This morning’s release of the December employment report by the ABS – which showed that 22,600 jobs in total were lost – was a very surprising negative read on the economy given recent other data.
It would have been a much worse result if the 9,000 part-time jobs hadn’t have been created to offset the big fall in full time employment of 31,600.
But even though employment growth on any one month can be quite volatile statistically, the trends that are emerging in Australia are a cause for concern in terms of the potential growth rate achievable without inflation breaking out.
Bill Mitchell from the Centre of Full Employment and Equity at Charles Darwin University in the Northern Territory has a great summary of recent trends in the following table.
His take on the data in light of this is:
Overall there have 27.2 thousand jobs (net) lost in Australia over the last six month, which is appalling. Worse still is that fact that over the same period, full-time employment has fallen by 69 thousand jobs (net) while part-time work has risen by 41.8 thousand jobs.
The Working Age Population has risen by 182 thousand in the same period while the labour force has fallen by 15 thousand.
Craig James from CommSec noted that over 2013, “just 54,600 jobs were created, marking the weakest result for a calendar year since 1996. Part time employment lifted by almost 122,100 workers over 2013 compared with 67,500 full-time jobs lost.”
That’s not much of an economic recovery.
But the longer term implications about the data and the trends in Australian employment are for a lower growth future as the fall in both the employment to population ratio and the accompanying participation rate suggest. Indeed it is only the fall in the participation rate that is actively restraining the unemployment rate from heading higher as people simply stop making themselves available for work.
Less people in the workforce means less income being earned and less money moving around the economy, which impacts on the potential growth rate.
It’s a point made by RBA Governor Glenn Stevens when he delivered a speech to the AICD in September 2008 in which he looked at four long-term themes in the Australian economy. One of those themes was employment – specifically, economic growth at full employment.
Stevens was talking about this in the context of the 4%, or thereabouts, unemployment rate at the time. The current 5.8% is some way removed from there, but Stevens’ point was that as we use up the factors of production – of which labour is one – then this means that there is a natural handbrake on the rate of growth in an economy.
Once the reserves of spare capacity are pretty much used up, we should expect to be accustomed to growth rates for GDP starting with a 2 or a 3. There will not be many with 4s or 5s, as we had for some years through the 1990s and earlier this decade… If we set our aspirations higher than that – if we try for above-average performance all the time – we will just get inflation. That is the economics of full employment.
It’s a future faced by many developed nations as their populations ages and leaves the work force – the United States participation rate has been falling as well.
But what it means for Australia is that if these trends continue the transition from the mining investment boom is going to be harder than what would otherwise would be the case. It also highlights that we need to be a productive nation to counter this fall in capacity if we want to grow outside the 2-3% range.