The Australian Bureau of Statistics (ABS) released its latest labour force figures today (18 August 2022) – Australian workforce – August 2022. The W labor market improved slightly in August 2022, with gains in both employment and participation, but this only reversed a combined decline in July. The official unemployment rate rose from 3.4% to 3.5% due to a rise in the participation rate, which means that modest job growth cannot absorb all new entrants into the labor force. The base (“hypothetical”) unemployment rate is closer to 6%, not the official 3.5%. There are still 1,320,400 Australian workers who are in some way unemployed (officially unemployed or underemployed). The only reason unemployment is so low is that potential population growth remains low after border closures for the past two years. But that is changing as immigration increases. Overall, the situation has improved from August.
The summary of the ABS labor force (seasonally adjusted) estimate for August 2022 is:
- Employment rose by 33,500 (0.2%) – full-time employment rose by 58,800 and part-time employment fell by 25,300.
- Unemployment rose by 14,000 to 487,700.
- The official unemployment rate rose 0.1 percentage point to 3.5%.
- The participation rate rose 0.2 percentage points to 66.6%.
- The employment-to-population ratio rose 0.1 percentage point to 64.3%.
- Total monthly hours increased by 14 million hours (0.8%).
- The underemployment rate fell 0.1 percentage point to 5.9 percent (down 7,200). In total, there are 832,700 underemployed workers. Total labor force underutilization (unemployment plus underemployment) remained at 9.4%, with the rise in the official unemployment rate being offset by a decline in underemployment. A total of 1,320,400 people were unemployed or underemployed.
In its– media release – ABS states:
The seasonally adjusted unemployment rate rose to 3.5% in August 2022…
The unemployment rate rose 0.1 percentage points to 3.5% in August, returning to June levels as the number of employed persons rose by 33,000 and the number of unemployed increased by 14,000…
The participation rate also rose to 66.6%, in line with increases in employment and unemployment. Participation rates are now 0.2 percentage points below their all-time high in June and 0.7 percentage points above pre-pandemic levels.
So, at first glance, the labor market appears to have improved slightly in August despite relatively modest job growth.
Both participation and employment are on the rise, meaning the rise in unemployment is due to more people looking for work.
This is reinforced by the rising employment-to-population ratio.
Employment increased by 33,500 (0.2%) in August 2022
1. The number of full-time employees increased by 58,800, and the number of part-time employees decreased by 25,300.
2. The employment-population ratio increased by 0.1 percentage points to 64.3%.
3. In February 2020, employment in Australia was 591,000 (net) jobs (4.5%) above pre-pandemic levels.
The chart below uses seasonally adjusted data to show month-over-month growth in full-time (blue bars), part-time (grey bars), and total employment (green lines) for the 24 months to August 2022.
The table below provides an accounting summary Labour market performance over the past six months Provides a longer-term perspective, with monthly changes, to better assess trends.
Given changes in workforce estimates, sometimes check Employment-to-population ratio (%) Because the underlying population estimates (the denominator) are less cyclical and variable than the labor force estimates. This is another measure of the robustness of activity to the unemployment rate, which is sensitive to labor force fluctuations.
The chart below shows the employment-to-population ratio since April 2008 (ie, since the global financial crisis).
By August 2022, the ratio increased by 0.1 percentage points to 64.3%, an improvement in the situation.
For perspective, the graph below shows the average monthly employment change for the calendar year from 1980 to 2022 (so far).
1. Average employment change in 2020 was -8,400, rising to 36,300 in 2021 as lockdowns eased.
3. From 2022 to now, the average monthly change is 36,500.
The graph below shows the average monthly change (in thousands) in full-time and part-time employment (below graph) since 1980.
The interesting result is that during recessions or slowdowns, most of the adjustment is full-time employment. Even if full-time employment growth is negative, part-time employment typically continues to grow.
Working hours increased by 14 million hours (0.8%) in August 2022
Modest growth was matched by modest job growth.
The chart below shows the monthly growth rate (percentage) over the past 24 months.
The dark linear line is a simple regression trend of monthly changes (sloped by a pair of outlier results).
Actual and Trend Employment
The Australian labour market is now larger than it was in February 2020. But if it continues to expand on its previous trend, it still has some way to go.
The chart below shows total employment (blue line) and what employment would have been if it continued to grow at the average growth rate from 2015 to April 2020.
In August 2022, the shortfall was reduced by 790 to 155,600 as employment contracted.
Population Slowdown – “What-If” Unemployment Analysis
The graph below shows Australia’s working-age population (15+) from January 2015 to August 2022. The dotted line is the projected increase if pre-pandemic trends continue.
The difference between the two lines is the decline in the working-age population following Covid restrictions on immigration.
By August 2022, the civilian population was 521,800 fewer than when pre-Covid trends continued.
The graph below shows the evolution of the actual unemployment rate from January 1980 to August 2022, the dotted line is the “what if” rate, calculated by assuming the most recent peak participation rate (recorded in August 2022 = 66.8%) out), extrapolated working-age population (based on growth rates from 2015 to April 2020), and actual employment since April 2020.
It shows what the unemployment rate would be given real job growth if the working-age population trajectory followed past trends.
In this blog post – Australia’s external border closures cut unemployment by around 2.7 percentage points (April 28, 2022), I provide a detailed analysis of how I calculate the “hypothetical” unemployment rate.
So, given employment performance since the pandemic, the unemployment rate in August 2022 will not be 3.5%, but 6%.
The finding raises a rather different perspective on what has happened since the onset of the pandemic.
Unemployment rises by 14,000 to 487,700 in August 2022
The rise in the unemployment rate was due to a slower increase in employment (33,500) than in the labor force (47,500), driven by an increase in the participation rate.
The working-age population has grown steadily (17,400), but more of that population is now looking for work.
This is a sign that things are improving.
Also keep in mind the “what-if” analysis above, and see the impact of declining engagement below.
The graph below shows the national unemployment rate from April 1980 to August 2022. Longer time series can help form some perspective on what is going on right now.
Broad workforce underutilization held at 9.4% in August 2022
1. The underemployment rate fell 0.1 percentage point to 5.9% (down 7,200).
2. There were 832,700 underemployed workers.
3. Total labor force underutilization (unemployment plus underemployment) remained at 9.4%.
4. A total of 1,320,400 people were unemployed or underemployed.
The graph below depicts Australia’s seasonally adjusted underemployment rate (blue line) and broad underemployment rate (green line) for the period April 1980 to August 2022.
The difference between the two lines is the unemployment rate.
The three cyclical peaks correspond to the recessions of 1982, 1991, and more recently.
Another difference now from the previous two cycles is that the recovery sparked by the fiscal stimulus of 2008-09 did not last, and once the “fiscal surplus” mania hit in 2012, things quickly reversed.
The earlier two peaks were sharp but steadily declined. The last peak disappeared after stimulation, but reappeared when the stimulation was withdrawn.
Teen labor market deteriorates in August 2022
In August, both full-time and part-time opportunities for teens were lost.
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 last month and the past 12 months.
To put youth employment in a context of size (relative to their size in the population), the graph below shows employment-to-population ratios for men, women, and the general population aged 15-19 since June 2008.
You can interpret this graph as describing job losses relative to the base population of each cohort.
1. The proportion of males has dropped by 4.6 percentage points since April 2008, a month-on-month decrease of 1.4 percentage points. It is now 4.3 percentage points above March 2020 levels.
2. The proportion of women is 3.7 percentage points higher than the April 2008 level. It fell 1.5 percent for the month. It is now 7.9 percentage points above March 2020 levels.
3. The overall employment-to-population ratio of young people has dropped by 0.6 percentage points since April 2008, and decreased by 1.5 percentage points month-on-month. It is now 6.1 percentage points above March 2020 levels.
4. So relatively speaking, female adolescents perform better than male adolescents.
in conclusion
My standard monthly warning: Given how the workforce survey is constructed and implemented, we always have to carefully interpret monthly changes.
My overall assessment is:
1. The labor market improved slightly in August 2022, with both employment and participation rising, but this only reversed the combined decline in July.
2. The rise in the official unemployment rate from 3.4% to 3.5% was due to an increase in the participation rate, which meant that modest job growth was not able to absorb all the new entrants into the workforce.
3. The base (“hypothetical”) unemployment rate is closer to 6%, not the official 3.5%.
4. There are still 1,320,400 Australian workers who are in some way unemployed (officially unemployed or underemployed). The only reason unemployment is so low is that potential population growth remains low after border closures for the past two years. But that is changing as immigration increases.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
