The Labour Force data yesterday certainly raised some questions from journalists – both written and radio media. Some journalists are definitely starting to question the idea that everything is going okay and recovery is progressing. I did several media interviews yesterday and most were interested in the idea that focusing on the unemployment rate – which was unchanged – is an sure way to making a deluded assessment of how grim things are at present.

Updated!

The glow from last week’s National Accounts figures is now gone with the yesterday’s Retail Sales data and today’s Labour Force data showing that the Australian economy is far from being healthy and might better be termed hanging on by the skin of its teeth with strong fiscal support. The data also confirms why I am now calling this the underemployment recession. I could use this blog to show further flaws in the Austrian School’s approach to the labour market but I will leave that theme until another time.

Today I have been looking at long-term unemployment as part of a larger project. It is on the rise again and always lags behind the overall unemployment movements given it takes time for people to work their way through the duration categories until they get to 52 weeks. The longer the recession the higher average duration of unemployment becomes and the larger the pool of long-term unemployed. However, the way we feel about long-term unemployment is conditioned heavily by how it is defined. Moreover, we also have built up an elaborate set of myths about the way long-term unemployment behaves and consider it needs to be dealt with via training rather than job creation – the so-called irreversibility hypothesis. This blog looks at these issues.

Today I have analysing the ABS Gross Flows data which reveals the underlying dynamics in the labour market that combine to give us the unemployment rate and other labour market aggregates. The current downturn is revealing itself to be quite different (so far) to the 1991 recession. While the chances of an unemployed person finding a job have fallen in a similar way to 1991, the chances of an employed person losing their job has not deteriorated markedly in the current recession, in contradistinction to what happened in 1991. The difference is in the hours data that we analysed yesterday. In 1991, the labour market contracted largely via unemployment whereas this time around it is contracting via underemployment. The flows data also reveals fundamental differences between Australian and the US in the sense that the American labour market is contracting more traditionally at present compared to our “underemployment” recession.

Today’s Australian Bureau of Statistics Labour Force data confirms the trends that have been evident in the broader data series in recent months that the economy has slowed dramatically but hasn’t yet crashed. While unemployment is rising the main worry is the rapidly increasing underemployment. It is also been a common theme in recent months that firms are hoarding labour. While the new data series that the ABS has published today (hours worked) suggests that this is occuring, most of the hours adjustment in the labour market is arising from the loss of full-time employment in manufacturing and elsewhere. In other words, it is a sectoral story rather than a within-firm story. So while the unemployment rate is stable, there is nothing to cheer about in this data.

Last Monday’s blog asked What can the gross flows tell us?. The topic is vast given the detail and in that blog I only considered the inflows and outflows from unemployment. In this blog I analyse the flows between full-time and part-time employment as well as movements between non-participation and employment to finish off the story. The analysis helps us understand what is happening during this downturn to

Last Thursday I briefly analysed the gross flows data that is published as part of the monthly Labour Force data. In this blog, I am extending this analysis to provide more detailed graphs which help us better understand the way the labour market is adjusting at present and how it adjusts over the course of a business cycle. This is the first part of a few blogs which aim to present a fairly complete summary of this data and what it tells us.

The monthly wait for the Labour Force data is over and we now know that how all the confusing messages coming from various indicators in the last few weeks are playing out in the labour market. Today’s data suggests that the labour market is starting to now turn for the worse. While today’s 5.8 per cent headline unemployment rate was less than the prediction by most economists (5.9 per cent), employment growth has fallen 3 out of the last 4 months and the in last month this descent quickened. The broader rate of labour underutilisation (sum of unemployment plus underemployment) is now worse at a comparable point in the cycle than it was in 1991 or 1982. That is a sign that things are sick and the employment growth slowdown is a sign that the situation will become sicker.

Sometimes in public policy a poor decision is made. Other times you conclude a very bad decision has been made. Then there are times when you witness one of the worst decisions that could be made. Today’s Australian Fair Pay (Not) Commission decision falls into this latter category. It was a decision made by highly-paid officials in secure employment which will impacts disastrously on the lowest paid workers and their families. in the context of a demand-deficient (that is, spending failure) downturn, the FPC has denied the low-paid workers a pay rise. The decision consolidates the triple whammy attack against the poor which is the Government is largely turning a blind eye too while it swans around preaching social inclusion.

While all the green shooters out there are constantly searching for signs that things are improving the fact is they are typically focusing on financial variables. So they feel good that the share market is recovering a bit (for the time being). But I almost always focus on real variables and then more usually on the labour market. Employment is the connection that the vast majority of us have with the economy and the distribution system and the quality and quantity of employment is a crucial indicator of how well things are travelling. The latest data out today reinforces the data from last week and shows one thing and one thing only – the labour market is sick. It also points to the urgent need for a third stimulus package which unlike its predecessors should be “job laden”. If the Government fails to take responsibility in the coming weeks and funds direct job creation projects on a massive scale then the situation will worsen and we will be stuck with high rates of labour underutilisation for the next several years.