Each month, following the release of the monthly labour force statistics by the Australian Bureau of Statistics (ABS), Professor Bill Mitchell, Director of the Centre of Full Employment and Equity at the Charles Darwin University, provides a comprehensive report on the data that is well worth a look. Below are some key extracts from this month’s report:
…overall there have been 31.5 thousand jobs (net) created in Australia over the last six month, which is appalling given the positive spike in April 2013.
Over the last six months, full-time employment has risen by 8.9 thousand jobs (net) while part-time work has risen by 22.6 thousand jobs.
The Working Age Population has risen by 147 thousand in the same period while the labour force has risen by just 38.6 thousand. The labour force growth is tepid (relative to the growth in the WAP) because participation has fallen substantially.
The weak employment growth has thus not been able to keep pace with the underlying population growth and unemployment has risen as a result (by 7 thousand).
The rise in unemployment would have been much worse had the participation rate not dropped by -0.3 points (see below for accounting of that impact)…
Overall, the labour market still has significant excess capacity available in most areas and what growth there is is not making any major inroads into the idle pools of labour.
The following graph updates my 3-recessions graph which depicts how quickly the unemployment rose in Australia during each of the three major recessions in recent history: 1982, 1991 and 2009 (the latter to capture the 2008-2010 episode). The unemployment rate was indexed at 100 at its lowest rate before the recession in each case (January 1981; January 1989; April 2008, respectively) and then indexed to that base for each of the months as the recession unfolded.
I have plotted the 3 episodes for 68 months after the low-point unemployment rate was reached in each cycle. The current episode is now in its 68th month. For 1991, the peak unemployment which was achieved some 38 months after the downturn began and the resulting recovery was painfully slow. While the 1982 recession was severe the economy and the labour market was recovering by the 26th month. The pace of recovery for the 1982 once it began was faster than the recovery in the current period.
It is significant that the current situation while significantly less severe than the previous recessions is dragging on which is a reflection of the lack of private spending growth and declining public spending growth.
Moreover, the current episode is also different to the last two major recessions in the sense that the recovery is over and the economy is deteriorating again.
The graph provides a graphical depiction of the speed at which the recession unfolded (which tells you something about each episode) and the length of time that the labour market deteriorated (expressed in terms of the unemployment rate).
From the start of the downturn to the 68-month point (to September 2013), the official unemployment rate has risen from a base index value of 100 to a value 145.7 – peaking at 148 after 17 months. After falling steadily as the fiscal stimulus pushed growth along (it reached 122.8 after 35 months – in January 2010), it has been slowly trending up for some months now. Unlike the other episodes, the current trend, at this stage of the cycle, is upwards.
It will soon be above the peak that was reached just before the introduction of the fiscal stimulus. In other words, the gains that emerged in the recovery as a result of the fiscal stimulus in 2009-10 have now been lost.
At 68 months, 1982 index stood at 151.9 and was falling while the 1991 index was at 143.1 and was also falling. It is clear that at an equivalent point in the “recovery cycle” the current period is more sluggish than our recent two major downturns.
It now appears that the recoveries are converging, which tells us that the current policy has failed to take advantage of the fact that the latest economic downturn was much more mild than the previous recessions. In other words, the policy failure is locking the economy into a higher unemployment rate than is desirable and otherwise attainable.
Note that these are index numbers and only tell us about the speed of decay rather than levels of unemployment. Clearly the 5.7 per cent at this stage of the downturn is lower that the unemployment rate was in the previous recessions at a comparable point in the cycle although we have to consider the broader measures of labour underutilisation (which include underemployment) before we draw any clear conclusions.
The notable aspect of the current situation is that the recovery is very slow…
The participation rate fell by 0.1 percentage points in September 2013 after falling by 0.2 points in July and -0.1 points in August. This continues the downward trend we have seen over the last six months (see Table above).
It is now at 64.9 per cent. The falling participation led to the decline in unemployment. Had the participation rate not fallen, unemployment would have risen.
Unemployment would have been 19 thousand persons higher than the official level had the labour participation rate remained static and given the actual employment growth…
In the current month, the unemployment rate fell to 5.65 per cent from 5.77 per cent.
What would have the unemployment rate been had the participation rate not fallen by 0.1 points?
The following Table shows the breakdown in the changes to the main aggregates (Labour Force, Employment and Unemployment) and the impact of the rise in the participation rate…
The following graph tells us what would have happened if the participation rate had been constant over the period November 2010 to September 2013. The blue line is the official unemployment since its most recent low-point of 4 per cent in February 2008.
The red line starts at November 2010 (the peak participation month). It is computed by adding the workers that left the labour force as employment growth faltered (and the participation rate fell) back into the labour force and assuming they would have been unemployed. At present, this cohort is likely to comprise a component of the hidden unemployed (or discouraged workers).
Total unemployment in September 2013 was estimated to be 697.1 thousand. However, if participation had not have fallen there would be 906.3 thousand workers unemployed given growth in population and employment since November 2010.
The unemployment rate would now be 7.2 per cent if the participation had not fallen below its November 2010 peak of 65.9 per cent...
Overall, today’s data shows that the Australian labour market continues to weaken.
…we have now had two years of weak-to-zero employment growth and deteriorating participation. It is clear that the consistently weak employment growth relative to the underlying population growth is slowly but surely pushing the unemployment rate upwards.
The lack of job opportunities is leading workers to give up looking for jobs (that are not there) and the shrinking labour force is keeping the rise in unemployment down. But the unemployment rate is flattering given the accompanying rise in underemployment and hidden unemployment
The above is an extract only. For the full report, which includes a bunch of other indicators and charts, check out Bill Mitchell’s blog.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
