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Jobs could be the thing and the whole of the thing when it comes to recovery

 

As the relative strength of the Australian economy continues to shine through, it looks increasingly like the thing that will matter most in post-pandemic recovery is employment. Not just who has a job, but also how many hours are in that job and how much people in work (and out of it really) are earning. Meantime, latest data is trending in the right direction on the number of people in employment, but not necessarily on the other questions.

October employment data shows that the unemployment rate ticked back up to 7.0%, with the number of people out of work also lifting to just below 961,000 people. We can see this in the chart below.

image041

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

In the midst of the pandemic, the unemployment rate had been higher – 7.5% and more than one million people out of work, and the RBA and Treasury expect the unemployment rate is going to hang around that level until at least March next year.

That is a worry for the economy, because it is then that the well-targeted JobKeeper program is scheduled to end. That program is widely credited with saving a very large number of jobs. In fact, analysis by the RBA suggests that total employment losses of an additional 700,000 people were avoided by the application of the AUD101 billion program. Keep in mind here that there were 650,000 job losses, so imagine that number being doubled!

It is entirely possible that some economies respond better to stimulus than others. If so, it will probably be held that the Australian economy is one that follows fiscal instruction and reacts fastest and most effectively to additional money floated in by government.

The related argument is that in Australia, fiscal stimulus is largely implemented the right way, putting money where it matters most – where people will spend it.

In the case of JobKeeper, there was no question about where an employer would spend the money – it had to go to employees and that really does seem to have done the job. The issue now is how to ensure that when the support ends, the jobs continue.

In that context, it is good news that the economy has created around 600,000 jobs since the onset of the pandemic.  So, it is little wonder that after crashing in May to 62.7% of the working age population, the Participation Rate (those in work or looking for work), lifted to a respectable 65.8% in October.

image043

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

The jobs are coming back, but what jobs are they, and will they pass the test of helping sustain the nation, as well as the households that have the additional work?

The chart above shows that part time work is recovering faster than full time work. That is not necessarily a problem, but it could become one. What if most of the new jobs mean the recipients don’t have enough work? We will address this critical question a little later in this analysis.

Part of this situation is that in part thanks to JobKeeper’s success and in part related to the nature of new employment, there are plenty of people in work, but with insufficient hours. They are in short, under-employed.

One of the best measures of the state of employment in the economy is labour utilisation rates. By joining unemployment and underemployment, we get a proportion of people whose labour is not being fully utilised. In October, the labour underutilisation rate was 17.4%. It is falling, but it is way too high for an economy preparing itself to stand on its own two feet.

image045

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

The simple answer to the earlier question – what happens when people get a job, but not enough hours? – is that people in those situations keep looking for more work, churning the labour market, with a cost to productivity. It also means they have less bargaining power for simple things like wage increases, and without a wage increase, they don’t have enough money to participate fully in acquiring the goods and services their household needs.

In a consumption driven economy, wages growth is required to ensure that households – the engine room of the national economy – contribute to the next round of self-sustaining growth.

To underscore this, latest data from Victoria shows that wages growth fell to historic lows during the second lockdown, with growth of just 0.1% in the September quarter and only 1.4% on an annualised basis, as David Marin-Guzman observed in the Australian Financial Review in mid-November.

With such well targeted fiscal stimulus a feature of good crisis management in modern Australia, we might do well to be engaging the national brain in ensuring that the jobs of the future are just as well considered. The nation and around 20% of all households are going to depend upon it.

 

Posted Date: December 8, 2020

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