When you hear people talking about the unemployment rate, does the number ever make sense to you?
Don’t worry if it doesn’t. It’s not actually designed for you.
It’s for employers.
The unemployment rate isn’t telling you how many people in Australia are without work at the moment.
It’s telling employers what percentage of people in the local labour force are immediately available to fill a vacancy.
It helps them make hiring decisions.
But how does that help job seekers?
Don’t job seekers want to know how many jobs are actually available at the moment, and how many people are competing for each job?
Don’t they want to know how long it’s taking to find a job in the current labour market?
Let me show you how the unemployment statistics could be presented each month so they’re meaningful for job seekers.
The statistics are for employers
Before we begin, this piece is following a piece I wrote last week, where I explained why the official definition of “unemployment” leaves millions of people out of the unemployment data.
In case you didn’t catch it, here it is.
Now, at the moment, the Bureau of Statistics presents the headline unemployment data with this table every month:
Most of that information is useless for job seekers because it’s presented without important context.
For example, if you’re one of the people who’s looking for work at the moment, how does it help you to know there were 626,000 officially unemployed people in September?
What if I told you there were only 333,700 job vacancies in the August quarter?
Suddenly, that 626,000 figure would become far more meaningful.
A similar problem plagues the unemployment rate and the underemployment rate, because both numbers depend on the size of the “labour force.”
For them to be more than vaguely meaningful, you have to know what the labour force is (and isn’t), and how workers enter and exit it.
It’s very technical, and it’s not something most workers know about.
In fact, the longer you look at the above table, the more you realise that it’s designed to give employers a snapshot of the current state of the immediate labour supply.
What it’s not telling you is how many jobs are on offer, or how difficult it is to get a job currently.
So let’s flip things around.
A different way to frame things
Firstly, let’s start with the employment-to-population ratio.
The employment-to-population ratio shows how employment has tracked over time, while accounting for population growth.
See the graph below.
Notice how the proportion of the population in paid employment is much larger today, compared to the 1980s?
The increase in workers has been driven by more women entering the workforce.
Also, notice how the number of people with jobs often declines significantly when the economy contracts for three months or more (the grey lines).
Even in 2008, during the global financial crisis, when Australia supposedly avoided a recession, employment still fell significantly.
In fact, it took until June this year for the employment-to-population ratio to return to the level it had reached just before the GFC.
It’s been a long and grinding 13 years.
Next, let’s consider the problem of “underemployment.”
Underemployment refers to a situation in which someone is employed, but they’re working fewer hours than they’d like to be working.
The “underemployment ratio” measures the level of underemployment among everyone who has a job.
See the graph below.
Notice how the proportion of all workers who are underemployed has risen significantly since the 1980s?
That’s telling you that, even though a larger proportion of the population is working these days, many of the extra jobs are not giving workers the hours they need.
Again, notice how the amount of underemployment often increases permanently after the economy has contracted for three months or more (the grey lines).
There are noticeable increases in underemployment following the recessions of the early 1980s and 1990s, and after the GFC in 2008.
However, underemployment also increased noticeably in 2014 when the economy didn’t contract. You can also see the effect of the lockdowns on underemployment in the last two years.
Next, let’s consider how long it’s taking someone to find a job in the current labour market.
This information is very useful for workers, for obvious reasons.
The graph below shows how long it’s typically taking someone to find a job.
Notice how the duration of the job search trended strongly downwards after the 1990s recession, but then started trending back up after the GFC in 2008.
These things give you a sense of how information could be presented each month to give workers a clearer sense of how the labour market is performing from their perspective.
After all, wouldn’t job seekers like to know if the economy’s creating many job opportunities at the moment (which is one of its essential functions)?
You could marry these graphs with something like the Wage Price Index, which tracks the growth in wages, to see how workers are being paid.
See the graph below.
Notice how wages growth has been falling steadily since the GFC, and hit all-time lows last year.
And another thing to note.
The language the Bureau of Statistics uses to discuss the Wage Price Index is also framed for employers.
It says the WPI tracks changes in the “price of labour.”
The WPI is measured in the same way as the Consumer Price Index (inflation) which follows price changes in a fixed basket of goods.
The WPI simply tracks price changes in a fixed “basket of jobs.”
At any rate, I’ve put a table together that could be used as a monthly template to present useful and regular information to jobseekers about the labour market.
It’s not meant to be the final word. It could definitely be improved.
But I hope it provides food for thought.
Next week, I want to talk about the millions of people who aren’t working, but who would like to work.
According to the ABS, there were 2.2 million of them in February.
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