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Yesterday we saw the release of the ABS Labour Force data which confirmed the seasonally adjusted unemployment rate at 5%, while the Trend rate dropped to 5.1% (see here for details). Trend employment growth, despite having slowed recently, remains robust at 2.3% for the year. The country has added about 300,000 to the tally of those employed with almost 240,000 of those in full-time positions.
And yet wages growth and price inflation pressures remain very muted. Earlier in the week we saw the Wages Price Index show a modest lift to 2.3% for the year to the September quarter and inflation, as measured by the CPI, sits at just 1.9% for the same period with average core inflation even lower at 1.75% (see here).
Much discussion revolves around whether we can “trust” the ABS Labour Force numbers, what the impact of labour casualisation might be and whether we should be counting one hour of work a week as “employed” (this last is an internationally accepted standard definition and, as the ABS frequently note, such a tiny proportion of the employment numbers as to be irrelevant anyway but seems to fascinate the nay-sayers). For an example of some of the discussion and comments on the subject see this Twitter thread from David Scutt at Business Insider Australia.
Putting aside the idea that the ABS Labour Force data is some form of conspiracy for the “benefit of the corporate fascist state” it’s well worth noting that the unemployment rate, on its own, is by no means the best or only way to measure the health of the labour force. No economist I’ve ever heard would suggest it is and yet this is the measure that most frequently gets trumpeted. Indeed, the ABS Labour Force survey was designed and created in order to measure the unemployment rate; other outputs from the survey are derivatives.
Shifts in the labour force of the percentage of those in the working age population who choose to be in the labour force, either employed or wishing to be employed (the Participation Rate), the mix between full-time and part-time work and the casualisation of labour (and yes, even the number of people working an hour a week) will all play a part in the relative health of the labour force that may not be reflected in the unemployment rate. Therefore focusing all one’s attention on a single number clearly makes no sense.
One measure that we have found useful is the total number of hours worked across the nation per capita of the working age population. This simple measure should reflect a stronger labour market as it rises whether that is caused by more people being employed, or people being employed for longer, or a higher participation rate; and vice-versa. So what does this tell us about where we sit now?
For a start it shows us that, in general, the unemployment rate is a reasonable indicator of labour market strength…the two measures tend to move in lock-step. That is what you might expect and demonstrates the reality that the unemployment rate is (usually) a pretty fair indicator; despite what the conspiracy theorists would have us believe.
What it also shows us is that despite the recovery in the labour market over the past 18 months the unemployment rate has improved to a far greater extent than the hours worked measure. This suggests that issues around the full-time and part-time split (the casualisation mentioned earlier) are acting as a drag on the overall health of the labour market which is not being fully reflected in the unemployment rate alone. Put simply, the last time the unemployment rate was at current levels back around 2011/12 the average hours worked per capita of working population was 87.6 per month; today that sits at just 86.6 hours/month.
Bottom line; the labour market is improving but not as quickly or as significantly as the unemployment rate would suggest. It is therefore not surprising that the response from wages has been so muted. Indeed this analysis would suggest that it may take a good deal more improvement in the labour market before we see that anticipated wages pressure start to appear.
We are proud to have CBC Staff Selection as supporters of the Conus/CBC Staff Selection Trend Employment and Jobseeker data series