Yesterday, the Australian Bureau of Statistics (ABS) released labour market data for May, which revealed that Australia’s unemployment rate (3.9%) remained at its lowest level since August 1974, whereas the underemployment rate (5.7%) fell to a fresh 14-year low. Labour underutilisation (i.e. unemployment and underemployment combined), fell to its lowest level since 1982:
While stimulus prevented the economy from sliding into a deep recession, it has merely filled the hole left by COVID lockdowns/restrictions and has failed to put the jobs market on a higher trajectory. This is illustrated clearly by the fact that employment growth is tracking below the pre-COVID trend:
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However, full-time jobs are booming, up 6.4% over the pandemic versus a 1.5% fall in part-time jobs:
The collapse in the unemployment and underemployment rates have have also not been driven by people giving up looking for work. Australia’s participation rate in May hit another all-time high:
The same applies for Australia’s employment-to-population ratio, which is also tracking at a record high:
The only explanation for why Australia’s unemployment/underemployment rates have fallen so heavily is because labour supply has grown much more slowly, thanks to negative immigration over the pandemic:
As shown in the next chart, Australia’s civilian population aged over 16 has gone from growing strongly (circa 25,000 people a month pre-pandemic) to growing only slowly:
Therefore, the new jobs created have gone to unemployed Australians rather than migrants.
Had immigration continued at its pre-COVID level, Australia’s civilian population aged over 16 would be roughly 400,000 larger than it is currently. In turn, both unemployment and underemployment would be significantly higher and the employment to population ratio would be much lower (due to an increase in the denominator).
If you don’t believe my analysis go read Professor Bill Mitchell’s take, who is the Chair in Economics and Director of the Centre of Full Employment and Equity (CofFEE), an official research centre at the University of Newcastle. He has come to exactly the same conclusion and estimates that Australia’s unemployment rate would have been 6.1% in May had immigration continued at its pre-pandemic level:
Any economist still claiming that the collapse in Australia’s unemployment and underemployment rates have little to do with the sharp reversal in immigration is deluded. The proof is undeniable.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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