employment data – Page 10 – Digital Finance Analytics (DFA) Blog

Unemployment Rate Unchanged This Month

Against expectations, in trend terms, the unemployment rate was unchanged at 6.0 per cent in June, as announced by the Australian Bureau of Statistics (ABS) today. The seasonally adjusted unemployment rate for June 2015 was 6.0 per cent, an increase of 0.1 percentage points from a revised 5.9 per cent for May 2015.

The seasonally adjusted labour force participation rate increased less than 0.1 percentage points to 64.8 per cent in June 2015.

The ABS reported the number of people employed increased by 7,300 to 11,768,600 in June 2015 (seasonally adjusted). The increase in employment was driven by increases in full-time employment for both females (up 17,500) and males (up 7,000). The increase in full-time employment was partially offset by decreases in part-time employment for both females (down 10,600) and males (down 6,600).

The ABS seasonally adjusted aggregate monthly hours worked series increased in June 2015, up 5.1 million hours (0.3%) to 1,636.9 million hours.

The seasonally adjusted number of people unemployed increased by 12,800 to 756,100 in June 2015. This was driven by unemployed people who looked for full-time work, which increased by 27,200 to 541,200.

In contrast the Roy Morgan Research unemployment number for June was 9.3% down 1.3% from a year ago. This alternative method of assessing unemployment rates is consistently higher than the ABS rate. This Roy Morgan survey on Australia’s unemployment and ‘under-employed’ is based on weekly face-to-face interviews of 437,819 Australians aged 14 and over between January 2007 – June 2015 and includes 4,233 face-to-face interviews in June 2015.

Both sets of measures indicate that currently employment opportunities are keeping pace with demand, keeping the rate at a high, but not rising figure.

Australian Job Mix In Rotation – Warning Signs Ahead

The recent ABS data on Labour Force in Australia which is a quarterly publication to May 2015 contained some interesting insights into the changes underway. Essentially, in sectors where there is strong international competition there has been a relative reduction in the number of jobs available in Australia, whilst in other sectors more shielded from the chill winds of direct international competition the relative proportion is rising. The chart below shows the change in the relative distribution of jobs on a 2 year, 5 year and 10 year horizon.

The most significant growth areas have been in Health Care and Social Assistance, Education and Training and Professional, Scientific and Technical Services. The most significant falls are in Manufacturing, Agriculture, Forestry and Fishing and Retail Trade. Mining highlights the long term growth, but short term fall in jobs as competition increases, and we move into the exploit phase. In marked contrast, Construction, which dipped in the 5 year horizon is now growing again. We also see modest falls in Financial Services due to greater efficiency and online channels, and a rise recently in Real Estate Services thanks to the property boom.

However, there is an important point to make. The rise in service related industries in general has lower wages relative to some other sectors, and it will only flourish whilst there are enough people able and willing to pay for said services. For example, the vast pool of superannuation savings will flow into the healthcare sector as households age. In essence these industries move money about the economy, but do not create things which in turn can create value. The worry is that those sectors which truly create wealth in the economy are under the most pressure. As a result, wages are flat, and the growth levers are not operating that strongly. This highlight the long-term issues we face.

Which industry sectors will be the next growth engines for the economy?

Unemployment Rate Falls to 6%

According to the ABS data, released today, Australia’s estimated seasonally adjusted unemployment rate for May 2015 was 6.0 per cent, a decrease of 0.2 percentage points (based on unrounded estimates) from a revised 6.1 per cent for April 2015. In trend terms, the unemployment rate decreased less than 0.1 percentage points to 6.0 per cent.

The seasonally adjusted labour force participation rate was unchanged at 64.7 per cent in May 2015 from a revised April estimate.

The ABS reported the number of people employed increased by 42,000 to 11,759,600 in May 2015 (seasonally adjusted). The increase in employment was driven by increases in part-time employment for females (up 29,800) and full-time employment for males (up 15,900).

The ABS seasonally adjusted aggregate monthly hours worked series increased in May 2015, up 2.2 million hours (0.1 per cent) to 1,631.8 million hours.

The seasonally adjusted number of people unemployed decreased by 22,000 to 745,200 in May 2015. This was driven by unemployed people who looked for full-time work, which decreased by 23,500 to 514,500.

The seasonally adjusted underemployment rate was 8.5 per cent in May 2015, unchanged from February 2015. Combined with the unemployment rate of 6.0 per cent, the latest seasonally adjusted estimate of total labour force underutilisation was 14.5 per cent in May 2015, a decrease of 0.4 percentage points from February 2015.

Long-Term Unemployment Will Impact Wage Growth

In economic circles, the relationship between wage growth and unemployment is an important factor. Many will focus on the relationship between short-term unemployment and wage growth, but a paper released by the Bank of England highlights that long-term unemployment is also an important factor in the equation. Given the fact that wage growth is slowing in Australia, and long-term unemployment is rising, these findings are important.

The relationship between wage growth and unemployment is a key trade-off concerning monetary policy makers, as labour costs form a critical part of the inflationary transmission mechanism. One important question is how the composition of the unemployment pool, and specifically the share of long-term unemployment, affects that tradeoff. Detachment from the labour force is likely to increase with unemployment duration, so that the long-term unemployed search less actively for jobs and therefore exert less downward pressure on wages. If so, short-term unemployment may pull down on wage inflation more than long-term unemployment does. In this situation, policymakers might anticipate a period of high wage growth if short-term unemployment starts to fall to low levels even if the long-term unemployment rate remains elevated.

But there may be complications arising from the integral dynamics of unemployment. In this paper it emerges that the estimated disinflationary effects of long-term unemployment hinge on whether or not wage growth becomes less sensitive to unemployment as the latter rises – a form of non-linearity. One reason why the negative relationship between wages and unemployment might become flatter at high levels of unemployment is that workers may tend to resist cuts in their nominal wages. When unemployment is low, wage growth tends to be high as firms compete for a scarce pool of resources. But due to worker resistance to wage cuts the reverse might not hold to the same extent, with a relatively large increase in unemployment needed to reduce wage growth during a recession.

Why does this non-linearity matter for the measured effect of long-term unemployment on wage growth? It is because long-term unemployment inevitably lags behind movements in short-term unemployment as it takes time for the new unemployed to move into the long-term category. So high levels of long-term unemployed are only associated with lengthy periods of high unemployment. A flattening off of the relationship between wages and unemployment at high levels of unemployment would then imply that long-term unemployment does little to reduce wage inflation further. The apparently different effects of short and long-term unemployment on wage inflation could therefore be merely as a result of timing rather than labour market detachment among the long-term unemployed.

By modifying statistical models of labour market dynamics to incorporate this insight, this paper finds that there appears to be much less difference between the short and long-term unemployed in terms of their marginal influence on wage behaviour than is suggested by the recent literature. When the non-linearity described above is not taken into account, estimation results corroborate the finding already established in the literature that it is predominantly the short-term unemployed that matter for wage inflation. Long-term unemployment in this specification tends to have no statistically significant effect on wage inflation. When the non-linearity is taken into account, long-term unemployment has a much larger effect on wage inflation. For some of the specifications considered, the data fail to reject the hypothesis that short and long-term unemployment rates have equal effects on inflation. In some instances, the models even suggest that long-term unemployment creates more of a drag on wage growth than short-term unemployment does, all else equal. Statistical uncertainty makes it difficult to draw a very precise conclusion, but the results in this paper caution against excluding long-term unemployment from estimates of aggregate labour market slack as is suggested by much of the recent literature. Both the short-term unemployment rate and the long-term unemployment rate are likely to contain useful information for judging the degree of wage pressure in the economy.