Record high underemployment in Australia

The latest unemployment figures for Australia show a number of worrying indicators.

• A rise in unemployment overall (to 5.9% of the workforce)
• A record high in underemployment (1.1 million people are employed but want to work longer hours)
• Falling numbers of full-time jobs 

This all helps explain why wages growth in Australia is also at record lows. There is simply too much supply in the labour market for wages to rise. This may be because of a number of reasons, for example, an increasing workforce (immigration and more young people joining the market than older ones leaving it), or lower demand for goods and services made by Australians leading to less demand for workers. 

The prospect of falling Aggregate Demand (AD) is clearly a possibility. At present the rise in commodity prices is helping to boost exports, assisting modest AD growth, but isn't really employing any more people (because its the value not the volume of exports which is rising).

This is going to present difficult policy options for the Government (budgetary/fiscal policy) and the Reserve Bank of Australia on interest rates.

The Guardian covers the story here

Unemployment figures and policy

There have been a lot of stories on unemployment recently - see my posts on Australia's unemployment figures hiding the true state of the economy for example. Below is a link to one on US unemployment.

US unemployment is falling as the economy adds jobs. This has led the US Central Bank - the Federal Reserve Bank of America - to suggest interest rates will rise. Why? Because inflationary pressures are likely to be building, monetary policy works with a long lag and a small rise now should help prevent a problem in a couple of years. (Note more rate rises will certainly be needed over the next year.

See if you can find an article that doe not do too much of the analysis for you to use as an IA source.

The BBC article is here

Unemployment - the headline figures can disguise the truth

In Australia the rate of unemployment has generally been falling. This is usually good news, but there are other subtle points to consider, such as the situation in Queensland where the fall in unemployment might be hiding a more serious problem.

The unemployment rate is measured from a base figure of those people of working age who are looking for work or in work. This group are participating in the labour market, those who choose not to or cannot work are disregarded. The proportion of working age people active in the labour market is therefore called the participation rate.

The fact some people decide not to look for work can affect the unemployment figures and the article below gives an example of this. Unemployment in Queensland is falling, but some claim that this is because some people are so fed up with not finding a job they are simply giving up. If you are not seeking work you are no longer counted as unemployed and the unemployment rate appears to fall.

The discouraged workers as they are known are still without work. The participation rate has fallen and, in the case of Queensland, the number employed falls, but the unemployment rate also falls.

This could indicate a very serious problem with a number of people simply becoming detached from the labourforce, suffering all the personal costs of unemployment, but receiving none of the help the unemployed should receive. In addition the economy is loosing out on all the output those people could produce if they were in work.

Australia's participation rate, since 2011 there has been a downward trend

The ABC cover the story here

This story applies equally to IB and VCE students. The problems of unemployment and the difficulty measuring it is a core concept. There are also links to economic growth and supply-side economics as those not working represent a loss of output and those not seeking to work a serious restraint on aggregate supply.

Australian May Unemployment

With all the election hype the unemployment figures for May were released last week and little attention was paid to them. They show an interesting trend.

The full figures are given below in the link, but as can be seen employment is up (very slightly) and unemployment down, although the unemployment rate stayed at 5.7%.

What you should notice is that employment is rising at a slower rate. The figures are now clear, each month is seeing a smaller rise in employment. We can see confirmation of this in the number of job vacancies, which fell from 172,600 to 169,400. It might not seem much, but that is the worst fall since 2013. It means that fewer new job opportunities are arising.

So far this is not causing a huge crisis. This is because the participation rate is falling and decreased by 0.1 points to 64.8% last month. A lower participation rate has resulted in fewer job seekers per vacancy than there would have been. The number of unemployed people today per vacancy stands at 4.2, but if the participation rate had stayed at its November level that would now be 4.5 people per vacancy.

 

The moral of this story? The headline figures can look okay, but looking deeper allows us to see that the outlook is not as good as it was and there may yet be an unemployment problem for Australia around the corner.

The full ABS figures for May are here

The figures on Australian unemployment are of direct relevance to VCE students. However the relationship highlighted in this article between the participation rate, vacancy rate and unemployment rate is relevant for IB and VCE students. It shows how there are always more questions to ask about data.