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Australian Labor Market – Slightly softer in September as implicit unemployment rises – William Mitchell – Modern Monetary Theory


The latest data released by the Australian Bureau of Statistics—— Australian workforce – Today, September 2023 (October 19, 2023). My overall assessment is that the labor market currently looks weak but relatively stable. The decline in full-time employment is concerning. Almost all of the net change in employment over the past six months has been part-time. In September, employment growth was insufficient to absorb potential population growth. Against a backdrop of weak job growth, the only reason the unemployment rate is falling is because falling participation rates mean more workers are leaving the labor market. 9.9% of the working-age population who are available and willing to work are being wasted in one way or another – either unemployed or underemployed. The fact that utilization rates are generally falling is not cause for celebration because it is driven by falling participation rates, which simply means that the implicit unemployment rate is rising. Despite claims from mainstream commentators, Australia is not yet close to full employment.

ABS September 2023 labor force (seasonally adjusted) estimates are summarized below:

  • Employment increased by 6,700 (0.0%) – full-time employment decreased by 39,900 and part-time employment increased by 46,500. Part-time jobs account for 30.5% of the total.
  • The unemployment rate fell by 19,800 to 520,500.
  • The official unemployment rate fell 0.1 percentage points to 3.6%.
  • The participation rate fell 0.2 percentage points to 66.7%.
  • The employment-to-population ratio fell by 0.1 percentage point to 64.4%.
  • Total monthly working hours fell by 8 million hours (-0.4%) for the second consecutive month.
  • The underemployment rate fell 0.2 percentage points to 6.4% (-24,300). There are a total of 931,300 underemployed workers. Total labor underutilization (the unemployment rate plus underemployment) fell 0.3 percentage points to 9.9%. The total number of unemployed or underemployed workers was 1,451,800.

In its– media release – ABS states:

The unemployment rate fell 0.1 percentage points to 3.6% (seasonally adjusted) in September…

The decline in the unemployment rate in September mainly reflected the increase in the proportion of people who moved from unemployment to the non-labor force.

The participation rate fell 0.2 percentage points to 66.7%…

Monthly hours worked fell 0.4% in September 2023, following a 0.5% decline in August, while employment remained relatively flat (up less than 0.1%)…

The recent weakness in hours worked relative to employment growth may indicate weakening labor market strength, although it also comes after particularly strong growth over the past year.

Conclusion: September’s results suggest that while the economy has slowed slightly over the longer term, there are still no signs of any major slowdown.

Although the RBA has been trying to push the unemployment rate to 4.5%, the data shows how ineffective traditional monetary policy (interest rate changes) is as a destabilizing tool.

Employment increased by only 6,700 in September 2023 (0.0%)

1. The number of full-time employees decreased by 39,900 (-0.4%), while the number of part-time employees increased by 46,500 (1.1%).

2. The employment-to-population ratio dropped by 0.1 percentage points to 64.4%.

The chart below shows month-on-month growth in full-time (blue bars), part-time (gray bars) and total employment (green line) over the 24 months to September 2023, using seasonally adjusted data.

I pulled out observations from September to January 2021 – they were outliers due to the COVID-19 pandemic at the time.

The following table provides an accounting summary Labor market performance over the past six months Provides a longer-term perspective, smoothing out month-to-month variations and better assessing trends.

Given changes in labor estimates, it is sometimes useful to check labor force estimates Employment-to-population ratio (%) Because the underlying population estimate (the denominator) is less cyclical and easier 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 labor fluctuations.

The chart below shows the employment-to-population ratio since January 2008, the time of the global financial crisis.

In September 2023, the ratio fell by 0.1 percentage points to 64.4%.

Overall, employment growth has slowed significantly, with all new (net) job growth coming from part-time employment.

To put things into perspective, the chart below shows average monthly employment changes over the calendar years from 1980 to 2022 (so far).

1. The average employment change in 2020 was -9,000, rising to 36,300 in 2021 as lockdowns eased.

2. In 2022, the average monthly change will be 43,000.

3. Average change so far in 2023 is 37,700.

The chart below shows the average monthly change (in thousands) in full-time and part-time employment (below) since 1980.

Working hours decreased by 8.5 million hours in September 2023 (-0.44%)

It was the second straight month of declines, a sign that a slowdown has begun.

The chart below shows monthly growth (in percent) over the past 24 months (omitting the period of pandemic restrictions).

The dark linear line is a simple regression trend of monthly changes.

Actual employment and trend employment

The chart below shows total employment (blue line) and what it would be if growth continued at the average rate from 2015 to April 2020.

Unemployment rate fell by 19,800 to 520,500 in September 2023

The unemployment rate fell this month, but only because the participation rate fell (see below for analysis).

In fact, employment growth is insufficient to match underlying population growth.

The chart below shows the national unemployment rate from January 1980 to September 2023. Longer time series help to develop some perspective on what is happening now.

In September 2023, the broad labor utilization rate fell by 0.3 percentage points to 9.9%

1. The underemployment rate decreased by 0.2 percentage points to 6.4% (-24,300 people).

2. There are a total of 931,300 underemployed workers.

3. The total underutilization rate of the labor force (unemployment rate plus underemployment) decreased by 0.3 percentage points to 9.9%.

4. The total number of unemployed or underemployed workers is 1.4518 million.

But be warned: the drop is tied to a drop in engagement.

The chart below plots Australia’s seasonally adjusted underemployment rate from April 1980 to September 2023 (blue line) and the overall underutilization rate for the same period (green line).

The difference between the two lines is the unemployment rate.

The overall participation rate fell 0.2 percentage points to 66.7%

The decline in the unemployment rate is the result of a reduction in the working population.

The labor force is the portion of the working-age population (15 years and older). The ratio of the working-age population to the labor force is called the labor force participation rate. Changes in the labor force are therefore likely to affect the official unemployment rate, so changes in the latter need to be interpreted carefully. Rising unemployment may not signal a recession.

The labor force may expand due to overall population growth and/or increases in labor force participation (or vice versa).

The table below shows a breakdown of changes in the main aggregates (labour force, employment and unemployment) and the impact of the decline in the participation rate.

Changes in the labor force in September 2023 are the result of two independent factors:

  • Base population growth added 37,200 workers to the labor force.The impact of population growth on the total labor force is relatively stable from month to month; and
  • The decline in the participation rate means that 50,300 workers have dropped out of the labor market (relative to a situation where the participation rate had remained constant).
  • The net result was a reduction in the workforce of 13,100 people.

Evaluate:

1. If the participation rate does not fall in September 2023, taking current employment levels into account, the total unemployment rate will be 570,800, rather than the official figure of 520,500 recorded by the ABS – a difference of 50,300 (‘Participation Effect ‘).

2. If the participation rate had not fallen, the official unemployment rate would have been 3.9% (rounded) instead of the current 3.6%.

3. In other words, rising labor underutilization is hidden from official labor statistics.

Youth labor market improved slightly in September 2023

Teen employment growth was very limited in September, and it is worth noting that the growth in full-time employment was contrary to the large decline in full-time employment overall.

The table below shows the distribution of net job creation by full-time/part-time status and age/gender category (15-19 and other) last month and the last 12 months.

To put youth employment into a scale (relative to their size in the population), the chart below shows the employment-to-population ratio for men, women and the total population aged 15-19 since July 2008.

You can interpret this graph as describing changes in employment relative to the underlying population for each cohort.

Judging from recent developments:

1. The proportion of males decreased by 0.1 percentage points quarterly

Second, the proportion of women is stable.

3. The overall youth employment-to-population ratio decreased by 0.1 percentage points from the previous month.

in conclusion

My standard monthly caveat: Given the way labor force surveys are constructed and administered, we always have to be cautious in interpreting monthly changes.

My overall rating is:

1. The labor market currently looks weak but relatively stable.

2. Employment growth in September was not strong enough to absorb potential population growth.

3. Against a backdrop of weak job growth, the only reason the unemployment rate is falling is because falling participation rates mean more workers are leaving the labor market.

4. Currently, 9.9% of the working-age population who are available and willing to work are being wasted in one way or another—either unemployed or underemployed.

5. The fact that utilization rates are generally falling is not cause for celebration because it is driven by falling participation rates, which simply means that the implicit unemployment rate is rising.

6. Despite what mainstream commentators claim, Australia is not close to full employment.

That’s enough for today!

(c) Copyright 2023 William Mitchell. all rights reserved.



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