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Australian Labor Market – Strong job growth in August shows how ineffective monetary policy is


Today, the Australian Bureau of Statistics released the latest data – australian workforce – Today, August 2023 (September 14, 2023). Job growth was strong in August, in line with underlying population growth and rising participation rates, so the unemployment rate held steady. The weaker results in July may mainly reflect the rotation of the sample. However, 10.2% of the working-age population who are available and willing to work are being wasted in one way or another – either unemployed or underemployed. This level of idle labor means Australia is not achieving full employment, despite what mainstream commentators claim. Another point is that the relatively stable unemployment rate shows how ineffective monetary policy is, given that the RBA’s intention to raise interest rates in a series of interest rates since May 2022 has pushed the unemployment rate to 4.5%. The unemployment rate was little changed.

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

  • Employment increased by 64,900 (0.5%) – full-time employment increased by 2,800 and part-time employment increased by 62,100. Part-time jobs account for 30.2% of the total.
  • The unemployment rate fell by 2,600 to 540,500.
  • The official unemployment rate remained unchanged at 3.7%.
  • The participation rate increased by 0.1 percentage points to 67%.
  • The employment-to-population ratio increased by 0.1 percentage points to 64.5%.
  • Total monthly working hours decreased by 9.4 million hours (-0.48%).
  • The number of underemployed people increased by 27,600, or 0.2 percentage points, to 6.6%. There are a total of 959,600 underemployed workers. The labor underutilization rate (unemployment rate plus underemployment) increased by 0.1 percentage points to 10.2%. The total number of unemployed or underemployed workers was 1,500,100.

In its– media release – ABS states:

The unemployment rate remained at 3.7% (seasonally adjusted) in August…

Employment rose sharply in August after falling slightly during the school holidays in July. Looking at the past two months, the average number of new jobs per month has been around 32,000, which is similar to the average growth rate over the past year…

Monthly hours worked fell by 0.5% in August 2023 (after rising by 0.2% in July), while employment increased by 0.5%.

Despite a slight decline in August, hours worked were 3.7% higher than in August 2022, continuing to reflect employment growth faster than the 3.0% annual rate…

The strength in hours worked relative to employment growth over the past year suggests that, to some extent, people working longer hours can continue to meet labor demand…

Conclusion: August’s results suggest that last month’s weak data is not a harbinger of worsening conditions.

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 64,900 in August 2023 (0.5%)

1. The number of full-time employees increased by 2,800, and the number of part-time employees increased by 62,100.

2. The employment-to-population ratio increased by 0.1 percentage points to 64.5%.

The chart below shows month-on-month growth in full-time (blue bars), part-time (grey bars) and total employment (green lines) over the 24 months to August 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 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 chart below shows the employment-to-population ratio since January 2008, the time of the global financial crisis.

In August 2023, the ratio rose by 0.1 percentage points to 64.5%, meaning that employment growth was stronger than underlying population growth.

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 9.4 million hours in August 2023 (-0.48%)

As mentioned above, this is due to a larger than usual number of people refusing to take leave (traditional school holidays) in July despite a decline in total employment.

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.

Population Slowdown – “What-If” Unemployment Analysis

The chart below shows Australia’s working age population (15+) from January 2015 to August 2023. The dotted line is projected growth if pre-pandemic trends continue.

The difference between the two lines is that the working-age population fell after COVID-19 restrictions on immigration.

By August 2023, if pre-COVID trends continue, the civilian population will decline by 123,500 people.

The chart below shows the evolution of real unemployment since January 1980 to August 2023, the dotted line is the “what if” rate, calculated by assuming the most recent peak participation rate (recorded in August 2023 = 67%) ), projected working-age population (based on growth rates from 2015 to March 2020), and actual employment since March 2020.

It shows what the unemployment rate would be given real employment growth if the trajectory of the working-age population followed past trends.

In this blog post – Australia’s external border closures have led to a drop in unemployment of about 2.7 percentage points (April 28, 2022), I broke down how I calculated the “what if” unemployment rate.

Therefore, taking into account employment performance since the pandemic, the unemployment rate will be 4% by August 2023, rather than the current 3.7%. Border restrictions put in place during the early stages of the pandemic are now losing relevance.

Unemployment rate fell by 2,600 to 540,500 in August 2023

Last month’s rise in the unemployment rate may be due to noise from rotating groups in the survey (groups with higher unemployment replacing groups with lower unemployment) that I noted in last month’s report.

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

In August 2023, the overall labor underutilization rate increased by 0.1 percentage points to 10.2%

1. The number of underemployed people increased by 27,600, an increase of 0.2 percentage points to 6.6%.

2. There are a total of 959,600 underemployed workers.

3. The labor underutilization rate (unemployment rate plus underemployment) increased by 0.1 percentage points to 10.2%.

4. The total number of unemployed or underemployed workers is 1.5001 million.

The chart below plots Australia’s seasonally adjusted underemployment rate between April 1980 and August 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 improves in August 2023

After several months of weakness, the teen labor market improved in August 2023.

Teenagers had a net gain of 17,900 jobs in August, with 15,200 full-time jobs and 2,700 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 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 increased by 1.3 percentage points month-on-month.

2. The proportion of women increased by 0.6 percentage points.

3. The overall youth employment-to-population ratio increased by 0.9 percentage points month-on-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 weak results in July may mainly reflect the rotation of the sample.

2. Employment growth was strong in August, keeping pace with underlying population growth and rising participation rates, while the unemployment rate remained stable.

3. 10.2% of the working-age population who are available and willing to work are being wasted in one way or another – either unemployed or underemployed. This level of idle labor means Australia is not achieving full employment, despite what mainstream commentators claim.

That’s enough for today!

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



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