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Today was supposed to be the follow up on yesterday's demographics article, but intense allergies to errr... nature have killed my creativity...
So, let's chat about upcoming unemployment confusions, inspired by this article in The Conversation 👇
First things first, this is Australia's recent unemployment data...
5.6% unemployment isn't bad...
The pre-pandemic trend of 5.2% was pretty stable, and we're almost back there...
So what's the problem?
Jobkeeper ended last month... No more government freebies.
Westpac estimate there were around one million people on the scheme when it expired on the 28th of March...
The initial impact of this will show up in the next print on the 20th of May (April data)...
Here comes the pain?
Of the 1 million people still on JK at the end of March, we anticipate around 100,000 could lose their job after the program concludes.
We calculate this figure by applying a job-loss rate to the end-Q1 number of JK recipients across each industry.
To be fair, the Australian treasury estimates between 100,000 & 150,000 job losses as the scheme ends so everyone's guessing roughly the same...
Who's taking the biggest hit?
Applying the estimated rates of job loss across each industry, the largest losses will occur in:
- Accommodation & Food Services: 25,000
- Administration & Support Services: 20,000 (likely concentrated in the travel agents & tour operators, with survey data suggesting job losses may be as high as 80%)
- Transport: 15,000 (although the targeted JK extension and stimulus package may alter the timing of job losses)
- Arts & Recreation: 10,000
- Other Services: 10,000
We also expect that the impact of the ending of JK is likely to be drawn out for a number of months as firms assess the economic viability of their labour force.
However, for simplicity we have assumed that the impact occurs in the June quarter. On this basis our estimated 100,000 loss associated with the ending of JK would mostly offset the estimated 111,000 underlying gain in employment. Assuming flat participation, this would see the unemployment rate drift up to 6.0% from 5.8% in February.
So where does the 7% figure come from?
'As many as 400,000 more jobseekers'
The gap could narrow because up to 400,000 people leave unemployment benefits (lowering the red line) or because up to 400,000 people on benefits start looking for jobs and become formally unemployed (raising the grey line).
The unresolved question is the extent to which it will be the former rather than the latter.
If it is entirely the latter, it would increase the unemployment rate by nearly three percentage points.
'Three percentage points' would put the unemployment at 8.2%, above the pandemic high of 7.5%: that outcome seems improbable...
One indicator we can look to is recruitment.
Then we need to look to underutilisation...
- Underemployment is calculated by dividing the number of underemployed individuals with the total number of workers in a labor force
- Underutilisation rate is defined as the sum of the number of persons unemployed and underemployed, expressed as a percentage of the labour force: an aggregate measure of underutilisation
As with so much of the post-pandemic data, headline numbers won't tell the full story.
A positive labour recovery will see an increase in job security: have to presume the 'zero hour' workers be the first out the door as JK expires...
Will hours worked catch up to employment?
Ultimately, a strong labor market sees high demand for labour, more hours worked per person and competition for workers pushing wages higher...
That's what we're looking for.
The RBA aren't convinced it will happen quickly 👇
RBA minutes show the central bank believes wages have to grow at “sustainably above 3 per cent” if inflation is to get back to its target of 2 to 3 per cent.
At the last meeting, the RBA reiterated their stance: no cash rate hike until 2024 at the earliest (and they're targeting 4.5% unemployment)...
The dynamics of the Australian & U.S. labour markets are clearly different, but we can look to Australia's progress as a leading indicator for confidence in the recovery once the stimulus measures expire.
Is there 'scarring' and uncertainty or a rush to get back to 'normal' ASAP?
Are firms actively recruiting or holding back?
In the U.S. The Fed are expected to announce their taper in the second half of this year, with some pointing to Jackson Hole in August as the likely date...
U.S. employment benefits are set to expire on September 6th 2021...
Will the Fed be able to confidently declare that 'sustainable progress' has been made by then?