Australia’s labour force statistics paint a path out of recession

The latest release of labour force statistics from the Australian Bureau of Statistics (ABS) shows signs of an economy that is turning the corner. The national unemployment rate rose to 7.5% in July, up from 5.1% before the pandemic, and has now declined to 6.8%¹.

Our employment trajectory in response to COVID-19 appeared to be more moderate and more prolonged in comparison to some other developed economies. For example, unemployment in the US rose more rapidly and more severely, from 3.5% in February to 14.7% by April².

No doubt some of this discrepancy can be chalked up to the two countries’ differing experiences with the virus and the accompanying public policy response. However, we do need to be careful that we’re comparing apples with apples, which is where the ABS’ effective unemployment rates comes into play as a metric.

This data series accounts for those who remain employed but are working zero hours, including those employees who have been stood down through lockdown periods and business closures. When these groups are factored in, the picture still looks rosier for Australia than the US, with effective unemployment peaking here at 11.8%, but like the US that high was reached in April at the height of the first wave of infections and has been declining since (it now stands at 7.9%).

As the ABS notes, similar adjustments could be made to the US unemployment rate to account for furloughed workers in that country, although the effect would be much smaller, presumably due to the high level of government support offered to Australian companies to keep those workers on the payroll rather than firing them. In comparison, the unemployment rate in the US rose to 14.7% in April and is 8.4% currently³.

The state of work across Australia

Unemployment is far from a uniform picture across Australia, with discrepancies apparent that relate to the state of virus spread and control in each state, as well as underlying economic conditions pre-COVID.

Unemployment in Victoria rose by nearly half a percent through August, as economic activity continues to be stifled by lockdowns in Melbourne.

South Australia’s workforce has returned to pre-COVID levels, but the state still has the highest rate of unemployment in Australia. The recent opening of their borders to tourism from NSW will presumably be a welcome development for businesses in that state. Tasmania actually has more people employed than this time last year, although unemployment there climbed 0.3% in August, which can be explained in part by increased workforce participation.

Elsewhere the picture is largely positive, with Western Australia and the Northern Territory, two jurisdictions largely spared by the virus, posting particularly strong job growth numbers.

The outlook for unemployment

JobKeeper and JobSeeker have been effective to this point in cushioning the effect of falling economic activity on both the labour market and household incomes, and their extension through to March 2021 (albeit with modified rates and eligibility from September) is welcome from that perspective.

Over this period and beyond the end of these programs, the economy will continue its delayed adjustment to the new dynamics of our post-COVID economy. Businesses will close and jobs will be lost in those areas most affected or least viable in the new economy, and growth will occur in industries riding tailwinds provided by the pandemic, as well as in sectors which benefit from the roll-out of new fiscal stimulus programs.

The best-case scenario for Australia would be if those adjustments resulted in unemployment that was mostly frictional. However, past experience tells us that the effect of recessions on overall unemployment rates is persistent⁴ and the consequences for individuals who have lost their jobs can last a lifetime⁵.

Key to the challenge for the Federal Government in formulating its stimulus will be whether new opportunities are appropriate and accessible for those workers hardest hit by the pandemic.

¹ https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/aug-2020
² https://data.bls.gov/timeseries/LNS14000000
³ https://www.bls.gov/news.release/pdf/empsit.pdf
⁴ https://www.theguardian.com/commentisfree/2020/mar/26/the-unemployment-rate-doesnt-go-back-to-normal-after-a-recession-there-are-long-term-effects
⁵  https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2017-economic-commentaries/ec-201711-measuring-the-true-impact-of-job-loss-on-future-earnings