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Australian labour market – full-time jobs shrink as quality of work falls

Summary:
The Australian Bureau of Statistics released of its latest data today (January 23, 2020) – Labour Force, Australia, December 2019 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for December 2020. The culprit – the Australian government – which is starving spending by its obsessive pursuit of a fiscal surplus. While unemployment fell by 0.1 points as a result of the employment growth, full-time employment also fell. So all the net job opportunities created were part-time which suggests that the quality of the overall employment mix has deteriorated. In the last six months, 74 per cent of net employment change has been in the part-time labour market. The broad labour underutilisation (unemployment plus

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The Australian Bureau of Statistics released of its latest data today (January 23, 2020) – Labour Force, Australia, December 2019 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for December 2020. The culprit – the Australian government – which is starving spending by its obsessive pursuit of a fiscal surplus. While unemployment fell by 0.1 points as a result of the employment growth, full-time employment also fell. So all the net job opportunities created were part-time which suggests that the quality of the overall employment mix has deteriorated. In the last six months, 74 per cent of net employment change has been in the part-time labour market. The broad labour underutilisation (unemployment plus underemployment) is at 13.4 per cent and has been stuck around that level for months. There is no dynamic – policy or otherwise – present, which will see this massive pool of available labour brought back into productive use anytime soon. That alone, is a indictment of failed policy. The unemployment rate is 0.6 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market. The Government is thus deliberately inducing deflationary tendencies into the economy and it is the workers that are bearing the brunt. My overall assessment is that the Australian labour market remains a considerable distance from full employment. This persistence in labour wastage indicates that the policy settings are too tight (biased to austerity) and deliberately reducing growth and income generation. There is clear room for some serious fiscal policy expansion at present. The Federal government is willfully undermining our economy with its irresponsible policy position. The impact of the bushfire crisis is likely to start being felt in next month’s figures.

The summary ABS Labour Force (seasonally adjusted) estimates for December 2019 are:

  • Employment increased by 28,900 (0.2 per cent) – Full-time employment decreased by 300 and part-time employment increased by 29,200.
  • Unemployment decreased by 12,900 to 693,100 persons.
  • The official unemployment rate decreased by 0.1 points to 5.1 per cent.
  • The participation rate was steady at 66 per cent.
  • Aggregate monthly hours worked increased by 8.2 (0.46 per cent).
  • Underemployment was steady at 8.3 per cent (1,136 thousand) and the total labour underutilisation rate (unemployment plus underemployment) decreased 0.1 points to 13.4 per cent. There were a total of 1,827.3 thousand workers either unemployed or underemployed.

Employment – full-time employment falls in December 2019

Employment increased by 28,900 (0.2 per cent).

Full-time employment decreased by 300 and part-time employment increased by 29,200.

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 December 2019 using seasonally adjusted data.

The zig-zag pattern where employment growth has regularly been around zero remains evident.

Australian labour market – full-time jobs shrink as quality of work falls

The following table provides an accounting summary of the labour market performance over the last six months.

As the monthly data is highly variable, this Table provides a longer view which allows for a better assessment of the trends.

Assessment:

1. Total employment has exceeded the underlying population growth as a result of participation declining.

2. As a consequence unemployment has fallen.

3. A significant proportion (74.3 per cent) of the net employment change has been part-time, which raises questions about the quality and security of the work being generated.

Australian labour market – full-time jobs shrink as quality of work falls

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 February 2008 (the low-point unemployment rate of the last cycle).

It dived 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.

The ratio was constant in December 2019 at 62.6 per cent and remains below pre-GFC peak in April 2008 of 62.9 per cent.

Australian labour market – full-time jobs shrink as quality of work falls

To put the current monthly performance into perspective, the following graph shows the average monthly employment change for the calendar years from 1980 to 2019 (to date).

It is clear that after some lean years, 2017 was a much stronger year if total employment is the indicator.

It is also clear that the labour market weakened considerably over 2018.

So as we end 2019, we can see that the labour market was weaker than the already weakening performance recorded 2018.

Australian labour market – full-time jobs shrink as quality of work falls

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.

Australian labour market – full-time jobs shrink as quality of work falls

Unemployment decreased by 12,900 to 693,100 persons

The official unemployment rate decreased by 0.1 points to 5.1 per cent.

The policy settings are such (austerity bias) that unemployment is now stuck at elevated levels with an upward bias. The latest fiscal statement assumes this will be the case for several more years.

It is well above the level that would be associated with any inflationary impulses being sourced from the labour market

The Government is thus deliberately holding unemployment at a level that will restrict wages growth and increase family hardship.

The following graph shows the national unemployment rate from January 1980 to December 2019. The longer time-series helps frame some perspective to what is happening at present.

Assessment:

1. It is still 0.2 points above the level it fell to as a result of the fiscal stimulus (which was withdrawn too early) and 1.1 point above the level reached before the GFC began.

2. There is clearly still considerable slack in the labour market that could be absorbed with fiscal stimulus.

3. Its persistently elevated level is directly related to the fiscal austerity that the Federal government has in place.

Australian labour market – full-time jobs shrink as quality of work falls

Broad labour underutilisation decreased 0.1 points to 13.4 per cent

The results for December 2019 are (seasonally adjusted):

1. Underemployment was steady at 8.3 per cent (1,134.2 thousand).

2. The total labour underutilisation rate (unemployment plus underemployment) decreased 0.1 points to 13.4 per cent.

3. There were a total of 1,827.3 thousand workers either unemployed or underemployed.

The following graph plots the seasonally-adjusted underemployment rate in Australia from January 1980 to the December 2019 (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.

Australian labour market – full-time jobs shrink as quality of work falls

If hidden unemployment (given the depressed participation rate) is added to the broad ABS figure the best-case (conservative) scenario would see a underutilisation rate well above 15 per cent at present. Please read my blog post – Australian labour underutilisation rate is at least 13.4 per cent – for more discussion on this point.

Hours worked increased by 8.2 million hours (0.46 per cent) in December 2019

A December surge associated with the season.

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 – which depicts a slightly increasing trend.

Australian labour market – full-time jobs shrink as quality of work falls

Teenage labour market – employment rose slightly in December 2019

Total teenage net employment rose by 1.3 thousand in December 2019 with full-time teenage employment rising by 1.4 thousand.

The teenage unemployment rate fell by 0.8 points to 17.2 per cent.

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)

Over the last 12 months, teenagers have been treading water, while the rest of the labour force gained 262.5 (net) jobs. The overall shift in employment is very poor.

Australian labour market – full-time jobs shrink as quality of work falls

In terms of the current cycle, which began after the last low-point unemployment rate month (February 2008), the following results are relevant:

1. Since February 2008, there have been 2,334.1 thousand (net) jobs added to the Australian economy but teenagers have lost 66.5 thousand over the same period.

2. Since February 2008, teenagers have lost 111.6 thousand full-time jobs (net).

3. Even in the traditionally, concentrated teenage segment – part-time employment, teenagers have gained only 45 thousand jobs (net) even though 1,140.4 thousand part-time jobs have been added overall.

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 February 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).

The absolute loss of jobs reported above has impacted more on males than females.

The male ratio has fallen by 9.4 percentage points since February 2008, the female ratio has fallen by 4.2 percentage points and the overall teenage employment-population ratio has fallen by 6.8 percentage points.

Australian labour market – full-time jobs shrink as quality of work falls

The other statistic relating to the teenage labour market that is worth highlighting is the decline in the participation rate since the beginning of 2008 when it peaked in February at 61.4 per cent.

In December 2019, the participation rate was just 54.9 per cent. This is a very unreliable statistic overall – it fluctuates widely on a monthly basis.

However, the difference between the 2008 level, amounts to an additional 83.6 thousand teenagers who have dropped out of the labour force as a result of the weak conditions since the crisis.

If we added them back into the labour force the teenage unemployment rate would be 25.1 per cent rather than the official estimate for December 2019 of 17.2 per cent.

Some may have decided to return to full-time education and abandoned their plans to work. But the data suggests the official unemployment rate is significantly understating the actual situation that teenagers face in the Australian labour market.

Overall, the performance of the teenage labour market leaves a lot to be desired. The decline in full-time employment for teenagers was particularly worrying.

This situation doesn’t rate much priority in the policy debate, which is surprising given that this is our future workforce in an ageing population. Future productivity growth will determine whether the ageing population enjoys a higher standard of living than now or goes backwards.

I continue to recommend that the Australian government immediately announce a major public sector job creation program aimed at employing all the unemployed 15-19 year olds, who are not in full-time education or a credible apprenticeship program.

Conclusion

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.

The December data reveals that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded.

Employment growth was positive this month all of the net change was due part-time, which suggests that the quality of the overall employment mix has deteriorated. In the last six months, 74 per cent of net employment change has been in the part-time labour market.

Full-time employment fell.

Broad labour underutilisation is at 13.4 per cent and has been stuck around that level for months.

There is no dynamic – policy or otherwise – present, which will see this massive pool of available labour brought back into productive use anytime soon. That alone, is a indictment of failed policy.

The unemployment rate is 0.6 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market.

The Government is thus deliberately inducing deflationary tendencies into the economy and it is the workers that are bearing the brunt.

My overall assessment is:

1. The current situation can best be characterised as being in a weak state.

2. The Australian labour market remains a considerable distance from full employment and the gap is widening.

3. This persistence in labour wastage indicates that the policy settings are to tight (biased to austerity) and deliberately reducing growth and income generation.

4. There is clear room for some serious fiscal policy expansion at present.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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