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Employment softens as expected: underemployment rife throughout country

April 2020 saw almost 600,000 fewer people in jobs than a month earlier, as employment fell 3.1% compared with a year earlier. At the same time, the number of unemployed people lifted 104,500, to 823,300 people, almost 17% higher than a year earlier. As a consequence of different situations, the Participation Rate – those in or seeking work – fell sharply, to 63.5%, feeding a very steep rise in underemployment.

The April unemployment rate lifted to just 6.2%, mainly because those on the JobKeeper program are not recorded as unemployed. Had they instead been pushed to the JobSeeker program, the unemployment rate would have pushed towards 10% and possibly higher.

In many respects, the focus is on unemployment – fair enough given the impact that has on individuals and on society. But here we will start with the other side of the coin and examine the employment level. The chart below shows just how dramatic the fall in the number of people in jobs is, in an historical sense (40 years). It may be a little hard to see, but the fall in the Participation Rate (the black line) in April is, well… unprecedented.

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Fig. 20

To go straight to the dashboard and take a closer look at the data, click here.

A slump in employment participation from 66% to 63.5% of the working age population has literally never been seen since records have been kept. It means many people simply stopped looking for work. Fair enough really, because there are no jobs to apply for.

So the chart also shows, but can barely be seen on the long-run, that almost 600,000 fewer people were employed in April than one month earlier. That is a massive fall. To display the stark nature of this situation, we have provided the shorter time period below, for the same data.

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Fig. 21

To go straight to the dashboard and take a closer look at the data, click here.

A large decrease in employment, inevitably leads to a large increase in unemployment, albeit muted by the ‘halfway house’ of the JobKeeper program. But regardless, the increase in the unemployment rate from 5.2% to 6.2% is the largest single month rise in history, and all the evidence is the employment pain will not end here.

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Fig. 22

To go straight to the dashboard and take a closer look at the data, click here.

The focus on employment and underemployment is understandable, but the insidious data at an economy wide level is the underemployment rate. Underemployment refers to people either seeking more working hours or who have had their hours reduced. In April, the underemployment rate rose 4.9% compared with the prior month and hit an all-time record high of 13.7%.

Underemployment essentially means that in addition to those who are unemployed, the economy is failing to utilise all of the capacity and capability of many people who are employed.

Combining the unemployment rate with the underemployment rate provides a measure of labour underutilisation – the extent to which an economy fails to deploy its most valuable resources. In April, the labour underutilisation rate – as the chart below shows – lifted from 14.1%to 19.9%. That is, almost one-fifth of the apparent Australian working capacity was not being used in April.

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Fig. 23

To go straight to the dashboard and take a closer look at the data, click here.

In The Guardian, Greg Jericho drilled into this a little further, showing that those seeking more hours were stable with prior months, but those impacted by the pandemic and forced to work less hours rose dramatically.

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Fig. 24

This is, as Jericho points out, a more detailed and refined analysis of employment than the nightly news treats us to, but it is for all of that, far more important because:

“…the problem is underemployment has for the past six years been a growing issue:… It used to go up and down in line with unemployment but even before the April figures came out the two measures were further apart than ever before.”

This chart makes that point perfectly clearly.

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Fig. 25

It is relatively easy to calculate and measure employment data, but in so doing, we need to take a moment to consider the impact on households and families across the country. In little short of two months, many families have lost all of their income, which is being supplemented either by the JobKeeper program (to keep them connected to their employer) or the JobSeeker program (offering higher unemployment benefits). Both will end in September on current policies.

One consideration requiring attention is that when the programs end in September, some households may not have the capacity to sustain mortgage payments. We may face the prospect of defaults and distressed sales. If that occurs, then we could expect some downward pressure on property prices later in the year.

That will be a precarious period for many households, and for Australia as a whole. Arrangements to increase workplace flexibility seem entirely reasonable right now. Whether the same measures will work as well in a few months time is not clear. Those going back to work or into new jobs will have very little bargaining power and their capacity to argue for improved wages is likely to be significantly diminished.

Limited wages growth in recent years has reduced consumer spending capacity and has constrained economic growth. Bringing those measures into play in a post-pandemic recovery could be very challenging for the Australian economy. As Greg Jericho wrote in The Guardian:

“Such moves are designed to do one thing – keep wages down by having workers worry about keeping their hours rather than bargaining for higher wages, and it inevitably leads to higher levels of underemployment.”

The impact of higher unemployment and significant underemployment rates goes beyond the individual and reaches deep into our economy and society.

Posted Date: June 9, 2020

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