Unemployment steady but discouraged workers on the rise

The latest figures for unemployment in Australia were released today. This is one of the sets of data you must follow and understand.

While the most important thing is to recognise trends - see our earlier post - the detail of the figures is also important.

A brief overview.
* Unemployment in Australia remained steady at 5.8%.
* Around 31,600 fewer full time jobs were available.
* This was offset by 9,000 part time jobs.
* Around 8,000 were added to the officially unemployed.

 The graphs show that total employment in the last year has peaked and is declining slowly. There is sufficient data here to suggest that the upward trend in employment changed around May 2013 to broadly static employment. It would be too early to declare a falling trend, but that is what we are looking to confirm or deny in the next six months.

The trend in unemployment is clearly upwards. If this trend continues then it does present a cause for concern and policy makers would be expected to act.

A puzzle

Unemployment up by 8,000, part time work up by 9,000, but jobs lost 31,600. What about the other 14,600? What are they doing?

Of course the people who have recently lost their jobs are looking for another one and are counted as unemployed. But the difference in the figures quoted suggests that some people have given up looking for work.

To be counted as unemployed you must be actively looking for work. When you give up looking, because you think there is no hope of finding a job, you have ceased to participate in the labour market.

This is shown in the participation rate. The percentage of working age adults who are either in work or actively seeking work. This is another statistic you must follow.

The 14,600 figure can be accounted for by a fall in the participation rate from 64.8% to 64.6%. Often when unemployment is high and some people have been unemployed for a long time they become discouraged workers and stop looking for a job. This appears to be happening in Australia.

The ABC reports the figures here

Trends are everything

As the new year begins we must start watching what is going on in the world. This is vital as any study of economics divorced from the real world is hardly relevant.

For VCE the key variables are inflation, unemployment, the current account and national output. It is necessary to look carefully at these figures and understand them and we will spend some time of this as the year progresses.

An important point to make is that we should look at trends and try to look past short term fluctuations. One or two observations do not make a trend, it takes six months to see a new trend in employment and thirty years to see a new trend in climate change. Often we need to look at data on the right scale.

Further the general principle of watching what is going on in the world means noticing a far wider set of variables. The Age has an article on some economic trends to watch. The interesting thing about this article is that many of the trends are heading in the opposite direction to the one you might expect.

Take the rubbish that was talked about 'Peak Oil' in recent years. The argument was that the supply of oil had got to the point where more oil had been used than was left in the Earth. There were numerous obvious flaws with this argument, not least of which was that the price mechanism would cause the price of oil to rise and this makes new sources of supply profitable.

Since the idea of 'Peak Oil' was first put forward each year has seen more new oil reserves discovered than the world has used up in consumption. People are now realising the flaw in the 'Peak Oil' argument, but the simple application of economic theory and using the right data would have shown this before (see my blog posts in 2010 and 2011 for proof).

The Age article is here. Please look at the various suggestions for what is important in the coming year.