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Unemployment rate falls, wages start to grow

The national unemployment rate fell to 5.5% in April, even as JobKeeper ended and the Participation Rate slipped back to 66%, from its all-time peak of 66.3%, just one month earlier. The net result of a decline in the unemployment rate was a direct result of quite a large number of people ceasing to look for work.

Around 31,000 people lost their jobs in April, with the number of part-timers losing jobs totalling more than 64,000 and about 33,000 people being added to the ranks of the full-time workforce.

Here, we can see the number of people unemployed continues to decline toward pre-pandemic levels, with the unemployment rate commensurately falling, but also remaining above the level experienced in early 2020.



One employment factor under constant review, especially in the early days of the pandemic, has been the measures of under-employment and labour utilisation in the economy. While both are social and individual concepts, they are also fundamental to economic efficiency.

Underemployment exists when someone has work but desires or requires more hours. Not great for the individual of course, and a growing consideration in the ‘gig’ economy, but there is mounting evidence that underemployment can create economic calamities.

People who need more hours are more likely to churn their job, costing them and both their old and new employer money in transactions, administration and training. If a person does have more than one job (and many do), there is transport and organisation ‘friction’ that costs time, can never be recovered and is utterly inefficient.

When, as below, we combine the unemployed with the underemployed, we can calculate the labour underutilisation rate. In April 2020 it peaked at 19.9% – that is, almost one in five Australian workers was out of a job or not being fully deployed. By April 2021, the underutilisation rate was down to 13.3% and tracking back towards the medium-term average.




Looking in detail, we turn our attention to the average hours worked by each employee. The long-term average hours worked by Australians aged over 15 is 85.65 hours per month. It is fair to say, and we can see this in the chart below, that the average hours worked doesn’t move around much from month to month. Mainly, this is because the hours we work are linked to whether we have work.

So, when the pandemic hit and jobs were lost, lo and behold, average hours fell, but not as much. That is because the people who lost their jobs were mainly part timers and off course, casuals.

After that initial body slam to employment and hours worked, we can observe more-or-less consistent periods of growth in employment and some growth in recovery in the hours worked. There have been hiccups along the way, but there is a new settling beginning to occur. Despite dipping in April, the average hours worked for the month was 85.75, just 0.1 hours per month on average above the long-term average.




As the economy returns to some kind of normal, the average hours worked will be an important measure of total economic wellbeing, as well as the extent to which the pandemic may have adjusted the labour market.

Prior to the pandemic, one of the other factors related to the health of the economy that was most scrutinised was declining real wages. Sure, wages were increasing, but in the private sector especially, doing so more slowly than the rate of inflation. In real terms, average wages were in decline.

There is no particular shock in the data below, but the pandemic saw average wage increases slump to historic lows. Unless they were locked in by agreement, most Australians forewent wages growth during the pandemic.

But that has begun to change, as the last three quarters tentatively demonstrate. While public sector wages growth has continued to stagnate (+0.4% in the March quarter), private sector wages growth lifted (+0.6%), which fed into annualised wages growth of an aggregate 1.5% and just behind that (+1.4%) for the private sector workforce.




It is still early days to suggest that the tide has turned on a troubling time for wages and employment in Australia, but there are signs that at least this key element of the economy is recovering and stabilising.

Speaking to the ABC’s Michael Janda, BIS Oxford Economic’s Sarah Hunter thought about it from the other direction and said the evidence pointed to the ‘easy wins’ of reopening the economy having now been taken up, with employment data was likely to return to ‘normal’ from here on in.

Overall, that seems to point to unemployment rates at around the same level as pre-pandemic, with maybe a marginally higher participation rate, potentially, even more people working part time than ever before, but with the chance of a little wages growth, at least in some sectors.

Posted Date: June 16, 2021

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