Why Australia’s employment statistics don’t add up

Employment is a key measure of Australia's economic health, but as Matt Drennan writes, it may be a case of lies, damned lies and statistics.

Much has been written about how well Australia has performed and how our labour market is running at close to full employment (usually defined as an unemployment rate of around 5 per cent or so).

Politicians have been spruiking the miracle economy and urging everyone to feel better about life.

While, admittedly, being often described as a ‘glass half empty’ man (not least by my wife), there are a few points I take issue with when it comes to the labour market stats.

The Australian Bureau of Statistics (ABS) defines someone who is unemployed as all persons 15 years of age and over who were not employed during the reference week (when their survey was conducted) and had actively looked for full-time or part-time work at any time in the previous four weeks.

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You also have to be available for work in the reference week.

Got that?

The flip side is that you are regarded as employed if you are in paid employment or self-employment. Full-time employment is regarded as 35 hours per week or more, but get this – part-time employment is anything less than 35 hours per week.

Yes that's right, one hour per week and you are employed.

While these technical definitions conform to international standards and were probably okay a couple of decades ago, to my mind, they are woefully inadequate in our modern economy, where part-time work accounts for over 30 per cent of total employment and surveys consistently reveal the vast majority of these workers would work longer hours if they were offered them.

This highlights the concept of underemployment, which the ABS figures show hovering at between 12 and 13 per cent.

Since part-time employment has risen as a percentage of total employment from a little over 20 per cent two decades ago, this is a much bigger issue than it used to be.

But what of the impact of the ‘two speed economy’ on employment?

As Ed Shann points out in a paper for the mining council, pretty much all the economic and employment growth over the past few years has occurred in the mining sector and related services.

The other 80 per cent or so has been pretty stagnant.

While mining projects are being hamstrung by skilled labour shortages, the rest of the economy seems to be in firing mode.

Aviation, car manufacturing, tourism, newspapers, oil refining, retailing; the list goes on.

In fact, one study I saw suggested the non-mining sector had contributed nothing to employment growth over the past two years in net terms. 

Clearly, there is an issue here of labour mobility. People won't move to where the jobs are and (I suspect in most cases) don't have the necessary skills anyway.

Add to this the disillusioned worker effect (those that have simply given up looking) and you start to see where some of the more sensationalist 20 per cent ‘true’ unemployment numbers come from. 

Don’t shoot the messenger.

These impacts are largely captured in the ABS numbers in things like the participation rate and the trend in the number of part-time hours worked.

You just have to dig a bit.

The real problem is that from a politician's perspective this is no substitute for a sound bite on the unemployment rate – especially when it is so much more favourable.

One benefit of floating the Australian dollar in the early 1980s was that it increased flexibility in various parts of the economy by sending price signals.

This was supposed to smooth the adjustment process.

But when the Aussie dollar doubles in a decade and looks like staying there for years because of a massive blow-up in the US and Europe as well as a sustained mining boom, it causes major industry dislocations and ultimately serious structural adjustment.

No-one was prepared for this scenario. 

None of this is helped by the lurking fear that with all this restructuring going on, your job might not be safe.

There is no denying Australia is still the lucky country (gold medals aside), but this is a relative rather than an absolute concept.

However you cut it, people just don't believe unemployment is anything like as low as 5 per cent, and guess what? It isn't.