I saw an Australian Broadcasting Commission (ABC) economics commentator today headlining “The unemployment rate has fallen to 3.9%”. That implied something good had happened. In fact, not only did the Australian Bureau of Statistics (ABS) say the rate was unchanged (rounded) but the participation also fell, which means the underlying unemployment situation deteriorated. Two days out from a federal election, the ABC should be doing better than that. His Tweet was pure misrepresentation. All this followed the ABS release of the latest labour force data today (May 19, 2022) – Labour Force, Australia – for April 2022. The labour market deteriorated somewhat in April as employment growth was virtually zero and the participation rate fell by 0.1 points. While the official unemployment rate was unchanged when rounding to one decimal place on 3.9 per cent, it would have been higher (4 per cent) had the participation rate remained constant. In other words, hidden unemployment rose by 19.9 thousand. There are still 1.389 million Australian workers without work in one way or another (officially unemployed or underemployed). The only reason the unemployment rate is so low is because the underlying population growth remains low after the border closures over the last two years. My underlying (‘What-if’) unemployment rate is closer to 6.4 per cent rather than the official rate of 3.9 per cent. Finally, with real wages falling so sharply and employment growth virtually zero, one realises that the mainstream claim that lower real wages are good for employment is bunk!
The summary ABS Labour Force (seasonally adjusted) estimates for April 2022 are:
- Employment increased by 4,000 (0.03 per cent) – Full-time employment increased by 92,400 and part-time employment decreased by 88,400.
- Unemployment fell by 11,100 to 537,100 persons.
- The official unemployment rate remained steady at 3.9 per cent.
- The participation rate decreased 0.1 points to 66.3 per cent.
- The employment-population ratio was steady at 63.8 per cent.
- Aggregate monthly hours rose by 23 million hours (1.3 per cent).
- Underemployment decreased by 0.2 points to 6.1 per cent (a fall of 32.6 thousand). Overall there are 852.5 thousand underemployed workers. The total labour underutilisation rate (unemployment plus underemployment) fell by 0.3 points to 10.0 per cent. There were a total of 1,389.5 thousand workers either unemployed or underemployed.
In its – Media Release – the ABS note that:
3.9 per cent is the lowest the unemployment rate has been in the monthly survey. The last time the unemployment rate was lower than this was in August 1974, when the survey was quarterly.
In line with rising numbers of COVID-19 cases in April, the number of people working reduced hours due to illness continued to be high, reflecting ongoing disruption associated with the Omicron variant …
Around 740,000 people worked reduced hours in April because of illness, almost double what we usually saw in April before the pandemic.
But note that some people are claiming the unemployment rate has fallen to 3.9 per cent based on last month’s estimate of 4.0 per cent.
However, as the ABS point out “the unemployment rate … remained level, in rounded terms, with the revised March rate of 3.9 per cent.”
Data is always revised backwards, so one has to be careful in making comparisons on a month-to-month basis.
Further, the use of the term ‘falling’ implies an improvement, when in fact, had the participation rate not fallen the official unemployment rate would have risen – so no improvement at all given employment growth was virtually zero and more people left the active labour force.
Employment increased by 4,000 in April 2022
1. Employment growth was very modest for the second successive month rising by just 4000 (0.03) per cent.
2. But that aggregate figure disguised substantial shift to full-time work away from part-time work.
2. Full-time employment increased by 92,400 and part-time employment decreased by 88,400.
3. Employment in Australia is 400 thousand (net) jobs (3.1 per cent) above the pre-pandemic level in February 2020.
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 April 2022 using seasonally adjusted data.
The following table provides an accounting summary of the labour market performance over the last six months to provide a longer perspective that cuts through the monthly variability and provides a better assessment of the trends.
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 April 2008 (the low-point unemployment rate of the last cycle).
It fell with the onset of the GFC, recovered under the boost provided by the fiscal stimulus packages but then went backwards again as the Federal government imposed fiscal austerity in a hare-brained attempt at achieving a fiscal surplus in 2012.
There are two forces working here – the denominator (population) is clearly providing favourable pressures due to the slower population growth as a result of the lack of immigration arising from the external border closures.
This is forcing employers to search harder for workers already in Australia rather than discriminate against the unemployed.
The numerator (employment) is clearly stronger as the restrictions ease.
The ratio was steady in April 2022.
To put the current monthly performance into perspective, the following graph shows the average monthly employment change for the calendar years from 1980 to 2022 (to date).
1. The labour market weakened considerably over 2018 and that situation worsened in 2019.
2. The average employment change over 2020 was -8.4 thousand which rose to 33.3 thousand in 2021 as the lockdowns eased.
3. So far in 2022, the average monthly change is 33.9 thousand about the same as last year. I expect that to fall further as the impact of the abnormally high February observation is diluted.
The following graph shows the average monthly changes in Full-time and Part-time employment (lower panel) in thousands since 1980.
The interesting result is that during recessions or slow-downs, it is full-time employment that takes the bulk of the adjustment. Even when full-time employment growth is negative, part-time employment usually continues to grow.
Actual and Trend Employment
The Australian labour market is now larger than it was in April 2020. But it is still a long way from where it would have been if it had have continued to expand at the previous trend.
The following graph shows total employment (blue line) and what employment would have been if it had continued to grow according to the average growth rate between 2015 and April 2020.
In April 2022, the gap increased by 21.4 thousand to 244 thousand jobs as a result of the slow employment growth.
Hours worked rose by 23 million hours (1.3 per cent) in April 2022
The rise in hours worked partially reverses the decline last month due to the floods in Queensland and NSW. There are still tens of thousands of workers who are unable to work as a result of Covid sickness.
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 (skewed by the couple of outlier result).
The Population Slowdown – the ‘What-if’ unemployment analysis
The following graph shows Australia’s working age population (Over 15 year olds) from January 2015 to April 2022. The dotted line is the projected growth had the pre-pandemic trend continued.
The difference between the lines is the decline in the working age population due to the Covid restrictions.
With the external border only just starting to open, net immigration is still very low.
This flattening out has forced employers to work harder to get workers and is one of the reasons unemployment has fallen quickly, given the circumstances.
The following graph shows the evolution of the actual unemployment rate since January 1980 to April 2022 and the dotted line is the ‘What-if’ rate, which is calculated by assuming the most recent peak participation rate (recorded at February 2022 = 66.5 per cent), the extrapolated working age population (based on growth rate between 2015 and April 2020) and the actual employment since April 2020.
It shows what the unemployment rate would have been given the actual employment growth had the working age population trajectory followed the past trends.
In this blog post – External border closures in Australia reduced the unemployment rate by around 2.7 points (April 28, 2022), I provided detailed analysis of how I calculated the ‘What-if’ unemployment rate.
So instead of an unemployment rate of 3.9 per cent, the rate would have been 6.4 per cent in April 2022, given the employment performance since the pandemic.
This finding puts a rather different slant to what has been happening since the onset of the pandemic.
State and Territory Employment Trends
After lockdowns were lifted, the major floods on the East Coast and a growing wave of the new Omicron variant have combined to mute the labour market rebound.
The following graphs show the employment evolution since April 2020 by state and territory.
All the states have regained their April 2020 levels (index of 100).
But the territories – ACT (98.0) and NT (98.3) – are below.
Unemployment fell by 11,100 to 537,100 persons in April 2022
The official unemployment rate was 3.9 per cent and the ABS noted it had revised the March figure down to 3.9 per cent.
Also bear in mind the ‘What-if’ analysis above and the fall in participation (see below).
The following graph shows the national unemployment rate from April 1980 to April 2022. The longer time-series helps frame some perspective to what is happening at present.
Broad labour underutilisation decreased by 0.3 points to 10.0 per cent in April 2022
The results for April 2022 are (seasonally adjusted):
1. Underemployment decreased by 0.1 points to 6.1 per cent (a fall of 32.6 thousand) – this is the result of a rise in full-time work.
2. Overall there are 852.5 thousand underemployed workers.
3. The total labour underutilisation rate (unemployment plus underemployment) fell by 0.3 points to 10.0 per cent.
4. There were a total of 1,389.5 thousand workers either unemployed or underemployed.
The following graph plots the seasonally-adjusted underemployment rate in Australia from April 1980 to the April 2022 (blue line) and the broad underutilisation rate over the same period (green line).
The difference between the two lines is the unemployment rate.
The three cyclical peaks correspond to the 1982, 1991 recessions and the more recent downturn.
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.
Aggregate participation rate decreased by 0.1 points to 66.3 per cent
As noted above, the official unemployment rate would have risen had the participation rate not fallen.
What would have been the case if the participation rate had not fallen?
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.
The following Table shows the breakdown in the changes to the main aggregates (Labour Force, Employment and Unemployment) and the impact of the fall in the participation rate.
The change in the labour force in April 2022 was the outcome of two separate factors:
- The underlying population growth added 12.9 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 over the last year due to the external border restrictions which have drastically reduced migration rates; and
- The fall in the participation rate meant that there were 19.9 thousand workers exiting the labour force (relative to what would have occurred had the participation rate remained unchanged).
- The net result was that the labour force fell by 7.0 thousand.
1. If the participation rate had not have fallen in April 2022, total unemployment, given the current employment level, would have been 557.0 thousand rather than the official count of 537.1 thousand as recorded by the ABS – a difference of 19.9 thousand workers (the ‘participation effect’).
2. Without the fall in the participation rate, the official unemployment rate would have been 4 per cent (rounded) rather than its current value of 3.9 per cent).
3. In other words, the rise in labour underutilisation is being hidden outside the official labour force.
Teenage labour market deteriorates in April 2022
While teenagers have fare well in the labour market over the last 12 months, their fortunes were reversed in April losing out in both full-time and part-time employment.
The following Table shows the distribution of net employment creation in the last month and the last 12 months by full-time/part-time status and age/gender category (15-19 year olds and the rest).
To put the teenage employment situation in a scale context (relative to their size in the population) the following graph shows the Employment-Population ratios for males, females and total 15-19 year olds since June 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).
1. The male ratio has fallen by 6.4 percentage points since April 2008. It fell 1.4 points over the month. It is now 2.4 points above its level in April 2020.
2. The female ratio is 1.8 percentage points above the April 2008 level. It fell 0.6 points over the month. It is now 6.0 points above its level in April 2020.
3. The overall teenage employment-population ratio has fallen by 2.4 percentage points since April 2008. It fell by 1 point over the month. It is now 4.2 points above its level in April 2020.
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.
My overall assessment is:
1. The labour market deteriorated somewhat in April as employment growth was virtually zero and the participation rate fell by 0.1 points.
2. While the official unemployment rate was unchanged when rounding to one decimal place on 3.9 per cent, it would have been higher (4 per cent) had the participation rate remained constant. In other words, hidden unemployment rose by 19.9 thousand.
3. There are still 1.389 million Australian workers without work in one way or another (officially unemployed or underemployed). The only reason the unemployment rate is so low is because the underlying population growth remains low after the border closures over the last two years.
4. The underlying (‘What-if’) unemployment rate is closer to 6.4 per cent rather than the official rate of 3.9 per cent.
That is enough for today!
(c) Copyright 2022 William Mitchell. All Rights Reserved.