The Australian Bureau of Statistics (ABS) released the latest labor force data today (June 15, 2023) – Australian workforce – June 2023. The June results showed a relatively stable picture, with modest job gains keeping pace with underlying population growth and unemployment largely unchanged (slightly lower rounded). The only negative impact was a 0.1 percentage point drop in engagement, but that’s probably just a monthly difference. But we should recognize that there is still 9.9% of the working-age population available and willing to work being wasted in one way or another—either unemployed or underemployed. This level of slack labor means Australia is not really close to full employment, despite claims by mainstream commentators. As I point out below, the steady unemployment rate around 3.5%, combined with the sharp fall in inflation, suggests that the RBA’s claim that unemployment must rise to lower inflation is bogus. Their estimate of NAIRU’s so-called 4.5% should imply that inflation is still accelerating given the actual unemployment rate of 3.5%. Quite the opposite.
The ABS June 2023 labor force (seasonally adjusted) estimates are summarized below:
- Employment rose by 32,600 (0.2%) — full-time employment rose by 39,300 and part-time employment fell by 6,700.
- The unemployment rate fell by 10,900 to 504,400.
- The official unemployment rate fell 0.1 percentage point to 3.5%.
- The participation rate fell 0.1 percentage point to 66.8%.
- The employment-to-population ratio was unchanged at 64.5%.
- Total monthly hours worked increased by 6 million hours (0.3%).
- The underemployment rate was unchanged at 6.4%. In total, there are 935,200 underemployed workers. Total labor force underutilization (the unemployment rate plus underemployment) fell 0.1 percentage point to 9.9%. The total number of unemployed or underemployed workers was 1,439,600.
In its– media release – The ABS states:
… The unemployment rate was unchanged at 3.5% (seasonally adjusted) in June, in line with the latest data for May. …
Employment rose in June, with the employment-to-population ratio holding at a record high of 64.5%, reflecting a tight labor market, with recent gains in employment along with population growth…
The rise in hours worked relative to employment growth since the end of 2022 suggests that, to some extent, the way people work longer hours continues to meet labor demand…
Consistent with the strong increase in hours worked, full-time employment rose by 380,000 last year, while part-time employment rose by 30,000.
Conclusion: The June results showed no major change in the picture, with the RBA’s efforts to push unemployment higher despite falling inflation.
The question journalists should be asking: The employment-to-population ratio has been very stable over the past few months, which means that employment has kept pace with underlying population growth because the participation rate has also been largely stable.
It is therefore debatable whether we should call this a tight labor market when underemployment and unemployment persist.
But regardless of labor market conditions, inflation will soon fall back to lower levels.
The RBA claims that NAIRU is around 4.5%, which means that a stable unemployment rate of 3.5% (as it is now and has been for some time) should correlate with accelerating inflation.
However, we observe the opposite, and this is because NAIRU’s estimates lack any substance.
trick!
Falling Inflation According to NAIRU’s logic, “full employment” means that the unemployment rate is lower than the current 3.5%.
Why don’t journalists ask the new RBA governor this question?
Employment increased by 32,600 (0.2%) in June 2023
1. The number of full-time employment increased by 39,300, while the number of part-time employment decreased by 6,700.
2. The employment-to-population ratio remained unchanged at 64.5%.
The graph below shows the monthly growth in full-time (blue bars), part-time (gray bars) and total employment (green line) for the 24 months to June 2023, using seasonally adjusted data.
I took observations from September to January 2021 – they were outliers due to the COVID-19 pandemic at the time.
The table below provides an accounting summary Labor market performance over the past six months Provides a longer-term perspective, removes monthly variation and better assesses trends.
Given changes in labor estimates, it is sometimes useful to check labor estimates Employment Population Ratio (%) Because the base population estimate (the denominator) is less cyclical and prone to change than the labor force estimate. This is another measure of how robust economic activity is to the unemployment rate, which is sensitive to fluctuations in the labor force.
The graph below shows the employment-to-population ratio since January 2008 (ie since the global financial crisis).
In June 2023, the ratio was left unchanged at 64.5%, a record high.
For perspective, the chart below shows the average monthly employment change for the calendar years from 1980 to 2022 (so far).
1. Average employment change of -8900 in 2020 and 36300 in 2021 as lockdown eases.
2. In 2022, the average monthly change will be 41,700.
3. The average change so far in 2023 is 42,400 and rising.
The graph below shows the average monthly change (in thousands) in full-time and part-time employment (bottom graph) since 1980.
6 million more hours worked (0.3%) in June 2023
The graph below shows the monthly growth rate (in percent) over the past 24 months.
The dark linear line is a simple regression trend (upward sloping due to several outlier results) of monthly variation.
Actual Employment and Trend Employment
The Australian labor market is currently larger than it was in March 2020, with employment numbers now exceeding pre-pandemic trends.
The chart below shows total employment (blue line) and what it would have been if growth had continued at the average rate from 2015 to April 2020.
Population slowdown – “what-if” unemployment analysis
The graph below shows Australia’s working-age population (15+) from January 2015 to June 2023. The dashed line is the projected growth scenario for a continuation of the pre-pandemic trend.
The difference between the two lines is that the working-age population declined after the COVID-19 pandemic restricted immigration.
By June 2023, if pre-COVID trends continue, the civilian population will decrease by 159,600.
The graph below shows the evolution of the actual unemployment rate since January 1980 to June 2023, the dashed line is the “assumed” rate, calculated by assuming the most recent peak participation rate (recorded in June 2023 = 66.9%), the inferred working-age population (based on growth rates from 2015 to March 2020), and the actual employment rate since March 2020.
It shows what the unemployment rate would be given actual job growth if the working-age population trajectory followed past trends.
In this blog post – Closure of Australia’s external borders cut unemployment by about 2.7 percentage points (April 28, 2022), I provide a detailed analysis of how I calculated the “hypothetical” unemployment rate.
So, taking into account employment performance since the pandemic, the unemployment rate would be 4.1% by June 2023 instead of the current 3.5%.
Unemployment rate falls by 10,900 to 504,400 in June 2023
Employment growth has kept pace with growth in the underlying working-age population.
But a 0.1 percentage point drop in the participation rate for the month also meant the unemployment rate held steady.
The chart below shows the national unemployment rate from January 1980 to June 2023. Longer time series help to get some perspective on what’s going on right now.
In June 2023, the broad labor utilization rate decreased by 0.1 percentage point to 9.9%
1. The underemployment rate remained unchanged at 6.4%.
2. A total of 935,200 underemployed workers.
3. Total labor force underutilization (the unemployment rate plus underemployment) fell 0.1 percentage point to 9.9%.
4. The total number of unemployed or underemployed workers was 1,439,600.
The chart below plots Australia’s seasonally adjusted underemployment rate from April 1980 to June 2023 (blue line) and the overall underutilization rate for the same period (green line).
The difference between the two lines is the unemployment rate.
Teen labor market shrinks in June 2023
Net youth unemployment was 7,800 in April, with a loss of 2,800 in full-time jobs and 4,900 in part-time jobs.
The table below shows the distribution of net job creation by full-time/part-time status and age/gender category (15-19 and others) for the past month and the last 12 months.
To put teen employment on a scale (relative to their size in the population), the chart below shows the employment-to-population ratios since June 2008 for males, females, and the total population ages 15-19.
You can interpret this graph as describing the change in employment relative to each cohort’s base population.
Judging from recent developments:
1. The proportion of males decreased by 0.4 percentage points from the previous month.
2. The proportion of women decreased by 0.8 percentage points.
3. The overall employment-to-population ratio of young people decreased by 0.6 percentage points from the previous month.
in conclusion
My standard monthly caveat: Given the way the labor force survey is structured and conducted, we always have to be careful about interpreting the monthly shifts.
My overall rating is:
1. The results for June showed a relatively stable picture, with moderate employment growth keeping pace with underlying population growth and unemployment largely unchanged (slightly lower rounded).
2. The only negative impact is a 0.1 percentage point drop in engagement, but that’s probably just a monthly difference.
3. But we should recognize that there is still 9.9% of the working-age population available and willing to work being wasted in one way or another – either unemployed or underemployed.
4. This level of slack labor means Australia is not really close to full employment, despite what mainstream commentators claim.
5. Unemployment has stabilized at around 3.5%, combined with a sharp drop in inflation, suggesting the RBA’s claim that unemployment must rise to lower inflation is bogus.
6. Their estimate of NAIRU’s so-called 4.5% should imply that inflation is still accelerating given the real unemployment rate of 3.5%. Quite the opposite.
Enough for today!
(c) Copyright 2023 William Mitchell. all rights reserved.
