I am back into my Wednesday pattern after experimenting or the last 10 weeks with the MMTed Q&A series. Soon there will more video content coming as skills are refined. So today I just report my notes as I analyse the latest Australian Tax Office payroll data – Weekly Payroll Jobs and Wages in Australia, Week ending 25 July 2020 – released yesterday (August 11, 2020) by the Australian Bureau of Statistics. Regular readers will know that I have routinely analysed this dataset ever since it first became available in March this year. It uniqueness is that it provides the most recent data upon which an assessment of where the labour market is heading. The monthly labour force data is about two weeks old by the time this data comes out. And the most recent release gives some insights into what the impact of the renewed and severe lockdowns in Victoria (the second largest State economy) has been. The data shows that the jobs recovery has stalled and emphasises the need for more federal fiscal support – but that support does not appear to be forthcoming.
Relevant blog posts as I trace this data trail over time are:
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).
5. The job losses continue in Australia but at a slower pace (May 19, 2020).
In terms of the coverage of the ATO Single Touch Payroll data, the ABS report that:
Approximately 99% of substantial employers (those with 20 or more employees) and 71% of small employers (19 or less employees) are currently reporting through Single Touch Payroll.
1. Last week, the monthly Labour Force data showed that while employment grew in June, full-time employment went backwards – see my review – Australia labour market – one step forward up a gigantic mountain (July 16, 2020).
2. The Labour Force data was based on a survey that ended around the second-week of June, so by the time the data is published it is a month out of date. The next Labour Force survey data will be published tomorrow.
3. The latest payroll data from the ATO takes us up to July 25, 2020, which means it is more representative of where we are at now (although still two weeks out of date).
4. In the period after the last Labour Force survey, the second-wave of the virus has hit Victoria and after a 3-week Stage 3 lockdown, the Victorian government responded to the escalating infection numbers by introducing even tougher restrictions (Stage 4) for 6 weeks. This data will only tell us what the impact of the Stage 3 lockdowns have been.
5. The assumption by the Federal government that the economy would be rebound quickly is ill-founded. There is mounting evidence that many businesses will not ‘make it across’ the lockdowns, especially given that Victoria is back in tight lockdown and NSW is looking like it will have to follow.
It is obvious that it will have to continue to offer massive fiscal support for an indefinite period – probably a decade or so. So the question then arises – what is best form of that support and at what level should it be provided.
That is the background to analysing the latest payroll data.
Jobs recovery appears to have stalled
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.
Overall, there has been a 5.5 per cent contraction between March 21, 2020 and July 25, 2020. The trough came in the week ending April 18, 2020 and the total employment loss was 8.9 per cent.
As the lockdowns were eased, employment started to return until July 4, 2020, after which there was a 0.3 point contraction in the following week, as the new Victorian lockdown came into effect.
I expect the job attrition will rise when the data is next available, given the severity of the Stage 4 lockdown in Victoria.
Here is the same series decomposed by gender.
While the pattern was almost identical for males and females up to March 22, 2020, the data for the earlier parts of April showed that the crisis was impacting disproportionately on females.
This bias was driven by the occupational segregation that has women dominating the sectors that were most impacted by the lockdown (accommodation, hospitality, cafes, etc)
As the lockdowns ease and businesses reopen, women are gaining jobs at a faster rate than men.
As the recovery has stalled both sexes are impacted more or less evenly.
The accompanying ABS press release – notes that:
The number of payroll jobs nationwide remained steady through July (-0.1 per cent) while Victoria saw a fall … Payroll jobs remained 4.5 per cent below mid-March, when Australia recorded its 100th confirmed COVID-19 case … Payroll jobs fell by 1.5 per cent in Victoria through July ahead of the introduction of Stage 4 COVID-19 restrictions in the state, with total job losses of 6.7 per cent from mid-March …
Around 40 per cent of jobs lost in Victoria by mid-April had been regained by 25 June, but by the end of July this had reduced to 24 per cent …
The question is now how quickly the jobs will recover and how many businesses have been lost altogether. The latter statistic will determine the residual unemployment that will remain.
A guide to the answer to that question can be formed from last week’s Labour Force data.
Answer: because we know that the composition of total employment is already changing away from full-time work.
The following butterfly graphs are constructed from ABS Labour Force data.
They show for full-time and part-time employment indexes set at 100 for the peak in total employment in the downturns for 1982, 1991, GFC and now the COVID-19 cycles.
For the first three events, they show the trajectory for 90 months after the peak, capturing the dynamics of the cycle.
The pattern in a usual downturn are demonstrated in the first three episodes – even as full-time employment declines as the recession bites, part-time employment continues to grow for a while, until it becomes obvious that the recession is deepening.
At the peak before the 1982 recession, the ratio of part-time to total employment was 16.2 per cent. By the time, full-time employment had reached the peak level again (after 41 months following the peak), the ratio was 17.6 per cent (and rising).
The 1991 recession was particularly bad and there was a major shift away from full-time work. At the peak before the 1991 recession, the ratio of part-time to total employment was 21 per cent. By the time, full-time employment had reached the peak level again (after 65 months following the peak), the ratio was 22.3 per cent (and continuing to rise).
The GFC event was reduced in intensity by the substantial fiscal stimulus that the Federal government introduced. But the part-time ratio still rose and full-time employment took 23 months to return to its pre-GFC peak. The part-time to total ratio in February 2008 (peak before the downturn) was 28.3 JobKeeper cent. After 23 months, the ratio had risen to 30.1 per cent.
While the ratio is rising on a trend basis as the labour market is increasingly casualised and job protections are wound back under the aegis of government policy designed to tilt the playing field towards the employers, there is an acceleration in the ratio during recessions when employers scrap full-time work and replace it in the recovery with part-time, fractionalised and insecure work.
The COVID episode is different given the nature of the job loss – lockdowns – which have directly impacted on the sectors where part-time work dominate.
But it is clear from the observations we have (lower-right panel) from the peak in February 2020 until June 2020, that as the lockdowns were eased, part-time employment rebounded but full-time employment continues to decline.
Experience tells me that that suggests that there have been major business failures which will leave a legacy of elevated unemployment.
What does this imply?
We can do some ‘back-of-the-envelope’ calculations with some assumptions to see what this might imply.
- The Labour Force survey is usually completed by the 11th day of each month.
- The most recent Labour Force release showed that in the four weeks to June 11 (about) total employment rose by 4.6 per cent or 210.8 thousand, unemployment rose by 69.3 thousand and the participation rate rose by 1.3 points. That meant that the labour force rose by 280.1 thousand. Of course, since March 2020, the labour force has fallen by 384.6 thousand.
- If added those workers who have left the labour force due to a lack of employment opportunities back into the official unemployed, the unemployment rate would have been 10.04 per cent rather than the reported 7.45 per cent – see Australia labour market – one step forward up a gigantic mountain (July 16, 2020).
- What the latest ATO data shows, is that total employment has fallen by 0.1 points in the three weeks since the last Labour Force survey was completed – which based on the current labour force data would amount to a further 13 odd thousand jobs being lost.
- If we assumed the participation rate over those three weeks was unchanged, then the official unemployment rate would have risen only marginally from 7.5 per cent (which excludes from the calculation the decline in the labour force).
- However, just as the labour force is still lower by 384.6 thousand workers, when compared to March 20.
- If we assumed no change in participation, but added the hidden unemployed who left the labour force in April back into this revised estimate of the official rate, then the adjusted unemployment rate would be around 10.1 per cent.
So this information (which is 2 weeks later than the last Labour Force data) suggests that recovery has stalled and there is considerable downside risk for the labour market.
Wages paid decline over July 2020
The ABS report that between March 14, 2020 and July 25, 2020:
Total wages paid decreased by 4.8%.
Which suggests the worst is far from over.
Age breakdown of Job Loss
The age breakdowns for Australia as a whole are shown in the next graph.
I have now decomposed the data into the job loss period (peak-to-trough) and the recovery period.
It is clear that our youth bore the brunt of the crisis, largely due to the industrial composition of the job losses – services, accommodation etc.
They are also recovering more quickly.
The other insight from this graph is in noting that the prime-age workers lost about 4 per cent of their employment during the peak-to-trough period but in the period since the lockdowns have been eased, their recovery is very muted.
This links with the full-time, part-time analysis above and is suggestive of a conclusion that businesses have disappeared and the recession will be worse than the government has allowed for in their policy support.
The following sequence of graphs gives the age profiles of the job loss for each State/Territory – be careful to appreciate the difference in the vertical scales.
But for most states and territories, the teenage job loss in the descent was in excess of 20 per cent and many were not being supported by the JobKeeper wage subsidy because of their casual status.
The recovery is very muted for teenagers but much worse for the prime-age workers (as above).
Industry job loss breakdown
The following graph shows the percentage decline in employment between March 21, 2020 and April 18, 2020 for the Australian industry sectors (peak-to-trough) and the gains since the recovery to July 25, 2020.
The turning point is taken from the time the Accommodation and foods services stopped shedding jobs (week ending April 18, 2020).
The idea of a discrete ‘recovery’ period will give way next release, given the second wave effects in Victoria.
As expected the worst hit sectors were Accommodation & food services (decline of 35.1 per cent) and Arts & recreation services (decline of 28.2 per cent).
The first stages of lockdown easing have allowed some cafes etc to open, which is why employment in the Accommodation and food services has rebounded by 17.2 per cent since April 18, 2020. The Arts and recreation services sector has recovered by 13.1 per cent.
But the pace of recovery has slowed dramatically in those sectors and will turn negative in the coming week (Stage 4 lockdowns).
As above, what the residual damage will be once the final stages of easing are in place in the coming months depends on how many business and employers go broke in the meantime.
It is clear that in the last week, several sectors have shed employment.
Taken together, these sectors are probably reflecting factors that have arisen from the wider impacts of the lockdowns as the damage permeates the supply chain across the industrial structure.
The deeper this cross-industry penetration the worse the longer lasting effects will be.
State job loss breakdown
The following graph shows the employment losses from March 14, 2020 to July 25, 2020 for the States and Territories (blue bars), while the orange bars shows what has happened over the last 2 weeks.
Clearly the renewed lockdowns are impacting on Victoria. But it is worrying to see the recovery stall in several other jurisdictions.
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Music – Chapter One: Latin America
This is what I have been listening to while working this morning.
After a decade of playing free jazz, Gato Barbieri – started his series of albums devoted to Latin American fusion.
I had purchased his earlier free jazz albums in the early 1970s (bugging the import shop guy to get them in from the US).
But this one was my favourite (apart from the album that immediately preceded it – Bolivia) – of his Latin jazz era.
This track – To be continued – was recorded at Odeon Studios in Rio de Janeiro.
The album has been called “one of the all but forgotten masterpieces in 1970s jazz”. I play this record regularly.
What a collection of great players this is!
I just love the way the instruments slowly build the tension as they are introduced – from the bombo drums through to various percussion instruments, to bass, guitar and then the tenor finale. A wonderful development of sounds.
Here is a Rolling Stone obituary (April 3, 2016) – Gato Barbieri, Latin Jazz Great and ‘Last Tango in Paris’ Composer, Dead at 83.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.