one’s JobService provider places one into, may determine what gets ticked and what does not on a CentreLink Benefits form.

            If the ABS does a ‘Labour Force Survey’, I can see why there would be no need to fudge numbers.

            If the good professor comes out wrong in his statemts, I’ll bend over for may caining.

          • Yes Sidelined, you’re very correct I found one reference;

            Professor Bill Mitchell
            http://www.abc.net.au/overnights/stories/s3317713.htm

            His definition does (indeed) concord with your reply post. I mis-heard and believed every other person on how it is determined (unemployment rate). I have heard other interviews with him too, I can’t find them where he mentions CentreLink.

            What make me laugh hard now is that I can see that the ABS need not fudge numbers, it’s built into the the counting system.

            Boy! If only they did count those receiving a specific CentreLink benefit, and walked through the doors of their JobService providers.

            OK as stated, I’ll bend over but you better use a stick!

    • Thanks Sean.
      3rd time thru this post.
      A polite request for MB team.
      Sean’s first para. highlight the disinformation campaign we are all subjected to. Can there be an in depth examination of this facet of bogus spin?
      Some how? by some one?

      • jelmech,

        Put simply, TP: you need to rephrase this It may be the case that some Job Network providers are fudging figures. But so what? The ABS stats are not based on figures from the Job Network. They are derived from their own household survey. In other words, the ABS collects its own data using its own methodology.

        TP: itchy trigger finder to delete comments. Don’t make me

  2. despite the headlines it was still a low quality result. Unemployment steady but hours worked dropping away but consdering the household sector deleveraging that is underway its not a bad effort. thanks to the resources sector it looks like we can have falling houses prices without a sharp rise in unemployment. a win / win. except for those comparing australia to ireland of course.

    • one other thing. for the people who still havent worked out the difference between household sector debt and private sector debt (Vraptor, DrBob from last nights trading day) you should check out figure 5 from the steve keen article that UE has linked in the first paragraph.

      do you understand now?

      • My 1st degree is in Maths. Some grade 6 arithmetic…

        Total private debt $2.1T (of which $760B nett is foreign debt eg bank funding)

        mostly made up of:
        Housing debt $1.2T
        Business debt $700B
        Personal debt $140B
        Credit card $50B

        Total private debt is approx 150% of GDP (nett foreign debt is approximately 57% of GDP)

        • so you still dont understand. ok lets go back another step and maybe you will get it:

          “Definition of ‘Private Sector’
          The part of the economy that is not state controlled, and is run by individuals and companies for profit. The private sector encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.”

          housing debt, personal debt, and credit cards ARE NOT PRIVATE SECTOR DEBT

          once again, do you understand now?

          • Yes I do.

            “Housing debt $1.2T” is an old debt between the Klingons and Romulans and the Federation has been trying to be a an intermediary for 10 millenia.

  3. A lot of the hours reduced comes through from the retail sector, casual shop assistants no longer getting the same level of orders. The casualisation of the work force during the howard years did add a lot of flexibilty to employers. The other point re centrelink classifications, are lot of this occured 20 years ago and various allowances such as Partners allowance wifes pensions were created and then taken away during the early 2000’s.
    I tend to believe underemploymnet is growing at a much faster rate than unemployment.

  4. We have to bear in mind that hiring is usually a slow process especially in larger companies and there is a lot of inertia over the Christmas period. It is very likely that many positions that were filled in January were planned for in October, approved in November and advertised in December. I know from my own experience that people can be hired one month, only to be made redundant 2-3 months later. I remember a case when a major telco offered jobs to new graduates, retracted the offers before they even started but paid them one month salary for nothing. During the dotcom crash I signed a 12-month consulting contract with a bank only to be told a few days later that they were culling the project and we would only be required for 2-3 months.

  5. I see nothing wrong with the ‘1 hour per week’ definition of unemployment. You have to draw a line somewhere, and this seems reasonable to me.

    Also, there is no conspiracy to hide under-employment, the ABS provides employment data broken down by part-time or full-time, it also supplies data on aggregate hours worked and on under-employment (part-timers seeking additional hours).

    And one more thing, the ABS Labour Force Survey is a household survey and has nothing to do with Centrelink. The original quarterly survey began in the 1960s and in its current form began in February 1978.

    • Historically, employment was measured as someone who had a 40-48 hour working week, usually male (observation, not endorsement).

      Everybody else was considered unemployed. This measure has loosened over time…IIRC

      • I don’t know what you mean by ‘historically’ but the ‘one hour per week’ definition has been around for over half a century.

      • As discussed with the other poster earlier on, I would have to agree with you that it’s not an actual conspiracy HOWEVER… it seems very odd to me that someone who plainly is not finanically independent (if you only work one hour per week) is counted as ’employed’. I would have thought that financial independence off any governement or welfare benefits should actually be the definition but as discussed earlier the government does tend to slant things so that ‘unemployment’ is a very liquid concept and one that’s apt to change. As in my first post, I do believe that Job Network do their best to hide the unemployed (with a lot of help from the government) so that they are not counted in official figures.

        • Sean,

          The ABS uses a definition of employment based on ‘work.’ Most people understand what the terms ‘work’ means.

          ‘Financial independence’ is a wholly different concept. Presumably, self-funded retirees, by your definition, are ’employed’ while low-paid full-time workers are ‘unemployed.’ Bizarre.

          As for the Job Network, you have missed the main point: the ABS data is based on a random survey of households. It has nothing to do with Centrelink or the Job Network. Nothing.

  6. No surprise that employment gets fixed by measuring something that isn’t a key indicator of employment. (Ie: the capacity for financial independence)

    I love the way Metrics can be used to focus priority or entrench and reward ineptitude. As a system it’s agnostic and will do a Clark Kent or Lex Luther with equal ease.

    My favourite example of KPI’s gone mad: After a restructuring, our test area now demanded that front and rear brake requests must be logged into the job shedualer independantly. (previously, we logged a vehicle level test) At the next quarterly meeting, that area was singled out for congratualtions as having achieved “practicaly double their old productivity”.

    (Hand hits forehead)

    Even now, I don’t know if it was the test group doing the lying to management or management having their own “wink wink” moment to the board. (Or the Board wanting to stand tall in front of shareholders)

  7. I am old in the tooth, and grey of the beard, and I have long cast a jaundiced eye at the prognostications of RMorgan & Son.
    Yet, I read Keene – ly and take his/your/whatever point.
    Thus we shall see.

    Two of my middle-aged children (in Vic) who happen to work in the Health industry (Speech Path & Project Manager of a large part of State) are looking at possible/probable redundency!