Are you excluded from the unemployment figures?

 In Home News Section, Uncategorized

We got two bits of interesting news about the labour market last week.

First, we heard there were more job vacancies in the economy than unemployed people.

It was the first time that’s happened in Australia since policymakers abandoned full employment in the 1970s.

Second, we heard the unemployment rate rose slightly last month, from 3.4 to 3.5 per cent, but it did so for good reasons.

It was a sign of the tightening labour market.

Let’s take a look at both.

But let’s also revisit the definition of “unemployment” to see what else is going on.

Job vacancies, and people to fill them

Last week, Bureau of Statistics data confirmed job vacancies have hit a record high.

According to the latest data, there were 480,500 vacancies in June — more than double the number of vacant jobs than before the start of the pandemic.

When you compared those job vacancies to the number of officially unemployed people, it made a fascinating graph.

See below.

It was a dramatic illustration of how tight the labour market has become.

Economists said it could see more people joining the labour force to fight over those job vacancies.

And the very next day, the ABS released a new batch of unemployment data and that’s exactly what happened.

The new data showed more than 47,000 people joined the labour force after July to look for work.

And that changed the graph above a little bit.

Let’s zoom in.

See how the number of officially unemployed people increased slightly in August, from 473,600 to 487,700?

That was a good thing.

It occurred because more people joined the labour force to look for work last month, to fight over those vacancies, but a minority of them weren’t lucky enough to find work so they were officially counted as “unemployed.”

It pushed the number of officially unemployed people back above the number of job vacancies, by a slim margin of 7,000.

However, be mindful there’s now a two-month gap between those datasets.

We’ll get the next lot of job vacancies data at the end of this month. It will show how many job vacancies there were in August so those datasets will be in sync again.

The labour force framework

But this is a good opportunity to revisit how “unemployment” is constructed.

Check the graph below.

It’s a simplified model of the labour force framework.

It’s what ABS statisticians, economists, and Reserve Bank and Treasury officials use to find the unemployment rate.

Notice how the “labour force” is just a composite of two groups: the employed and the officially unemployed.

You get the unemployment rate by taking all of the people in that “unemployed” box and dividing them by the number of people in the “labour force” box.

In August, there were 487,700 unemployed people, and 14,079,800 people in the labour force. That gives you an unemployment rate of 3.5 per cent.

That’s telling you that 3.5 per cent of the labour force is currently unemployed.

Why do I make that emphasis?

Because it’s really easy to forget, but when you hear officials talking about the unemployment rate, they’re not talking about all of the people in the country who are without work.

The unemployment rate is only referring to a specific subset of unemployed people who can start work immediately, and who are useful to employers to fill job vacancies immediately.

If you’re without work and you’re looking for a job, but you’re not available to start for a month, you’re not counted as unemployed and you’re not included in the unemployment rate.

You’re shunted off into that big yellow box called “Not in the Labour Force” (NILF) where you’re only considered “not employed.”

Pay attention to that.

It’s the type of categorical distinction you have to train your ears to hear: there’s a very important difference between unemployed and not employed.

Here’s what I mean.

In August, there were more than 7 million people in that NILF group. They were considered not employed.

We know thousands of them were actively looking for work, which means they were looking at the same job vacancies as everybody else.

But since they weren’t available to start work immediately they were excluded from the official unemployment figures.

Why’s it done that way?

Because the labour force framework is set up to serve the needs of employers and economists and other technicians, not laypeople.

It provides them with a regular snapshot of the immediately available labour supply. It’s focused on solving immediate problems for employers.

For example, let’s assume an employer needs to fill a job vacancy this week.

We know there are millions of Australians who are without work currently, but they’re no good to that employer to fill an immediate staffing problem because they’re not available to start work now.

To fill a job vacancy immediately, the employer really needs to know who’s looking for a job and is available to start work now — they don’t care if you’ll be available in two months.

So, the latest unemployment data will tell them that 3.5 per cent of the labour force is without work but ready to go.

That’s the group of local people the employer can comb through to find a worker quickly.

It’s important to remember that.

We should never forget about the people in the NILF group who are “not employed” from month to month, because there are thousands of them who do want a job.

It’s just that many of them may be facing barriers to employment.

Who is ‘not employed’?

Of course, that’s not to say everyone in that NILF group wants work.

The vast majority actually don’t.

There are millions of people in that group who are retired, for example, and there are more than half a million people who are permanently unable to work.

You can be in that NILF group for lots of reasons. You might be:

  • Retired
  • Full-time parent
  • Full-time carer
  • Student
  • Permanently disabled
  • Travelling
  • Discouraged job-seeker
  • In prison or another institution

However, there are typically thousands of people in that group who are looking for work.

How many of them are there now?

When ABS officials took the labour force survey recently, they categorised the above group of people according to certain criteria.

And here’s what they found.

Note this data is for the month of July (we’ll get the August data this week). It’s also in original terms, meaning it hasn’t been seasonally adjusted.

As you can see, there were 13,200 people who were looking for work but who were unavailable to start in the next four weeks.

Therefore, they weren’t considered “unemployed.”

There were another 63,900 people who were looking for work, were unavailable to start, but who were available to start in the next four weeks.

They also weren’t counted as unemployed.

And there were 91,600 people who passively looked for work, so they showed signs of wanting work, but they didn’t actively look so they weren’t considered unemployed either.

So, that’s an extra 168,700 people who showed signs of wanting work but who weren’t counted in the official unemployment figures.

Does that help to put those job vacancy numbers into perspective?

In July, there were 473,600 officially unemployed people competing for 480,500 job vacancies.

But there were another roughly 77,000 people, sitting just off to the side, who were actively looking for work but who weren’t considered “unemployed” because they couldn’t start immediately, and there were another 91,000-odd people who were passively looking for work who were also excluded from the official figures.

A complicated picture

Which brings us to the final section.

The graphic below shows the number of officially unemployed people last month compared to the number of people who were receiving some level of assistance from Jobseeker or Youth Allowance payments.

The unemployment numbers are in original terms (i.e. they’re not seasonally adjusted) to match the numbers from the Department of Social Services.

Notice how there are far more people receiving assistance than there are officially unemployed people?

I looked at that phenomenon earlier this year.

It’s important to note that not everyone who is counted as officially unemployed will be getting an unemployment payment.

And not everyone who’s receiving an unemployment payment will be counted as officially unemployed.

According to Professor Peter Whiteford from the Australian National University, and Associate Professor Bruce Bradbury from the University of New South Wales, the reasons for the large gap between the two figures are complex.

“But a significant factor is that a very large share of people receiving unemployment payments are not required to seek jobs and have a reduced capacity to work,” they wrote in April.

“Among them are people whose access to the disability support pension has been cut and Australians who would have been of pension age before the age was lifted.”

At any rate, hopefully these graphs help you to think about the fluidity of the categories that are used to determine “unemployment” and other numbers.

The headline figures are one thing, but underneath the surface there’s a lot going on.

The labour market hasn’t been this tight in decades, and employers are definitely complaining about how difficult it is to find staff.

But there are still hundreds of thousands of people who are looking for work, and there are anecdotal reports that some employers are still happy to knock job applicants back.

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By business reporter Gareth Hutchens (Original ABC Article)