Australian labour market – remains in a sluggish state

The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for January 2017 shows total employment barely increased for the second month in a row and Australia’s status as a part-time employment nation firms. Over the last 12 months, Australia has lost 56.1 thousand full-time jobs (in net terms) and added only 103.4 thousand overall. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development etc. The teenage labour market remains in a poor state but improved slightly in January. It requires urgent policy intervention. The unemployment rate fell by 0.1 points but only because the labour force contracted as participation declined. In other words, hidden unemployment rose while official unemployment fell. Not a win-win. Overall, the Australian labour market is weak and showing no signs of improvement. With weak private investment now on-going and real GDP contracting (in the September-quarter), the poor outlook signals the need for a policy shift biased to expansion. It is clear that the current restrictive fiscal policy position adopted by the Federal government is not sufficient to redress the inadequate non-government spending growth.

The summary ABS Labour Force (seasonally adjusted) estimates for January 2017 are:

  • Employment increased by 13,500 (0.1 per cent) with full-time employment decreased by 44,800 and part-time employment increased 58,300.
  • Unemployment decreased by 19,300 to 720,200 but only because the participation rate fell.
  • The official unemployment rate fell by 0.1 points to 5.7 per cent.
  • The participation rate fell by 0.1 points to 64.6 per cent. Its behaviour has been quite erratic over the last 6 months. It remains well below its December 2010 peak (recent) of 65.8 per cent.
  • Aggregate monthly hours worked increased 10.2 million hours (0.61 per cent).
  • The monthly (unadjusted) broad labour underutilisation data for January 2017 rose by sharply in January 2017 from 14.7 to 15.3 per cent (males 12.9 to 13.1 per cent, females 16.9 to 17.7 per cent). Since September 2016, the broad labour underutilisation rate has risen from 13.9 per cent to 15.3 per cent. Underemployment was estimated to be 9.1 per cent.
  • The latest quarterly broad labour underutilisation data was published last month. Underemployment 8.3 per cent of the labour force in the December quarter. The total labour underutilisation rate (unemployment plus underemployment) was 14.1 per cent. There were 1,059.4 thousand persons underemployed and a total of 1,784.5 thousand workers either unemployed or underemployed.

Employment growth – remains weak

Employment rose by a miserly 13,500 in January 2017 with full-time employment falling by 44,800 and part-time employment increasing by 58,300.

I indicated several months ago that Australia was becoming a part-time employment nation. That trend has not been reversed by these figures.

The ABS said that in terms of its trend data:

We are still seeing strong growth in part-time employment in January 2017 … There are now around 129,800 more people working part-time than there were a year ago, and around 40,100 fewer people working full-time …

In seasonally-adjusted terms, 154.2 per cent of the net jobs created in Australia in the last 12 months have been part-time.

The zig-zag pattern that we have observed over the last 36 months or so – where the employment estimates have been switching back and forth regularly between negative employment growth and positive growth with the occasional spikes – continues.

The following graph shows the month by month growth in full-time (blue columns), part-time (grey columns) and total employment (green line) for the 24 months to January 2017 using seasonally adjusted data.

It gives you a good impression of just how flat employment growth has been over the last 2 years. You can also see the dominance of part-time employment growth over the same period, especially in the last year or so.

The following table provides an accounting summary of the labour market performance over the last six months. The monthly data is highly variable so this Table provides a longer view which allows for a better assessment of the trends. WAP is working age population (above 15 year olds).

Full-time employment has risen fallen by 19.1 thousand jobs (net) over the last 6 months, while part-time work has risen by 60.3 thousand jobs.

The conclusion – overall there have only been 41.2 thousand jobs (net) added in Australia over the last six months while the labour force has barely increased (up 35.2 thousand) due to the sharp fall in participation (-0.3 points). Employment growth has thus just exceeded the sluggish labour supply growth with the result that unemployment has fallen by 6 thousand.

Overall – a very weak labour market.

Given the variation in the labour force estimates, it is sometimes useful to examine the Employment-to-Population ratio (%) because the underlying population estimates (denominator) are less cyclical and subject to variation than the labour force estimates. This is an alternative measure of the robustness of activity to the unemployment rate, which is sensitive to those labour force swings.

The following graph shows the Employment-to-Population ratio, since February 2008 (the low-point unemployment rate of the last cycle).

It dived with the onset of the GFC, recovered under the boost provided by the fiscal stimulus packages but then went backwards again as the last Federal government imposed fiscal austerity in a hare-brained attempt at achieving a fiscal surplus.

The ratio began rising in December 2014 which suggested to some that the labour market had bottomed out and would improve slowly as long as there are no major policy contractions or cuts in private capital formation.

However, the peak in December is now gone and the ratio is once again in retreat or flat.

The on-going fiscal deficit is still supporting some growth in the economy as the spending associated with the mining boom disappears. But the deficit is clearly too small given the behaviour of the real aggregates.

The series has been steady on 60.9 per cent for the last three months and remains a staggering 2 percentage points below the April 2008 peak of 62.9 per cent.

There is no good news here.

Teenage labour market – some improvement in January

The teenage labour market saw full-time employment rise by 5.9 thousand jobs and part-time employment rise by 13.8 thousand (net) jobs in January 2017.

Total employment thus rose by 19.7 thousand (net), a stronger result than we have seen for several months.

The following graph shows the distribution of net employment creation in the last month by full-time/part-time status and age/gender category (15-19 year olds and the rest)

Over the last 12 months, teenagers have gained just 8.9 thousand (net) jobs overall while the rest of the labour force have gained 94.5 thousand net jobs. Remember that the overall result represents a fairly poor annual growth in employment.

Full-time employment for teenagers over the last 12 months has fallen by 18.2 thousand and they have barely participated in the part-time employment growth (where they are traditionally strongly represented).

The teenage segment of the labour market is being particularly dragged down by the sluggish employment growth, which is hardly surprising given that the least experienced and/or most disadvantaged (those with disabilities etc) are rationed to the back of the queue by the employers.

The following graph shows the change in aggregates over the last 12 months. It is as if the teenagers have not had a stake in the labour market either way (blue bars barely visible).

In terms of the current cycle, which began after the last low-point unemployment rate month (February 2008), the following results are relevant:

1. Since February 2008, there have been only 1,350.7 thousand (net) jobs added to the Australian economy but teenagers have lost a staggering 97.7 thousand over the same period.

2. Since February 2008, teenagers have lost 124.2 thousand full-time jobs (net).

3. Even in the traditionally, concentrated teenage segment – part-time employment, teenagers have gained only 26.5 thousand jobs (net) even though 866 thousand part-time jobs have been added overall.

4. Overall, the total employment increase is modest. Further, around 64 per cent of the total (net) jobs added since February 2008 have been part-time, which raises questions about the quality of work that is being generated overall.

To put the teenage employment situation in a scale context the following graph shows the Employment-Population ratios for males, females and total 15-19 year olds since February 2008.

You can interpret this graph as depicting the loss of employment relative to the underlying population of each cohort. We would expect (at least) that this ratio should be constant if not rising somewhat (depending on school participation rates).

The facts are that the absolute loss of jobs reported above is depicting a disastrous situation for our teenagers. Males, in particular, have lost out severely as a result of the economy being deliberately stifled by austerity policy positions.

In the latter months of 2015, with the part-time employment situation improving, there was some reversal in the downward trends in these ratios.

However, that short improvement has now disappeared and the rations are once again trending downwards.

The male ratio has fallen by 11.3 percentage points since February 2008, the female ratio has fallen by 5.1 percentage points and the overall teenage employment-population ratio has fallen by 8.3 percentage points. That is a substantial decline in the employment market for Australian teenagers.

The other staggering statistic relating to the teenage labour market is the decline in the participation rate since the beginning of 2008 when it peaked in January at 61.4 per cent. In January 2017, the participation rate was just 52.9 per cent.

That is an additional 125.5 thousand teenagers who have dropped out of the labour force as a result of the weak conditions since the crisis.

If we added them back into the labour force the teenage unemployment rate would be 28.3 per cent rather than the official estimate for January 2017 of 16.8 per cent.

Some may have decided to return to full-time education and abandoned their plans to work. But the data suggests the official unemployment rate is significantly understating the actual situation that teenagers face in the Australian labour market.

Overall, the performance of the teenage labour market remains extremely poor. It doesn’t rate much priority in the policy debate, which is surprising given that this is our future workforce in an ageing population. Future productivity growth will determine whether the ageing population enjoys a higher standard of living than now or goes backwards.

I continue to recommend that the Australian government immediately announce a major public sector job creation program aimed at employing all the unemployed 15-19 year olds, who are not in full-time education or a credible apprenticeship program.

Unemployment decreased by 19,300 to 720,200

The official unemployment rate fell 0.1 points to 5.7 per cent in January 2017 but only because the labour force contracted as the participation rate fell (see below).

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 shows the national unemployment rate from February 1978 to January 2017. The longer time-series helps frame some perspective to what is happening at present.

After falling steadily as the fiscal stimulus pushed growth along, the unemployment rate slowly trended up for some months.

It is now 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.

Given the weak (negative) employment growth, the unemployment rate would be much higher if the labour force was growing as previous trend rates (see analysis below).

Broad labour underutilisation – rises sharply to 15.3 per cent

The ABS publishes monthly and quarterly labour underutilisation data. The quarterly data will be updated in March 2017 (for the February quarter).

The monthly underutilisation series shows that (in unadjusted terms), broad labour underutilisation (the sum of unemployment and underemployment) rose sharply in January 2017 from 14.7 to 15.3 per cent (males 12.9 to 13.1 per cent, females 16.9 to 17.7 per cent).

Since September 2016, the broad labour underutilisation rate has risen from 13.9 per cent to 15.3 per cent.

The breakdown for January 2017 (in original terms, no seasonal adjustment):

1. Unemployment 6.1 per cent (males 6 per cent, females 6.3 per cent).

2. Underemployment 9.1 per cent (males 7.1 per cent, females 11.5 per cent).

3. Total underemployment 1,151.0 thousand persons.

The ABS published its quarterly broad labour underutilisation measures for the December-quarter 2016 in last month’s data release.

In the August-quarter, total underemployment was 8.3 per cent (1,059.4 persons – down by 40.7 thousand or 3.7 per cent since May) and the ABS broad labour underutilisation rate (the sum of unemployment and underemployment) was 14.1 per cent (down by 0.2 percentage points).

There were 1,059.4 thousand persons underemployed and a total of 1,784.5 thousand workers either unemployed or underemployed.

Clearly, the monthly data is showing a further deterioration in the broader indicators of labour market well-being.

The following graph plots the history of quarterly (seasonally-adjusted) underemployment in Australia since February 1978 to the December-quarter 2015.

The next graph shows the evolution of the broad underutilisation rate over the same period. You can see the three cyclical peaks corresponding to the 1982, 1991 recessions and the more recent downturn.

Unemployment was a higher proportion of the two earlier peaks but underemployment now dominates the current cycle (just).

The other difference between now and the two earlier cycles is that the recovery triggered by the fiscal stimulus in 2008-09 did not persist and as soon as the ‘fiscal surplus’ fetish kicked in in 2012, things went backwards very quickly.

The two earlier peaks were sharp but steadily declined. The last peak fell away on the back of the stimulus but turned again when the stimulus was withdrawn.

If hidden unemployment (given the depressed participation rate) is added to the broad ABS figure the best-case (conservative) scenario would see a underutilisation rate well above 16 per cent at present. Please read my blog – Australian labour underutilisation rate is at least 13.4 per cent – for more discussion on this point.

The next update will be for the February-quarter 2016 and will be published published in the March 2017 Labour Force release. In between those releases, the monthly estimates are available to guide our thinking.

Aggregate participation rate – fell by 0.1 points to 64.6 per cent and remains at depressed levels

The January 2017 participation rate fell by 0.1 points to 64.6 per cent.

The participation rate remains substantially down on the most recent peak in November 2010 of 65.8 per cent when the labour market was still recovering courtesy of the fiscal stimulus.

Unemployment fell by 19,300 this month but if the participation rate had not fallen in January 2018, total unemployment and the unemployment rate would have risen.

By how much?

The labour force is a subset of the working-age population (those above 15 years old). The proportion of the working-age population that constitutes the labour force is called the labour force participation rate. Thus changes in the labour force can impact on the official unemployment rate, and, as a result, movements in the latter need to be interpreted carefully. A rising unemployment rate may not indicate a recessing economy.

The labour force can expand as a result of general population growth and/or increases in the labour force participation rates.

What would have the unemployment rate been had the participation rate not fallen by 0.1 points in January 2017?

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.

In January 2017, employment rose by 13.5 thousand (net) jobs and the labour force fell by 5.8 thousand. As a result, unemployment fell by 19.3 thousand.

In other words, unemployment because the labour force shrank faster than the fall in employment.

The falling labour force in January 2017 was the outcome of two separate factors:

  • The underlying population growth added 21.8 thousand persons to the labour force. The population growth impact on the labour force aggregate is relatively steady from month to month but has slowed in recent months; and
  • The fall in the participation rate meant that there were 27.6 thousand workers dropping out of the labour force (relative to what would have occurred had the participation rate remained unchanged).
  • The net result was the fall in the labour force of 5.8 thousand (rounded).

If the participation rate had not have fallen, total unemployment, at the current employment level, would have been 747.9 thousand rather than the official count of 720.2 thousand as recorded by the ABS – a difference of 27.6 thousand workers (the ‘participation effect’).


Thus, without the fall in the participation rate in January 2017, the unemployment rate would have been 5.9 per cent (rounded) rather than its current value of 5.7 per cent.

The conclusion is that hidden unemployment rose slightly in January 2017 while official unemployment rate remained unchanged.

There is considerable monthly fluctuation in the participation rate but the current rate of 64.6 per cent is a long way below its most recent peak in November 2010 of 65.8 per cent.

What would the unemployment rate be if the participation rate was at the last November 2010 peak level value?

The following graph tells us what would have happened if the participation rate had been constant over the period November 2010 to January 2017. The blue line is the official unemployment rate 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).

In recent months the gap between the lines has diverged which signals a deteriorating situation.

Total official unemployment in January 2017 was estimated to be 720.2 thousand. However, if participation had not have fallen relative to November 2010, there would be 953.5 thousand workers unemployed given growth in population and employment since November 2010.

The unemployment rate would now be 7.4 per cent if the participation had not fallen below its November 2010 peak of 65.8 per cent. The official unemployment in January 2017 was 5.7 per cent.

The difference between the two numbers mostly reflects, the change in hidden unemployment (discouraged workers) since November 2010. These workers would take a job immediately if offered one but have given up looking because there are not enough jobs and as a consequence the ABS classifies them as being Not in the Labour Force.

There has been some change in the age composition of the labour force (older workers with low participation rates becoming a higher proportion) but this only accounts for less than 1/3 of the shift. The rest is undoubtedly accounted for by the rise in hidden unemployment.

Note, the gap between the blue and red lines doesn’t sum to total hidden unemployment unless November 2010 was a full employment peak, which it clearly was not. The interpretation of the gap is that it shows the extra hidden unemployed since that time.

This gap shrinks as participation rises relative to the November 2010 peak.

Hours worked – rose by a modest 0.61 per cent in January 2017

Seasonally-adjusted aggregate monthly hours rose by 10.2 million hours (0.61 per cent) in January 2017.

The following graph shows the monthly growth (in per cent) over the last 24 months. The dark linear line is a simple regression trend of the monthly change – which depicts a distinct negative trend.

You can see the pattern of the change in working hours is also portrayed in the employment graph – zig-zagging across the zero growth line.

Conclusion

I repeat my standard monthly warning – we always have to be careful interpreting month to month movements given the way the Labour Force Survey is constructed and implemented.

Today’s figures show that the Australian labour market remains in a weak state. Total employment barely increased and the ABS said the trend to part-time work remains.

Over the last 12 months, Australia has lost 56.1 thousand full-time jobs (in net terms) and added only 103.4 thousand overall.

This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development etc.

The teenage labour market remains in a poor state but improved slightly in January. It requires urgent policy intervention.

The unemployment rate fell by 0.1 points but only because the labour force contracted as participation declined. In other words, hidden unemployment rose while official unemployment fell.

Overall, the Australian labour market is weak and showing no signs of improvement. With weak private investment now on-going and real GDP contracting (in the September-quarter), the poor outlook signals the need for a policy shift biased to expansion.

Australia needs a rather sizeable fiscal stimulus.

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved

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    3 Responses to Australian labour market – remains in a sluggish state

    1. Chrislongs says:

      Bill,
      In Ihe UK there seems to be a pattern for part time work up to 16 hours a week as this may be the optimum under current tax/benefit rules . Any similar requirements in Oz for part time work other than necessity?

    2. Dan says:

      “Hidden unemployment rose while official unemployment fell,” said Bill Mitchell, director of the Centre of Full Employment and Equity at the University of Newcastle.
      This is a fact. Why is it that Peter Martin in today’ smh has to attribute it to Bill as if it was an opinion.

    3. Alan Dunn says:

      Bill,

      Any chance you could send Scott Morrison a copy of the new text book along with a Labrador to work through it with him ?

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