If we only read the headlines, August’s 4.5% unemployment rate would be the cause of cheering over our locked down fences and be-masked office spaces. The reality is the main measure of employment is no longer doing its job, with some analysts pointing to a rate closer to 9.7%.
We will come to the truth of the total situation in a moment, but first up and for a start, we can see below that that official unemployment rate has trended down since October last year after the shocks of the pandemic were absorbed and adjusted.
At 4.5% in August 2021, that means 617,100 people were out of work. Good news at this point, right? Kind of makes sense because there’s no migration and though work is patchy, we are counting everyone who was employed during the month. They had a job.
But, here’s the issue. Right now, its very easy to have a job and have no hours of work: not sacked, just furloughed, locked-down, supporting home learners, being non-essential or myriad other ways to be employed but for that to be personally meaningless.
So, the real unemployment rate is a little tricky to assess, because we don’t rightly know who doesn’t actually have any work to do. We can however get a deeper understanding, if not an outright actual number.
We often consider the labour underutilisation rate as a better measure of employment. That is made up of those unemployed and those with less hours than they want – like the poor people on zero hours for instance.
The chart here shows the underutilisation rate lifted 0.9% to 13.8% in August, accounting for 1.268 million Australians with none or insufficient work.
It is important not to gloss over this. The unemployment rate fell in August, but the underemployment rate spiked upwards by a larger margin. These two measures are working against one another right now.
To understand this in more detail, Greg Jericho produced this chart in The Guardian. We don’t need to add a comment – Jericho has included the correct comment in the chart title.
It is easy enough to understand why there are so many folk on zero hours right now. It’s the lockdowns as this chart, also from Jericho and The Guardian, demonstrates.
This Twilight Zone of head-shaking data does not end there, however. The reality is that the 4.5% unemployment rate itself is concocted of some other contentious assumptions right now.
In August, despite the unemployment rate dropping, there were 166,000 fewer people in a job than the prior month. How is that possible?
Understandably, many people knew there were no jobs and they simply stopped looking, which means under the definitions, they were not unemployed and were not counted.
This is observable in the Participation Rate which measures those in work or looking for work. It fell from 66.0% to 65.2% in August.
Returning to reality at the end of this episode of the Twilight Zone of modern economic data, we return to Mr Jericho whose analysis is so on point. By adding the unemployed, those on zero hours and those who simply are not looking for work because there is none, the real unemployment rate is likely closer to 9.7%, as can be seen below.
While further evidence may not be required, the final nail in the coffin of the ‘great’ unemployment rate is that in August, monthly average working hours fell from 85.12 hours to 81.92 hours.
Beyond the pandemic, as recovery becomes a real thing, Australia needs to get honest with itself to assess just what its productive labour force is under-utilised and how to improve productivity by unleashing all the force of its best national asset.
