Unemployment gulf revisited

By Leith van Onselen

As reported by Houses & Holes, Roy Morgan Research yesterday recorded a big 1.5% jump in its unemployment rate to 9.7% in the month of June.

As explained previously, Roy Morgan measures employment differently from the Australian Bureau of Statistics (ABS), which is Australia’s official provider of labour force data:

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 necessarily 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 head of Roy Morgan Research, Gary Morgan, has previously been scathing of the official ABS measure of unemployment. For instance, after the ABS in January registered a surprise fall in Australia’s unemployment rate from 5.2% to 5.1%, Gary Morgan claimed that the ABS unemployment estimate “defy belief and common sense” and suggested that “the ABS figures are diverging from reality” in light of the “constant stream of companies announcing retrenchments in the early stages of 2012″.

Gary Morgan has also argued that the ABS measure is a lagging indicator as it “only classifies an unemployed person as part of the labour force if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week“, whereas the Roy Morgan estimate “provides a more accurate picture of what is happening on the ground” since its “estimates are taken at that point in time“.

Irrespective of whether Gary Morgan’s criticism of the ABS is valid or not (I hold no strong views on the matter and tend to look at both measures independently), both series have, at least until the beginning of this year, tended to track each other reasonably closely (see below chart).

The strong correlation between the two measures is particularly noticeable when both series are measured on a 3-month moving average (3MMA) basis, which removes some of the inherent month-to-month volatility (see below chart).

The difference between the two series, which has averaged 2.2% over the past 11-years, is now at 4.6%, which is close to the all-time high divergence of 5.2% recorded in January 2012 (see below chart).

I noted previously that it remains to be seen whether Roy Morgan’s estimate is right or wrong with respect to the direction of the labour market. The previous divergence in January 2012 was bridged as the Roy Morgan unemployment rate retraced sharply in subsequent months (beyond usual seasonal movements). While this could happen again this time around, there is also the possibility that the official ABS figure will deteriorate towards Roy Morgan’s.

Wait and see…

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Leith van Onselen
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    • Thanks for that link Jack. It adds further clarity to my comment yesterday questioning the veracity of ABS stats gathering. This article from UE also adds to that picture. I know some (youngsters?) may view this as “tin foil hat stuff”, but I have been around long and wide enough to know if what I see resembles truth and accuracy. Anyone who could consider a Govt funded agency free of being influenced in these times is frankly, seriously naive.

      The ABS UE numbers do not reflect either truth or accuracy. Yes, I know they are separate data sets but the ABS numbers are entitled the “Unemployment Rate”.

      That, they are not.1 hour? Seriously, that is employed?

      When one sees a clear and substantial divergence between stats and the real world around you, something is wrong. You cannot witness YoY serious declines in personal credit, shop fronts boarded up and mall crowds in decline, retail sales pain, Online sales going ballistic, manufacturing in decline, so many measures of Aussie economic malaise and still hold on to a belief that the ABS numbers reflect accuracy or truth. Unless of course you were delusional.

      Morgan’s numbers reflect much closer the real world experience of our economy. Their 3 mth MA has meaning. I’m afraid I don’t trust ABS numbers one whit.

      • “That, they are not.1 hour? Seriously, that is employed?”

        One hour is the ILO definition, used in developed countries worldwide. This has been the case since, I believe, the 1960s.

        There’s nothing wrong with this, per se. The consistency of the measure is useful in certain ways, but like any “headline” figure, it has limitations.

        And yes, you are wearing a foil hat. (I’m not young, either.)

  1. Aristophrenia

    Impala kitchens closing its doors is a massive indicator of where things are at – yes people are renovating – but more importantly its housing construction jobs that are starting to go – this was the precursor in the US as well.

    • As harsh as it sounds I think that this needs to happen in Victoria to clean out some of the union influence. It’s sad for the residential guys who aren’t involved in unions but I don’t see any other way.

      • True. Across the board everyone seem to think they’re entitled to pay rises (above CPI) while productivity is falling. As an employer what are you supposed to do? Hire, hope that they pull their weight and cover their costs? …if they don’t you can’t (well, can’t easily) fire them – “Fair Work” and “unfair dismissal” rules keep pushing small business into the corner. Bloody ridiculous.

        • Iron HorseMEMBER

          The increasing amount of red tape is strangling smaller businesses that simply do not have the resources to meet compliance.
          I believe in the medium to longer term this is going to be a major factor in a weakening economy.
          What ever happened to people taking responsibility for their actions/inactions?

      • What a load of rubbish.Not belonging to a Union(if one is available)is the most stupid act a worker could commit to themselves.

        It’s a fact of life that individuals have no bargining power whatsoever against what an employer wants to give. Collectively workers can get a better & fairer deal.

        • depends on your skill-set.

          If an individual’s skill-set is available dime-a-dozen, then you might not have ‘enough’ bargaining power.. otherwise… if the skill-set is not easily available, then that individual will have great bargaining power.

          Cleaning, digging, labouring aint skill-set hence they will have to take cover of the unions!…

          • (edit)

            “…the most stupid act a worker could commit to themselves.”

            you can have all the ‘views’ you want. End of day the individual matters….unfortunately, if my home is being foreclosed, Union aint gonna help me out, if i am made redundant, Unions aint gonna help me out (yes, they will shout on my behalf, make speeches, and feel sorry, but thats where they stop). Unfortunately, every tom, dick and harry is to himself.

            Union movement is good, but there is a limit to everything. (No, i am not a business owner, I am an employee and even I can see that this aint sustainable in the long run!)

          • “The one thing you don’t see is a union for the unemployed.”

            They have existed, on and off, and there are always some around. Back in the 1980s, my home town of Wollongong had one called WOW.

            A quick Google will turn up others still operating.

        • A “fairer” deal huh? I do love the moralising type arguments.

          Fairer to whom? and over what time scale? Sure, in the short term it might be “fairer” to the worker to get increased pay and benefits. However this may not be “fair” to the employer if productivity isnt increasing, and may not be “fair” to the worker over the long term if their short-term thinking contributes to their employer going bust.

          Individuals do have bargaining power if they demonstrate skill and expertise in their chosen field. Even as a labourer not all workers are equal.

          The union movement, by and large, is there to support those at the top of the union pile. while it may have started as a noble idea the vast majority of unions, especially the large ones, do far less for their rank and file than for their leaders and union reps.

          • dumb_non_economist

            poid, I’m sorry, but your second last para is fantasy. I’m in an area where it takes a few years to get the “skill set” and then some more for the experience and nearly all companies have gone down the path of lower experience and skill than increase pay to attract what they need. This hasn’t just been in Australia, but in the M.E. and Asia.