Grogonomics
Australian economy

Everyone talks about unemployment, but to measure wages growth we should pay more attention to underemployment rates

One common criticism of the monthly unemployment figures is that they don’t take into account the level of workers wanting more hours. The ABS has addressed this issue, and from now on along with the monthly unemployment rate we will get a monthly underemployment rate. This will enable us to better track problems in the economy and perhaps get a better sense of when our wages might start to grow faster.
Until now the ABS has only had underemployment measured in trend and seasonally adjusted terms every quarter. But since July 2014 the ABS had been measuring underemployment on a monthly basis, and it now finally has enough data to be able to calculate seasonal affects. Thus from now on we will get a monthly figure.
This is a fantastic development that is rather remarkable in light of the very significant cuts to the ABS funding over the past five years. It should reduce the criticism of the ABS that it misses out on many “real” unemployed because it counts being employed as working at least one hour a week.
As I have noted in the past, the proportion of people working small number of hours a week has actually shrunk over the past 15 years, but nonetheless, people do still like to suggest that somehow the figures are illegitimate. Having a monthly underemployment rate will also increase the attention on that measure, which is certainly good given the large impact it has on wages and household income growth.
In September, while the trend unemployment rate remained steady at 5.2% (but still as low as it has been since June 2012), the trend underemployment rate fell to 8.3% – the lowest it has been since August 2014, but still historically very high:
It is worth noting that being an underemployed part-time worker does not necessarily mean you want to work full-time. The median extra hours work desired by those who work 1-9 hours a week, for example, is just 12.
The simple explanation for our current high level of underemployment is that we have a lot more people working part-time than in the past, and therefore it only serves to reason that we would have more underemployed.
And yet there is more to it than that. One big difference is that now more part-time workers want to work more hours than they did in the past. At the start of this century, 25% of male and 16% of women part-time workers wanted more hours; now it is 33% and 23% respectively:
But this in itself is not a problem, for as I have previously noted underemployment and unemployment usually moved in sync, and then in 2014 they stopped doing so.
Consider that the trend unemployment rate is the same now as it was in November 2004 but the underemployment rate is 1.5% points higher:
The question is why, and who is affected?
This latest lot of new data allows us to break the data down by gender and age.
Women, by virtue of being employed part-time in greater numbers, have always had a higher level of underemployment than men. In fact, for most of this century, the level of male unemployment and underemployment was nearly identical. But then in 2014 they split:
One issue is clearly age. Younger workers are much more likely to be underemployed – even more than they are likely to be either unemployed or employed part-time:
This suggests that young people are much less likely to work part-time because they want to than because it is the only work they can get.
But this again would not be much of concern if the underemployment of younger workers moved in sync with their unemployment. And yet it is clear from the data that this is not so.
And while it perhaps might not be surprising that younger workers are experiencing near record levels of underemployment, the big concern is that this is also the case for workers aged 25-44. Since the end of 2014, the unemployment rate for these workers has fallen 1.2% points, while their underemployment rate has gone down just 0.2% pts:
Essentially there has been no escaping the underemployment boom. Yes, the youngest workers have certainly felt the effects more than the rest, but all ages and genders have seen underemployment either remain steady or fall much less than has the unemployment rate over the past four years.
The deputy governor of the RBA, Guy Debelle, suggested in a speech last week that because the volume of underemployment (measured as a percentage of the desired hours worked over total potential hours in the labour force) has remained relatively flat, the unemployment rate remains the best measure of the labour market.
But as we have seen, the strongest correlation at the moment with wages growth is underemployment, not unemployment:
And with the rate now to come out every month, we can also expect it to begin garnering much more attention – by both the public and hopefully policy makers.

• Greg Jericho is a Guardian Australia columnist