Australian unemployment has fallen to 4.5% – but only because workers are dropping out of the workforce altogether

Australian unemployment has fallen to 4.5% – but only because workers are dropping out of the workforce altogether
Australia's labour market has copped a beating despite 'falling' unemployment. (David Gray, Bloomberg via Getty Images
  • The headline unemployment rate is no longer a good representation of the jobs market, falling in August despite workers doing it tough.
  • As lockdowns were implemented, more Australians worked fewer or no hours and underemployment rose.
  • A true improvement in the labour market isn’t expected until restrictions ease.
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On the face of it, Australia’s jobs recovery looks in good shape but underneath the surface things are far more complicated.

On Thursday, official labour force figures recorded another fall in the unemployment rate to 4.5% in August, down from 4.6% the month prior.

Yet, the headline figure has long-become a misleading one, with 146,300 people leaving the workforce altogether and not being counted as a result. In New South Wales alone, 210,000 have now dropped out of the labour market in the space of just two months, while national youth unemployment jumped to 10.7%.

Distorted by lockdowns and unprecedented support measures, the top line number isn’t a true reflection of the labour force, according to Indeed Asia Pacific chief economist Callam Pickering.

“The conventional definition of unemployed — namely that someone is actively searching for work and available to begin — has little meaning in a world where so many jobs cannot be performed,” Pickering said.

Ongoing lockdowns in New South Wales and Victoria led to a “large spike” in people working zero hours. While none have the opportunity to work and earn a wage, each is counted by the ABS as technically employed, leading to a lower unemployment rate, even as insecure work grows.

Looking at the bigger picture however, it becomes clear that the labour market “took a beating” as business closed their doors.

“Hours worked fell by 3.7% in August, compared with a 1.1% decline in employment. So some of the impact of lockdowns is being absorbed by fewer hours, or zero hours, rather than job losses,” Pickering said.

Part-time staff for example have worked 5.4% fewer hours, while hours worked in New South Wales fell by 6.5%. In combination with falls in the other eastern states, any gains made elsewhere were more than offset, producing a net reduction of 66 million hours.

In this respect the underemployment rate, which measures the number of Australians who work fewer than 35 hours but would like more, has become more telling.

It surged to 9.3% in August, from 8.3% the month prior and was predictably led by those in lockdown.

“The underemployment rate in New South Wales has increased to 10.7%, compared with 7.6% in June, while there has also been sizable jumps in Victoria (9.5%) and Queensland (8.9%),” Pickering said.

“Underemployment will remain elevated until restrictions and meaningfully eased.”

Looking ahead, ANZ senior economist Catherine Birch expects it will get worse before it gets better.

“We expect employment to fall further in September, with losses more concentrated in Victoria, which entered its sixth lockdown in the middle of the August survey reference period,” Birch said.