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Job losses should spell unemployment raises, but December’s net loss of 65,000 jobs failed to move the needle. In simple terms, what’s behind Australia’s stagnant unemployment rate?
Two things are true.
The first: over December of last year, Australia reported a net loss of 106,600 full-time jobs. This was the second-largest drop since the monthly labour force survey began 45 years ago.
The second: national unemployment held steady at 3.9 per cent, the same for October.
Shouldn’t the historic job losses have moved the needle on unemployment? Well, yes, kind of.
Firstly, it’s worth pointing out that full-time work isn’t everything. The labour force is made up of Australia’s employed and unemployed populations. Full-time workers are just one part, albeit the largest constituency, of the nation’s employed population. Overall, accounting mostly for an uptick in part-time employment, Australia netted a loss of 65,100 jobs across December.
Still, shouldn’t a loss of 65,100 jobs have affected national unemployment? Again, yes, kind of.
As explained by Callam Pickering, a senior economist at Indeed, the steady unemployment rate had to do with the national participation rate falling by 0.4 percentage points – making it the most significant monthly change in over 20 years, excluding the COVID-19 pandemic.
ABC online business reporter Michael Janda had a similar point to make, saying: “Participation rates typically move by 0.1 or 0.2 percentage points in a month, occasionally by 0.3, but very rarely more than that.”
According to the Reserve Bank of Australia (RBA), the participation rate is the percentage of working-age people in the labour force.
Remembering that the labour force accounts for the employed and unemployed (i.e., it excludes only those who are not actively looking for work), it makes sense that a decrease in the unemployment rate (i.e., unemployed but actively looking for work) can be mitigated if there are fewer people in work or looking for work overall.
Let’s put it a different way. If there are fewer people looking for work, then a decrease in the number of jobs overall will leave fewer people out of work.
What are the experts making of the job losses?
According to ANZ senior economist Adelaide Timbrell, the cuts in full-time work and associated increases in part-time employment are “good news” for the Reserve Bank of Australia and “bad news for those 65,000 people in December who went from having a job to becoming unemployed”.
How can this be the case?
Well, the RBA wants to slow the economy down, said Ms Timbrell. This is why it has been gradually increasing interest rates, on and off, since the end of 2020. Interest rate hikes can help to curb inflation.
When interest rates are high, it becomes more expensive to spend and borrow money, and saving money tends to bring higher returns. When spending lowers, economic growth slows. As consumers become more frugal, the demand for goods lowers. In theory, lower demand means goods must become cheaper to stay viable.
Therefore, as more people find themselves in part-time work, they will have less to spend and consumers will likely be spending less. This is another way to curb inflation.
“When people are more likely to be working part-time, or thinking more carefully about their spending, that’s going to be slowing both economic activity and inflation down,” explained Ms Timbrell.
Experts are predicting the unemployment rate to rise across 2024, potentially approaching 4.5 per cent by the year’s end. This gives yet more reason for the RBA to feel confident in meeting its inflation targets.
“Any upward drift in the unemployment rate over 2024 will give the RBA more room to move in terms of rate cuts over the year,” said BetaShares chief economist David Bassanese.
Nick Wilson
Nick Wilson is a journalist with HR Leader. With a background in environmental law and communications consultancy, Nick has a passion for language and fact-driven storytelling.
