JobSeeker has about 700,000 more claimants than there are unemployed people on ABS data

Image Credit: ABC News: Alistair Kroie

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Australia's official unemployment rate has been so corrupted in recent months it's obscuring more about the labour market than it's revealing. It means we can no longer compare unemployment rates across time. There's no point creating a line graph to compare today's unemployment rate with the unemployment peaks of the 1980s and 1990s, for instance because it wouldn't be comparing apples with apples. It also means future economic historians will need to spend much time explaining why, in May 2020, Australia's official unemployment rate didn't reflect reality. According to the Bureau of Statistics, the official unemployment rate jumped from 6.4 per cent to 7.1 per cent last month. The data show 227,700 jobs were lost in May following 607,400 job losses in April, bringing the total number of job losses since March to 835,100.

But the number of unemployed people has only increased by 211,000 since March the remainder of the 835,100 having dropped out of the labour force altogether. Why would over 600,000 people drop out of the labour force in the last two months? Because they may have become too discouraged to look for work or they've been unable to work because they've been forced into an unpaid caring role at home.

Due to temporary Covid19 rule changes unemployed people also no longer need to be looking for work to claim JobSeeker you can be classified as out of the labour force but still receive unemployment benefits. But since all these people have stopped actively looking for work, they're no longer counted as officially unemployed they've disappeared from the official figures. That explains why the participation rate fell to 62.9 per cent last month to the lowest level in nearly 20 years. And when the participation rate shrinks, relative to the number of people who are employed, the official unemployment rate is kept artificially low. It's why the ABS estimated there were 927,600 unemployed Australians in May, when the Government said earlier this month that there were more than 1.6 million people receiving JobSeeker.

The ABS noted that the official unemployment rate would be around 11.3 per cent if everyone who lost their job in the last two months was still part of the labour force. The unemployment rate peak during the 1990s recession was 11.2 per cent. Economists say another factor obscuring the true unemployment rate is the JobKeeper program. The Government's JobKeeper payments have been keeping hundreds of thousands of employees attached to their workplaces through the Covid-19 lockdown but it means those people are still considered employed even if they haven't been working any hours.

The official unemployment rate of 7.1 per cent is also obscuring the reality of life for younger Australians. Youth unemployment (15-24 years old) officially hit 16.1 per cent last month the highest level since mid-1997. But if every young Australian who had lost their job since March was counted as officially unemployed (rather than being forgotten when they drop out of the workforce), the youth unemployment rate would be 26.5 per cent. More than 290,000 people aged between 15 and 24 have dropped out of the labour force since March.

The rate of youth underutilisation (which accounts for the number of unemployed and underemployed) is now over 37 per cent but that number would be 48 per cent if everyone who'd lost their job was considered unemployed. Per Capita, a progressive think-tank, says for the first time since the Great Depression almost two in three young workers don't have enough work to meet their needs.

Just last month, the Reserve Bank governor Philip Lowe said, Australia's unemployment rate was not the best indicator of the health of the labour market at the moment. It was the kind of understatement central bankers have perfected. But he also said the JobKeeper program may have to be extended if the workforce requires it. He warned Australia's economy would hit a critical point in September when a raft of stimulus measures stopped, and it was very important not to withdraw fiscal stimulus too early. If the economy did not see a recovery fairly soon the risk of permanent damage to the labour market would rise. At this stage, Prime Minister Scott Morrison is still planning to end JobKeeper in September, with plans to transition workers from the JobKeeper program to (possibly increased) JobSeeker from that point which will see the official unemployment rate rise. The Government has started slowly re-introducing mutual obligation requirements for job seekers.

From June 9, those on the dole have been required to undertake at least one appointment with their employment services provider. In coming months, they will also be required to start looking for work and penalties (such as the suspension of JobSeeker payments) will be re-introduced. But, until that happens, it means a true picture of the labour market will remain obscured for months.

And economists, including Philip Lowe and Treasury are just guessing where the jobless rate may be by the end of this year.

EY chief economist Jo Masters observed, where the labour market goes from here is difficult to outline given the definitions of unemployment uncertainty about what firms will do when JobKeeper is wound back as well as the fact that the economy is doing better than expected. And that's without considering the future vagaries of a virus that caught most of the world well and truly off-guard.