More women are working, and it could determine Australia's economic fortunes

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  • Australia created the most jobs ever recorded in 2017 but unemployment has remained somewhat unchanged.
  • The reason is because an increasing number of Australians entered the labour market, mostly women.
  • A senior economist says there’s evidence to suggest that these increased levels could help to boost household spending.

  • The participation rate for women entering the workforce rose 1.3 percentage points to a record high of 60.6%.

    Australia created over 400,000 jobs in 2017, the most over a calendar year on record.

    And over 75% of those were full-time positions, underlining just how strong labour market conditions were.

    However, despite the enormous employment gains, Australia’s unemployment didn’t fall all that far, slipping from 5.8% in March to 5.5% December — still well above the 5% level widely regarded as being Australia’s full employment level.

    So what gives? Why, with employment growth soaring, did unemployment not decline very far?

    In simple terms, and excluding persistent doubts about the veracity of the ABS’ seasonally adjusted jobs data, it was because an increasing number of Australians entered the labour market, encouraged by a raft of bullish headlines about how strong job prospects were.

    This chart from the Commonwealth Bank puts the increase in labour market participation — those Australians of working age either employed or looking for a job — into perspective.

    It also shows Australia’s employment-to-population ratio, simply the percentage of Australia’s working age population currently in employment.

    Source: Commonwealth Bank

    As Kristina Clifton, Senior Economist at the Commonwealth Bank points out, labour force participation surged last year, rising back to levels last seen during the peak of Australia’s mining boom.

    “At 65.7% it now sits just under the record level of 65.8% reached in November 2010, at the height of the mining boom,” she says.

    “Labour market participation tends to lift when employment conditions are strong as workers feel more confident that they will be able to find a job, so the sharp rise in the participation rate is not surprising given the strength in the jobs market over the past year.”

    And, as this next chart reveals, it was an influx of women joining the workforce that contributed to much of the increase in labour force participation over the year.

    Source: Commonwealth Bank

    “Labour market participation has lifted strongly for both genders this year,” Clifton says.

    “However the increase has been larger for females with the participation rate rising 1.3 percentage points to a record high of 60.6%. A breakdown of female participation by age group shows that participation has risen over time in all age groups with the exception of those below age 15-24 years.”

    In contrast, the participation rate among men grew by a smaller 0.5 percentage points to 71%.

    So of all those entering or rejoining the workforce in 2017, the majority were women — a trend Clifton expects will continue.

    “It is likely that we will continue to see a rise in female participation in the years ahead,” she says.

    “We estimate that steadily rising female participation over the next ten years would be enough to offset the effects of Australia’s ageing population and keep the participation rate close to its current level.”

    And with more women entering the labour market, Clifton says that will likely support growth in household incomes and household spending levels.

    “A higher employment-to-population ratio is a positive for household balance sheets,” she says, noting this is generally accompanied by higher labour force participation.

    “More people in employment generally means higher household incomes, a particularly welcome development in the current climate of flat real wages growth.”

    Clifton says there’s already some evidence emerging to suggest that higher employment and labour force participation is helping to boost household spending, the largest and most important part of the Australian economy.

    “We are expecting the Q4 [GDP report] will show a solid lift in consumer spending,” she says.

    “Retail trade, which accounts for around one-third of household spending, rose by 0.9% in the quarter. Motor vehicle sales were also higher.”

    However, while having more people in employment is undoubtedly a good thing, with more people actively looking for work, its meant unemployment has fallen slower than what would have otherwise been the case.

    Labour demand is strong but supply has been nearly as firm, helping to explain why unemployment still sits around 5.5%.

    That has contributed to recent weakness in wage growth, and, partially as a consequence, continued softness in inflationary pressures.

    It also helps explain why official interest rates still remain at record-low levels even with strong employment growth and a noticeable improvement in the broader Australian economy.

    And should labour force participation remain elevated or increase even further, it could see the status quo remain in place for some time yet.

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