Australia’s ‘Effective’ Unemployment Rate Surges As Frustrated Jobseekers Abandon Labor Market

With most of the country on lockdown, Australia’s labor market is reeling from its government’s attempts to achieve “ZeroCOVID”: with no end in sight (investment banks generally expect the lockdowns to lift next month, but views vary), it appears thousands of Aussies are giving up on looking for work, a phenomenon that has also been seen in the US.

If the trend continues, Australia may be on its way to an employment crunch, particularly in low-paying public facing jobs in retail and food service, on par with what the US economy has been grappling with all summer.

The latest round of Aussie unemployment data, released overnight, showed the unemployment rate dropped from 4.9% to 4.6%, but the decline was almost entirely driven by Aussie’s dropping out of the workforce. The country’s participation rate dropped by 0.2 percentage points to 66%, according to the labor market data, which was collected in early-to-mid July by Australia’s Bureau of Statistics.

New South Wales, the country’s most populous state and home to Sydney, the locus of the current outbreak, saw its labor force reduced by about 64K people between the newly unemployed (-36K) and unemployed who have given up on their search for work (-27K). Hours worked in Sydney, which has been under lockdown for 2 months now, fell by 7%.

One economist estimated that the “effective” unemployment rate is closer to 6%.

Adjusting for participation and zero hours working (noting it’s orig data) you can argue the ‘effective’ unemployment rate is closer to 6% than 4.6%. The no. of people on zero hours from being stood down is 181,500, up from 156,500 and 58,200 in June and May respectively #ausbiz pic.twitter.com/Mz73e2AtNX

— Alex Joiner (@IFM_Economist) August 19, 2021

I would also note that people working fewer hours for “other reasons” has risen to 206,900 in July from 28,600 in May. These people may still have work but their incomes are reduced.

— Alex Joiner (@IFM_Economist) August 19, 2021

For those who aren’t so familiar with the innerworkings of economic data, a former RBA economist named Callam Pickering offered to explain how the “official” numbers are masking a massive surge in employment.

Callam Pickering, a former Reserve Bank economist who now works with with jobs website Indeed, explained how the numbers work.

“In order to be considered unemployed in Australia you need to be actively searching for work and also available to begin work,” he noted.

“That is obviously difficult in Sydney right now, which means that many people who would love to work, and would normally be available to start, simply cannot due to lockdown.”

“Those people aren’t being included as unemployed and that’s basically why the unemployment rate hasn’t jumped.”

Sydney’s problems are expected to spread to nearby Victoria state, home to Australia’s second city, Melbourne, for next month’s data as service-industry workers grow increasingly uneasy about their financial situation, as well as the future.

But Sydney’s problems will start showing up in next month’s data for Victoria too.

As a sales and event planner for a Melbourne catering company, Gabe Dyson is worried about the long-term effects of being stood down for the sixth time.

“The more lockdowns you’re going through, the less money, the less revenue coming in,” she said.

“I could lose my job because of that.”

The 28-year-old has been with her company for a little more than two years and is currently supported by the government’s disaster payment.

The money helps her manage the basics but does not make up for the full-time hours she normally works.

“It’s better than nothing but, yeah, it’s not the same as what I would normally be earning.”

Equally, Ms Dyson does not see much point searching for other work while the city is in lockdown.

“You wonder if you should be looking for a job but, at the same time, are there any jobs out there?”

An economist from BIS expects a big rise in unemployment in next month’s data, especially in Sydney.

Sarah Hunter, from BIS Oxford Economics, said the July figures were a portent of a big rise in unemployment to come in next month’s data, especially in Sydney.

“In a sign of what’s to come in the August data, employment in NSW fell by 36,000, the underemployment rate spiked to 9.3 per cent and the participation rate also fell 1 percentage point to 64.9 per cent,” she observed.

“The structure of the COVID disaster payments means that all of these trends will be even more pronounced in the August data; anyone claiming the payment who has not worked at all will be counted as unemployed (and likely not in the labour force, as they will not be actively looking for work), while workers who have had their hours cut will be classed as underemployed.”

As New Zealand joins its neighbor with what Kiwis fear will become another interminable series of unnecessary lockdowns, it looks like antipodean central banks will see their hopes to normalize monetary policy in the near-term (as we recently reported, the RBNZ has abandoned plans to become the first G-10 central bank to hike rates) fade.