Tuesday , May 18 2021
Home / Bill Mitchell / Australian labour market – recovery continues but storm clouds on the immediate horizon

Australian labour market – recovery continues but storm clouds on the immediate horizon

Summary:
The latest data from the Australian Bureau of Statistics – Labour Force, Australia, March 2021 – released today (April 15, 2021), shows that the Australian labour market continues to recover – and while the recovery had stalled a bit over the latter part of 2020, the March result builds on the strong February result. Employment increased by 0.5 per cent (70,700) in the month and unemployment fell by 27,100 to 778,100 persons. As a result the unemployment rate fell by 0.2 points to 5.6 per cent, even though participation rose by 0.2 points. Overall, a good outcome. The main uncertainty now is that the recovery to this point has been dependent on government fiscal support, which ended in March 2021. Given the labour market is still quite a margin from where it was in March 2020, the idea

Topics:
Bill Mitchell considers the following as important:

This could be interesting, too:

Bill Mitchell writes Australian labour market struggling with significant sectoral disparities

Bill Mitchell writes US labour market goes backwards with mixed signals – but significant slack remains

Bill Mitchell writes US labour market – strong improvement but for how long?

Bill Mitchell writes I vote, I am unemployed and I live in your electorate

The latest data from the Australian Bureau of Statistics – Labour Force, Australia, March 2021 – released today (April 15, 2021), shows that the Australian labour market continues to recover – and while the recovery had stalled a bit over the latter part of 2020, the March result builds on the strong February result. Employment increased by 0.5 per cent (70,700) in the month and unemployment fell by 27,100 to 778,100 persons. As a result the unemployment rate fell by 0.2 points to 5.6 per cent, even though participation rose by 0.2 points. Overall, a good outcome. The main uncertainty now is that the recovery to this point has been dependent on government fiscal support, which ended in March 2021. Given the labour market is still quite a margin from where it was in March 2020, the idea that the government would withdraw its fiscal support is not a compelling option. We will see the first results of the fiscal withdrawal in the next month’s data and I expect things to not look as rosy as they are this month. Further, undertainty has now entered the equation as a result of the vaccination bungling by the federal government. We will see how that plays out in the coming months. Overall, the recovery is still too slow and more government support by way of large-scale job creation is needed.

The summary ABS Labour Force (seasonally adjusted) estimates for March 2021 are:

  • Employment increased 70,700 (0.5 per cent) – Full-time employment decreased by 20,800 and part-time employment increased by 91,500.
  • Unemployment decreased 27,100 to 778,100 persons.
  • The official unemployment rate decreased 0.2 points to 5.6 per cent.
  • The participation rate increased by 0.2 points to 66.3 per cent.
  • Aggregate monthly hours worked increased 1,800 million hours (2.2 per cent).
  • Underemployment decreased by 0.6 points to 7.9 per cent (a fall of 84.3 thousand). Overall there are 1,094.4 thousand underemployed workers. The total labour underutilisation rate (unemployment plus underemployment) decreased by 0.8 points to 13.5 per cent. There were a total of 1,872.5 thousand workers either unemployed or underemployed.

Employment continues to rebound in March 2021

1. Employment growth was 0.5 per cent which represents are fairly robust monthly growth rate.

It is now above the February 2020 level by 68.9 thousand (-0.5 per cent).

2. Full-time employment decreased by 10,800 and part-time employment increased by 91,500.

3. So overall Australia is now back to where it was before the pandemic hit, but only in aggregate terms. There are some sectors that are still languishing while others are rebounding strongly.

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 March 2021 using seasonally adjusted data.

Australian labour market – recovery continues but storm clouds on the immediate horizon

The following table provides an accounting summary of the labour market performance over the last six months to provide a longer perspective that cuts through the monthly variability and provides a better assessment of the trends.

Assessment:

1. Total employment has risen by 498.2 thousand and 32 per cent of that increase has been in part-time work.

2. Full-time employment is still below the March level by 15.3 thousand.

Australian labour market – recovery continues but storm clouds on the immediate horizon

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

It fell 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 rose by 0.3 points in March 2021 to 62.6 per cent on the back of strong employment growth. The ratio is now 0.3 points below pre-GFC peak in April 2008 of 62.9 per cent.

Australian labour market – recovery continues but storm clouds on the immediate horizon

To put the current monthly performance into perspective, the following graph shows the average monthly employment change for the calendar years from 1980 to 2020 (to date).

1. The labour market weakened considerably over 2018 and that situation worsened in 2019.

2. The average employment change over 2020 was -7.5 thousand.

3. So far in 2021, the average monthly change is 62.9 thousand and you can see that from the graph that this is exceptional, although it has only been for three months so far as businesses return to more normal levels of operation.

Australian labour market – recovery continues but storm clouds on the immediate horizon

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.

However, this crisis is different because much of the employment losses are the result of lockdown and enforced business closures in sectors where part-time employment dominates.

But the slow recovery of full-time employment signals that the demand-side impacts from the lockdown have had wider effects.

Australian labour market – recovery continues but storm clouds on the immediate horizon

Hours worked increased 1,800 million hours (2.2 per cent) in March 2021

The recovery in hours worked continued as the various state lockdowns eased further this month.

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 slightly positive trend.

Australian labour market – recovery continues but storm clouds on the immediate horizon

State by State

With the State lockdowns now fading and borders mostly open the recovery in the larger states is apparent.

Relative to when the pandemic began in February 2020, NSW, Victoria, Queensland and Western Australia now have regained their employment levels.

The Northern Territory is the worst performing state (index of 97.5 relative to 100 in February 2020).

Victoria which had the 111-day strict lockdown during its damaging second wave is now the second best performing state.

Australian labour market – recovery continues but storm clouds on the immediate horizon

Unemployment decreased 27,100 to 778,100 persons

The official unemployment rate fell 0.2 points to 5.6 per cent as the rise in employment (70.7 thousand) vastly outstripped the rise in the labour force (43.6).

The decline in unemployment would have been greater had not the participation rate risen 0.2 points, as people sensed the increased employment opportunities.

The following graph shows the national unemployment rate from February 1980 to March 2021. The longer time-series helps frame some perspective to what is happening at present.

Assessment:

1. There is still considerable slack in the labour market that could be absorbed with further fiscal stimulus. Unemployment remains 62.1 thousand above the February 2020 level.

Australian labour market – recovery continues but storm clouds on the immediate horizon

Broad labour underutilisation decreased by 0.9 points to 13.5 per cent in March 2021

The results for March 2021 are (seasonally adjusted):

1. Underemployment decreased by 84.3 thousand.

2. The underemployment rate fell by 0.6 points to 7.9 per cent.

2. Overall there are 1,094.4 thousand underemployed workers.

3. The total labour underutilisation rate (unemployment plus underemployment) decreased by 0.9 points to 13.5 per cent all as a result of both the decline in unemployment and underemployment.

4. There were a total of 1,872.5 thousand workers either unemployed or underemployed.

The following graph plots the seasonally-adjusted underemployment rate in Australia from February 1980 to the March 2021 (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 – recovery continues but storm clouds on the immediate horizon

With the participation rising this month, I expect a slight decline in hidden unemployment. Please read my blog post – Australian labour underutilisation rate is at least 13.4 per cent – for more discussion on this point.

Unemployment and broad labour underutilisation indexes – last four downturns

The following graph captures the evolution of the unemployment rates for the 1982, 1991, GFC and COVID-19 downturns.

For each episode, the graph begins at 100 – which is the index value of the unemployment rate at the low-point of each cycle (June 1981; December 1989; February 2008, and February 2020, respectively).

We then plot each episode out for 90 months.

For 1991, the peak unemployment which was achieved some 38 months after the downturn began and the resulting recovery was painfully slow. While the 1982 recession was severe the economy and the labour market was recovering by the 26th month. The pace of recovery for the 1982 once it began was faster than the recovery in the current period.

During the GFC crisis, the unemployment rate peaked after 16 months (thanks to a substantial fiscal stimulus) but then started rising again once the stimulus was prematurely withdrawn and a new peak occurred at the 80th month.

The COVID-19 downturn was obviously worse than any of the previous recessions shown but because of its unique nature – the job losses being largely driven by lockdowns etc.

And the recovery is evident.

The graph provides a graphical depiction of the speed at which each recession unfolded (which tells you something about each episode) and the length of time that the labour market deteriorated (expressed in terms of the unemployment rate).

After 11 months, the unemployment had risen from 100 to:

1. 128.1 index points in 1982 and rising.

2. 143.6 index points in 1991 and rising.

3. 1143.4 index points in the GFC and rising.

4. 110.6 index points currently and falling.

Australian labour market – recovery continues but storm clouds on the immediate horizon

Note that these are index numbers and only tell us about the speed of decay rather than levels of unemployment.

The next graph performs the same operation for the broad labour underutilisation rate (sum of official unemployment and underemployment).

Australian labour market – recovery continues but storm clouds on the immediate horizon

Teenage labour market weaker in March 2021

1. Total teenage net employment rose by 3.93 thousand in March 2021 (0.6 per cent) – a slowdown in the pace of recovery.

2. Full-time teenage employment fell by 5.3 thousand (3.3 per cent) and part-time employment rose by 9.2 thousand (1.7 per cent).

3. The teenage unemployment rate fell by 0.8 points to 15.8 per cent and the participation rate fell by 0.4 points.

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).

Australian labour market – recovery continues but storm clouds on the immediate horizon

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 June 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).

1. The male ratio has fallen by 9.7 percentage points since February 2008, and 0.9 points since March 2020, but rose 0.18 points over the month.

2. The female ratio has fallen by 1.2 percentage points, but has risen by 2.6 points since March 2020, and 0.33 points over the month.

3. The overall teenage employment-population ratio has fallen by 5.6 percentage points and 0.8 points since March 2020, but rose 0.25 points over the month.

Australian labour market – recovery continues but storm clouds on the immediate horizon

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 March 2021 data reveals that the Australian labour market continues to recover – and while the recovery had stalled a bit over the latter part of 2020, the March result builds on the strong February result.

My overall assessment is:

1. Total employment is now above where it was in February 2020 but there are major sectoral differences – some sectors are still in deep recession while others are booming.

2. Unemployment fell while participation rose. Taken together with the rise in employment these trends are unambiguously good.

3. The main uncertainty now is that the government employment was withdrawn at the end of last month and we will see the impact of that flowing through in next month’s data. I expect employment to stall as a result.

4. And with the vaccination process now in chaos as a result of Federal government bungling, it is highly unlikely that the border will open and as a aresult tourism and aviation will continue to lag.

That is enough for today!

(c) Copyright 2021 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.

Leave a Reply

Your email address will not be published. Required fields are marked *