In my latest video, I expand on my post from last Monday True Queensland unemployment rate around 12% and discuss just how bad the Australian labour market is at the moment. Thanks to those readers who commented on the post and raised some great points which I’ve endeavoured to respond to in this video.
In my latest podcast episode, I speak with Professor Tony Makin of Griffith University about his new CIS Policy Paper A Fiscal Vaccine for COVID-19. In Tony’s words:
“the paper considers the resurgence of crude Keynesianism before highlighting risks of the fiscal legacy.”
Tony is Professor of Economics at Griffith University and has previously taught at the University of Queensland, the Lee Kuan Yew School of Public Policy at the National University of Singapore and in the Australia and New Zealand School of Government (ANZSOG) program. His field of expertise is international macroeconomics and public finance and he has previously served as an economist with the International Monetary Fund and in the Australian federal departments of Finance, Foreign Affairs and Trade, The Treasury and Prime Minister and Cabinet. He has also been Director of the APEC Study Centre at Griffith University, and Australian convener of the structural issues group of the Pacific Economic Cooperation Council (PECC).
Tony’s previous papers on fiscal policy include:
The Effectiveness of Federal Fiscal Policy: A Review
Australia’s Competitiveness: Reversing the Slide by Tony Makin
Tony Makin’s Agenda paper on fiscal stimulus during the GFC
The true Queensland unemployment rate is around 12% rather than the official 7.9%. I’m not suggesting the ABS is being tricky. The ABS is accurately applying the internationally accepted Labour Force Statistics methodology. But we must look beyond the ABS data to understand what is happening in the labour market at the moment.
ABC business reporter Gareth Hutchens published a great article on Friday (JobSeeker has about 700,000 more claimants than there are ‘unemployed’ people on ABS data) attempting to reconcile the official estimate of the number of unemployed persons in May of around 928,000 nationally with the more than 1.6 million JobSeeker (or Youth Allowance-equivalent) recipients, around 380,000 of whom are in Queensland (see Pete Faulkner’s post JobSeeker data for May shows another 22% increase). In his article, Hutchens observed that currently you don’t need to be actively seeking work to qualify for JobSeeker but you do to be counted as unemployed by the ABS. The discrepancy between the JobSeeker and ABS unemployment estimates is largely due to over 600,000 people having left the labour force, meaning they are not actively looking for work. Hutchens observed:
The ABS noted that the official unemployment rate would be around 11.3 per cent if everyone who lost their job in the last two months was still part of the labour force.
Performing the same calculation for Queensland gives an estimated unemployment rate of 11.8%.* In the official ABS data, the highest unemployment rate recorded (technically since 1978, but realistically since the Great Depression) was 11.1% in Queensland and 11.2% nationwide during the early nineties recession.
Incidentally, John McCarthy at In Queensland has done his own investigations on this issue:
More than 116,000 ‘missing’ from Queensland jobless data
Taking underemployment into account, we see that one-in-five workers are under-utilised, and that women have been worse affected than men (see chart below). We really need the economy and our internal borders to fully open as soon as possible, but of course the news from Victoria over the weekend has been a huge setback.
*Using the alternative way of performing this calculation, holding the participation rate constant, which is the way I recall Queensland Treasury once did it, yields a true unemployment rate of 12.0% in Queensland.
It’s obvious the official unemployment rate figures from the ABS are understating the true unemployment rate due to large numbers of people having left the labour force, evidenced by the collapse in the workforce participation rate. The official estimates for May were 7.9% for Queensland and 7.1% for Australia (see chart above). We know from JobSeeker statistics (i.e. over 1.6 million people having been on the payment) and ABS labour under-utilisation and hours worked estimates that the economic situation is much worse than the unemployment rate estimates suggest. For instance, the Queensland Treasury in its excellent brief on the latest figures noted:
With persons not working but receiving JobKeeper payments from their employers classified as ’employed’ by the ABS, the reduction in hours worked is probably the clearest example of the full impact of COVID-19 social distancing measures on labour market activity.
There were 321.0 million hours worked in Queensland in May 2020, down 0.1% from April and down 7.6% over the year…
So forecasts I’ve seen of a June quarter GDP/GSP contraction of around 8% are looking reasonable. Also, check out the state Treasury’s chart illustrating the big reduction in the workforce participation rate to 62.6%, compared with 65.9% in May 2019. As I noted regarding last month’s data (Qld jobless rate at 6.8%, but effectively over 10%), if the participation rate hadn’t collapsed the unemployment rate would be in double digits.
Also, check out Pete Faulkner’s commentary Another big drop in employment and another decline in participation.
Finally, regarding whether the May labour force estimates are at odds with the ABS/ATO payroll data showing a pick up in employment at the end of May (see my Wednesday post), note the May ABS Labour Force estimates are based on activity in the “reference week” in early to mid-May. In its Explanatory Notes, the ABS writes:
The interviews are generally conducted during the two weeks beginning on the Sunday between the 5th and 11th of each month. The information obtained relates to the week before the interview (i.e. the reference week).
So it’s very possible that, with some relaxation of restrictions in the second half of May, some jobs came back online. Of course, it’s early days, and the payroll data have issues as Pete Faulkner has commented on (see this tweet from Pete), but we live in hope.
Andrew Leigh MP’s Inequality Bites video Underpaid & Over It prompted me to have another look at the gender pay gap in my latest Economics Explained podcast episode.
Resources mentioned in the episode include:
Blau and Kahn JEL article on the gender wage gap
Ross Guest on the Real Gender Pay Gap
KPMG She’s Price(d)less report
Leonora Risse on the gender pay gap interview
Australian Government Workplace Gender Equality Agency on the gender pay gap
Thanks to Andrew for letting me use the audio from his video in the episode and to Ben Scott, Research Officer at my business Adept Economics, for participating in the discussion.
The AFR’s Matthew Cranston has nicely summarised the latest payroll data published by the ABS yesterday in his article Job market crawls off floor as recovery begins:
The worst appears to be over in the job market with Tax Office payroll data showing about 124,000 jobs were added in May, in the first tentative signs of economic recovery.
But economists warn that with more people searching for work the unemployment rate is likely to rise when official figures are released on Thursday.
Generally, signs are positive across the country, except arguably in Victoria, where total wages fell 0.8% in the last week of May (see charts above).
It’s still early days in the reopening of the economy, so let’s not read too much into these figures. We still need to assess how much lasting financial damage has been done to households and businesses and how the economy will cope as emergency support is withdrawn in September.
I’ve recorded a new video commenting on:
You can watch it on YouTube:
Here are some links relating to my comments:
CCIQ on the cost of Queensland’s closed border
It’s time to get serious and ease restrictions: CCIQ
A third quarter correction for the S&P 500
Australian article: Qld Chief Economist role a hard sell for Labor
In the latest episode of my podcast, I discuss one of my all-time favourite books, Stephen Covey’s 7 Habits of Highly Effective People, with regular podcast guest Tim Hughes. I focus on the relevance of the 7 Habits to economists.
A 30th anniversary edition of the 7 Habits was published this year.
Links related to the discussion include:
Art of Manliness episode on 30th anniversary of the 7 Habits
Who pays Trump’s tariffs, China or U.S. customers and companies?
Ralph Turvey on how to estimate marginal costs
The 7 habits of highly effective economists – Part 1: Habits 1 to 3 for private victory
The 7 habits of highly effective economists Part 2 – Habits 4 to 7: Public victory & renewal habits
I’ve recorded a video covering the May US jobs data, which have been greeted very positively by the markets despite the data showing only a small rebound*, and the Australian Parliamentary Budget Office’s rather pessimistic projection of an additional $620 billion of debt by the end of the decade (check out the PBO Medium-term Fiscal Projections).
* i.e. relative to the fall from pre-coronavirus levels. With an additional 2.5M US jobs in May, it was the largest ever recorded monthly increase.
With the Queensland Government willing to invest $200 million in Virgin Australia to keep its HQ in Brisbane, I thought it would be timely to record a podcast interview on investment attraction and industry policy more broadly. On Tuesday, I spoke with Craig Lawrence, Managing Director of Lytton Advisory, about the pros and cons of interventionist industry policy, i.e. picking winners. Craig previously worked as an economist in Queensland’s Department of State Development and has advised on a variety of investment attraction packages over the years. I’ve now published our conversation as Economics Explained EP38: Picking winners.
A transcript of our conversation is available on my business website.
