The Australian Bureau of Statistics has started publishing weekly employment data – Weekly Payroll Jobs and Wages in Australia, Week ending 4 April 2020 – which is drawn from a new series made available as a result of the Single Touch Payroll data provided by the Australian Tax Office. For the first time, researchers like me can have up to date information as the economy cycles. Usually we get the labour force data some 5-6 weeks behind time and although a lot doesn’t necessarily happen in a month, this crisis is the exception – the whole box-and-dice is collapsing so quickly that we need weekly data, like is provided in the US through the Department of Employment’s unemployment claimants data to stay in touch with how things are tracking. But for now I estimate that the unemployment rate rose to around 10.9 per cent in the 3 weeks to April 4, 2020 (up from 5.2 per cent for the March data – which was surveyed in the early part of the month). In that time, unemployment has more than doubled and is around 1.5 million and rising. The conclusion from my analysis of the latest available data (released April 21, 2020) – is that some sectors in the Australian labour market have experienced a sudden and catastrophic contraction – like nothing we have ever seen in the data. Both employment losses and major wage cuts are underway and the policy response is totally inadequate for the task. A much larger fiscal intervention is required and it has to be directed at workers rather than firms. I will say more about those issues next week. But I am guessing that the Government’s response so far is less than half of what it should have been – it needs at least another $A200 billion.
I also provide an update on the US situation which is getting worse by the week. While the Australian deterioration in employment is not dissimilar to what is happening in the US, the difference is that the welfare support in place is far superior than is being offered by the US government. And I would not want anyone to think that the Australian fiscal support is anywhere near large enough or properly targetted. So that puts the US situation in context (see below).
Jobs collapse in Australia
Here is what has happened to total employment in Australia since January 4, 2020 (the ATO data starts at the beginning of the year). The index is based at 100 on March 14, 2020 which appears to be around the peak employment, although it was slowing since February 29, 2020.
There has been a 6 per cent contraction since March 21, 2020 and almost all of that (4.5 per cent) happened in the week to April 4, 2020. I expect when we get the next release, the contraction will be even greater.
The pattern is almost identical for males and females, so no gender discrimination is evident in the way the jobs are being shed.
What does this imply?
We can do some ‘back-of-the-envelope’ calculations with some assumptions to see what this might imply.
- If you take the national data and assume that total employment has contracted by 6 per cent in the last week (the ATO payroll data is not a full sample), then a fall of 6 per cent, means that by April 4, 2020 (around a month after the last labour force survey was taken), total employment had fallen by 780 thousand jobs.
- If there had been no change in the participation rate (assumption), then unemployment would have more than doubled from 718.6 thousand in the March data to an estimated 1,499.7 thousand by April 4, 2020 – an increase of 781 thousand.
- Again, assuming the labour force is unchanged in that period, the unemployment rate would have risen to 10.9 per cent (up from the official March figure of 5.2 per cent)
That is a staggering shift in one month and a sign that the Australian government’s fiscal intervention is at most half as much as it needs to be.
If you recall, a few weeks ago I did some rough modelling of my own which I presented in these blog posts:
1. “We need the state to bail out the entire nation” (March 26, 2020).
2. The government should pay the workers 100 per cent, not rely on wage subsidies (March 30, 2020).
I provided this Table, which helps us understand the relationship between GDP growth and changes in the official unemployment rate.
|Period||GDP contraction (peak to trough) %||Increase in UR to peak (points)|
|September 1981 to June 1983||-3.71||4.69|
|June 1990 to June 1991||-1.43||4.71|
From that Table, we derive a rough rule of thumb that:
For every 1 per cent that GDP contracts, the unemployment rate rises by 2.5 percentage points, which given the current labour force would add 304 thousand workers to the unemployment queue.
There are cyclical effects on participation etc that are not included in these types of estimates but they help ground us in reality.
Accordingly, the following estimates can be derived.
|Fall in GDP (per cent)||Rise in UR (points)||Estimated UR (per cent)||Unemployment (000s)||Change in Unemployment (000s)|
So it is implying that GDP growth may have slumped between 2 and 3 per cent just in the month to April 4, 2020. An amazing collapse.
1. In the 1982 recession, total employment fell by 3.4 per cent from its peak in April 1982 to its trough in April 1983 – which was considered a devastating contraction.
It returned to its pre-recession peak in April 1984. So peak-trough-back to previous peak took 2 full years.
2. In the 1991 recession, considered the worst since the Great Depression, total employment fell by 4.0 per cent from its peak in July 1990 to its trough in February 1993.
It wasn’t until July 1994, that it returned to its pre-crisis peak – a full 49 months or over 4 years.
3. Derived from data provided by – Source papers in economic history – allows us to see what happened during the Great Depression.
The data is annual and employment in Australia peaked in 1930. By 1932, it had contracted by 9.7 per cent before exceeding the previous peak sometime in 1935.
At the national level, no age breakdowns are provided.
But these are provided at the state/territory level and the following sequence of graphs gives the age profiles of the job loss for each region.
It is clear that our youth are bearing the brunt of the crisis, largely due to the industrial composition of the job losses – services, accommodation etc.
The following graph shows the percentage decline in employment between March 21, 2020 and April 4, 2020 for the Australian industry sectors.
The red line is the national average loss (6 per cent).
As expected the worst hit sectors are Accommodation & food services (decline of 25.6 per cent) and Arts & recreation services (decline of 18.7 per cent).
What is quite unusual is the 7.9 per cent decline in Professional, scientific & technical services and the 7.5 per cent decline in Administrative & support services. These sectors are usually not very sensitive across the economic cycle.
But this crisis is not your usual economic downturn.
The spatial pattern overall is fairly even, although the large employment states of Victoria (-6.4 per cent since March 21, 2020) and NSW (-6.8 per cent) have recorded losses above the national average (-6.0 per cent) and the small island state of Tasmania, which has had a severe concentrated outbreak of the coronavirus has performed the worst (-7.3 per cent)
This graph shows the state/territory percentage job losses from March 21, 2020 to April 4, 2020.
The US contraction continues
Here is the latest update (as for the week ending April 11, 2020) from the US Department of Labor’s weekly data releases for the unemployment insurance claimants.
I first started tracking this data for this downturn in my last commentary on the monthly US labour market data release – Tip of the iceberg – the US labour market catastrophe now playing out (April 6, 2020).
The Department of Labor provides an archive of the weekly unemployment insurance claims data back to July 1, 1967 – HERE.
The weekly data can be found in the – UI Weekly Claims Report.
Bringing together the archived data and the most recent release (April 11, 2020), the following table tells the shocking story.
|Week ending||Initial Claims (SA)||Weekly Change||Cumulative sum since March 7, 2020|
|March 7, 2020||211,000||-6,000||n/a|
|March 14, 2020||282,000||+71,000||282,000|
|March 21, 2020||3,307,000||+3,025,000||3,589,000|
|March 28, 2020||6,686,700||+3,560,000||10,456,000|
|April 4, 2020||6,606,000||-261,000||17,071,000|
|April 11, 2020||5,245,000||-1,370,000||22,316,000|
If we assume all those new claimants were unemployed then the unemployment level by mid-April would have been around 28,103 thousand which would mean that the unemployment rate would have been 17.3 per cent compared to the BLS March figure (taken up to March 10) of 4.4 per cent.
So within a month, the unemployment rate has probably jumped from 4.4 per cent to 17.3 per cent (give or take).
That is a shocking deterioration.
The peak unemployment rate during the Great Depression was 24.9 per cent in 1933, before the New Deal brought it down somewhat.
The next graph adds the last four weeks of available data (week-ending March 21 to April 11, 2020) to the entire sample.
The spike at the end of the graph shows how drastic the situation is in the US.
This is a quite extraordinary graph.
Last week, I also provided some spatial analysis – US downturn very harmful to low wage workers and their communities (April 14, 2020).
In the Department of Labor report cited above, we saw there were sharp differences in initial claimants across the US states.
The next map shows the cumulative sum of unemployment insurance claimants since the end of February 2020, expressed as a percentage of the Working Age Population in each state (Alaska was 9.52 per cent and Hawaii was 13.68 per cent).
This graph more starkly demonstrates where the loss of jobs is impacting most significantly. You can compare this map with the map I produced last week to see where the virus job losses are having shifting impacts.
The following Table presents the same data for those who prefer numbers.
I have spent a little time today acquainting myself with the ABS’s new data set that allows for weekly employment estimates.
I have not reported the wage analysis today (space and time) which is equally as bleak.
The conclusion is:
1. The Australian unemployment rate rose to around 10.9 per cent in the 3 weeks to April 4, 2020 (up from 5.2 per cent for the March data – which was surveyed in the early part of the month).
2. In that time, unemployment has more than doubled and is around 1.5 million and rising.
3. This is a catastrophic rise.
4. A much larger fiscal intervention is required and it has to be directed at workers rather than firms. I will say more about those issues next week.
But I am guessing that the Government’s response so far is less than half of what it should have been – it needs at least another $A200 billion.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.