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Opinion article

Australia's labour market is strong but slack remains

Following the release of the ABS labour force data update, CEDA Senior Economist, Meg Cuddihy, reflects on the state of the Australian labour market. She says that while stagnant consumer spending and slow growth in wages and GDP are still cause for concern, headline labour market indicators still point towards solid economic health.

In a climate of heightened uncertainty, any weakness in headline economic indicators is bound to trigger a strong response in the media and today’s release of ABS labour force data is no exception. The very slight increase in the seasonally adjusted unemployment rate – from 5.1 per cent to 5.3 per cent – has provoked some alarming headlines, with some pointing to the recent bushfires and coronavirus outbreak as the culprits.  

Interpreting any monthly data series requires consideration of the longer-term context in order to avoid knee-jerk reactions to over-simplified up-or-down stories. A seasonally adjusted unemployment rate of 5.3 per cent is a return to the unemployment level last seen three months ago and is only a shade higher than the 2019 average of 5.2 per cent.  

The participation rate increased slightly from 66.0 per cent to 66.1 per cent, indicating the change in unemployment is likely driven by an increase in jobseekers rather than dramatic job cuts. As for the influence of the bushfires and coronavirus, the economic consequences of these events are more likely to show up in subsequent releases of labour force figures as businesses adjust future expectations. 

If the unemployment rate continues to creep higher over the next few months, there might be cause for concern. For the moment, Australia’s headline labour market indicators still point towards solid economic health, despite concerns around slowing GDP growth rates, weak household spending and subdued wage growth. Over the last four years, the unemployment rate has gradually declined and remained steady over the last year.



Employment has increased by around 1.4 million over the last five years, largely driven by increased jobs in the services industries.

The largest growth in employment has come from health care and social assistance jobs, which account for 19 per cent of all employment growth since 1984. Increasing demand and government expenditure has driven employment growth in this area. Female employment has increased significantly in this industry, both across full-time and part-time employment.



 

Professional, scientific and technical services and construction services have also picked up over the past five years as publicly funded heavy infrastructure projects pick up momentum. Looking ahead, the largest growth in job vacancies has come from administrative and support services, which includes job agency placements in other industries, driven by increased use of temporary staff. The largest growing cohort of employees in this sector has been females employed part-time.



 

Health care and support services sectors have benefitted from the increased use of part-time work arrangements. These arrangements allow greater participation from those who may otherwise not engage in the labour market, such as women who are primary carers for children. The female participation rate was 34 per cent in 1961; by the end of 2019, this rate had almost doubled to 61.2 per cent. More broadly, the participation rate across the population climbed to around 66 per cent, a historically high proportion of people engaged in work. Growth in employment has also outpaced population growth.





Older Australians are also driving participation rates higher by staying in the workforce longer. At the end of 2019, 14.6 per cent of Australians aged 65 and over were still in the workforce, double the proportion in 2005. Interestingly, older labour force data from the ABS suggest the participation rate in 1966 was similar to today at 12.5 per cent. The participation rate then dropped considerably over the 1970s and 1980s.





While robust jobs growth and an unemployment rate of 5.2 per cent has been touted as an impressive achievement in a climate of economic uncertainty, the RBA believes we can do better, revising down their estimate for the unemployment rate associated with full employment to around 4.5 per cent.

Global labour market comparisons - the good and the bad


Globally, Australia’s unemployment rate aligns with the total unemployment rate for OECD countries, though other advanced economies are experiencing even lower rates of unemployment. The United States is currently experiencing its lowest rate of unemployment in almost five decades.





However, when it comes to labour force participation, Australia ranks comparatively well against other advanced economies, indicating jobseekers are relatively less likely to become discouraged and drop out of the workforce entirely, strengthening future economic potential.



Slack remains, hurting some more than others


Despite these promising labour market indicators, there is no sign of the healthy wage growth or inflation that we’d expect from a strong labour market. This can be explained in part by underemployment.

A historically high rate of people are now seeking more hours. In 1966, 90 per cent of workers were employed full-time and only 10 per cent were employed part-time. Today, part-time employment arrangements make up 32 per cent of jobs. Over the last 10 years, full-time jobs have increased by 16 per cent while part-time jobs have grown by 26.8 per cent.

The increasingly flexible nature of work placements, including part time and casual options, allows greater opportunity to enter the workforce but appears to have left around 8.3 per cent of employees looking for more work hours than they are currently able to obtain.



Underemployment isn’t the only concerning aspect of the current labour market. While the overall rate of unemployment is at a low, drilling down further shows that the percentage of unemployed who have been looking for work for a year or more has crept up to 24 per cent. While not as high as the recession of the early 90s, the long-term unemployment rate indicates that jobs growth is not benefitting all in the labour market.



The youth unemployment rate of 11.5 per cent is a bit more than double the full unemployment rate. Job seekers between 15 and 24 years old have a harder time finding employment than the rest of the working age population, though youth unemployment has improved slightly over the past five years.

Casting back to the 1960s, when many people left school at 15 and entered full-time employment at a time when jobs where abundant, the youth unemployment rate was much lower – around three per cent. This rate gradually increased across the 1970s and has for the most part remained over 10 per cent.

Youth unemployment rates are certainly not equitable across the country, with regional areas experiencing much higher rates of unemployment than metropolitan areas. For instance, at the end of last year Adelaide had a youth unemployment rate of 12.7 per cent while the rest of South Australia averaged a rate of 20.9 per cent.



While the headline labour market figures should bolster confidence in Australia’s economic resilience amidst an uncertain global environment, a closer look at the data shows that not everyone is benefitting equally.

For further insights on the health of the Australian economy, check out CEDA’s Economic and Political Overview for 2020. In CEDA’s 60th year, we will also be putting Australia’s current economic performance into its long-term context through our blogs, publications and presentations.

About the authors
MC

Meg Cuddihy

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Meg Cuddihy joined CEDA as a Senior Economist in November 2019. Before joining CEDA, she spent several years as an economic analyst at the Australian Bureau of Statistics working across Australian industry statistics, business indicators and national accounts. She also spent two years volunteering in the South Pacific as an analyst and policy officer. She is currently studying a Master of Analytics at RMIT and holds undergraduate degrees in Economics and Arts from the University of Queensland.
 

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