- Australian unemployment tumbled in May, falling from 5.6% to 5.4%, the lowest level in six months.
- Analysis from Westpac Bank shows the decline was driven largely by a drop in male labour force participation, potentially reflecting a degree of disillusionment among male workers.
- Westpac says this trend, if continued, could see Australian unemployment fall even further in the months ahead.
Australian unemployment tumbled in May, falling from 5.6% to 5.4%, the lowest level in six months.
However, rather than reflecting a pick-up in employment growth, the sharp decline reflected that an usually large number of Australians left the labour market during the month.
The size of the labour market — measuring those Australians in employment or who are actively seeking work — declined by 14,200 in seasonally adjusted terms, seeing Australia’s participation rate tumble from 65.62% to 65.47%.
The participation rate measures the proportion of Australia’s working age population who are actively participating in the workforce.
After looking into the detail of the sizeable decline in both measures, Westpac’s Australian economics team found that it was predominantly driven by men.
“Male participation fell to 70.68% from 70.88%, driving male unemployment down to 5.39% from 5.66%,” said Justin Smirk, senior economist at Westpac.
“Female participation also eased from 60.55% to 60.44% and the female unemployment rate dipped to 5.41% from 5.53%.”
The decline in both male and female participation in May is seen in the chart below from Westpac.
“In early 2018 it was the relative strength in male participation, compared to the slowdown in male employment, that was boosting unemployment,” Smirk says.
“This reversed in May.”
So while participation among both men and women both fell last month, the proportion and number was significantly higher among males, contributing to the steep drop in overall unemployment.
But why did so many men leave the labour force in May?
While one needs to be careful not to over-interpret just one month’s worth of data, especially given the Australian Bureau of Statistics (ABS) seasonally adjusted figures are notoriously volatile, Smirk thinks it could reflect a degree of disillusionment among male workers.
“The outsized dip in male participation, and the outperformance of female employment based on strong part-time employment growth, suggests we may be observing genuine disillusioned male workers leaving the labour force,” he says.
According to the ABS, female employment grew by 183,500 in the year to May, an increase of 3.2%. In comparison, male employment increased by a far smaller 120,400, or 1.8%, over the same period.
As Smirk notes, the outperformance in female employment was driven by strong hiring in part-time positions.
“In the year to May, male full-time employment was on par with female full-time, lifting by 92,000 and 86,800 respectively, but male part-time employment lifted just 28,400 while female part-time employment surged by 96,600,” he says.
In his opinion, Smirk says surging part-time female employment growth, at a time when male labour force participation is declining, hints that some men are choosing to leave the workforce entirely rather than take on a part-time role.
“The fact they are able to leave the workforce so easily suggests we may be on the cusp of another wave of retiring male baby boomers that are choosing to leave the labour force than take a part-time position, possibly different sector to where they have previously worked,” he says.
While only speculation at this point, Smirk says that should male participation levels continue to decline, it could see Australian unemployment decline even further in the months ahead, even if slower employment growth is reported.
“[If] these males departures are part of a new wave of retirees, this trend could drive a decline in the unemployment even if we get softer than expected employment through this year,” he says.
“We are forecasting the unemployment rate to be around 5.6% by the end 2018, but the recent shift in male participation, should it continue, would put this forecast at risk suggesting unemployment could fall towards 5.0%.”
In its forecasts issued in May, the Reserve Bank of Australia (RBA) saw Australia’s unemployment rate sitting at 5.5% by the end of this year, a factor underpinning its view that any lift in wage pressures is likely to be gradual in the years ahead.
The RBA believes that Australia’s full employment level, also known as the non-accelerating inflation rate of unemployment (NAIRU), is currently around 5%.
Should unemployment continue to decline as seen in May, it will naturally lead to some speculation that wage pressures could lift faster than what the RBA and others currently expect, an outcome that could have implications for official interest rate settings given the link between wage growth and inflationary pressures.
However, Smirk is sceptical that any male-led drop in unemployment — if that indeed takes place — will lead to a meaningful acceleration in wage growth in the period ahead.
“Should [the recent decline in unemployment] continue then it would suggest an economic backdrop that is becoming more conducive to an acceleration in wages. If you assume this is the case, and then overlaying the outsized gain in the minimum wage, you could mount an argument for an acceleration in wages through this year,” he says.
“However, we are not convinced by this argument.
“Part of the reason we aren’t is that the jobs being created are in sectors that don’t have tight labour markets and that the decline in male unemployment is more about declining male participation than robust jobs growth in the male rich employment sectors.”