TSV v CNS; jobs and the Participation Rate

Comments from a reader to yesterday’s post regarding Cairns and Townsville regional labour force data, together with a post from Loose Change on Cairns Participation, have spurred me into taking a closer look at Participation in both regions and the effect this is having on the unemployment rate.

To recap; the Participation Rate (PR) measures the proportion of those of working age who are either in jobs or counted as unemployed (the labour force). If the PR falls (say, because fewer people are bothering to look for work) then, all other things being equal, the unemployment rate will fall; and vice versa.

There has been a trend over recent years for the PR to fall across the country as the demographic bulge of baby boomers reach the age at which many of them remove themselves from the labour force. This (among other things) has meant that the unemployment rate has stayed lower than might otherwise have been the case. In Cairns we have seen a sharp decline in PR (as graphically demonstrated in the Loose Change post) which has certainly assisted in pushing the unemployment rate lower. A similar trend had been seen in Townsville, but in recent months has been sharply reversed as PR there has moved higher. This is one of the reasons that Townsville has seen headline unemployment rates above 10% for the past 2 months.

One way of trying to see through these “PR effects” is to consider the ratio of those employed against the working age population. This measure doesn’t consider PR since we are not looking at the size of the labour force at all. The graph below (which uses an index for both employed and working population of 100 at Oct ’98) plots the Conus Trend for employed and working age populations in both Cairns and Townsville.

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What we see is that over the past (almost) 6 years employment in Townsville has just about kept pace with the growth of the working population; both are up about 30% over the period. However, in Cairns employment growth has lagged well behind population growth; population is up some 28% while the number employed is up just 18%.

The reason why Townsville’s current unemployment rate looks so poor is that historically employment growth has been running significantly faster than population growth (the blue line has been above the red line), and as a result Townsville’s PR has been much higher.  As the rate of employment growth slowed and then fell below population growth that high PR has translated into a high unemployment rate.

In Cairns, employment growth tended to track along at a similar pace to population growth (the green line tracked the purple line) but since 2011 it fell well behind. That led to a lower PR and now, as employment growth starts to pick up again, that is translating to a lower unemployment rate than to our south.

All this just goes to show that while the focus will almost always be on the “unemployment rate” as the measure of the health of a labour force it really is only one of a number we need to consider in this complex field. It also shows that you can make the statistics tell just about any story you want so long as you look hard enough!

2 replies
  1. Mark Beath
    Mark Beath says:

    I noted a post last week from Adam Carr at BusinessSpectator which I didn’t generally agree with in disregard of the latest employment numbers but threw in a few though provokers on participation rates:

    “Twelve years ago, the participation rate was at 63.3 per cent. If that same rate held today, under the same conditions that we have today (i.e. no major job-shedding), then the unemployment rate would likely be between 4 per cent and five per cent. On the flipside, if we had a participation rate that held at its 2010 peak (65.8 per cent), then the unemployment rate today could be closer to 7.5 per cent.

    So what’s the ‘normal’ participation rate? No one knows. The drivers of labour force participation are extremely complex. The argument that the decline in the rate since 2010 is attributable solely to discouraged workers is useless — by that logic the labour market is actually extremely healthy relative to 12 years ago, because participation is much higher.”

    This could and has been portrayed in response by others as Adam being defensive of his usually bullish position but does deserve some thought. Typically changes in participation are simply reported in media as just discouraged job seekers which is shallow beyond a very short timeframe.

    http://www.businessspectator.com.au/article/2014/8/13/australian-news/take-australias-unemployment-rate-shocker-grain-salt

    Reply
    • Pete Faulkner
      Pete Faulkner says:

      Mark, I read that article too. Matt Cowgill in the past has done a lot of work on demographic changes and their impact on PR. It’s a complex area and certainly the idea that a low (or falling) PR can be all blamed on disaffected people leaving the labour force is too simplistic.

      Reply

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