Analysis
Posted
Talk about luck. What are the chances of a sudden plunge in the jobless numbers right before a crucial by-election?
On Thursday, as Prime Minister Scott Morrison went into overdrive in a desperate attempt to stave off defeat in Wentworth, the official unemployment numbers delivered what should have been an election winning gift.September's jobless numbers slipped to just 5 per cent, down from 5.3 per cent the previous month; the lowest level in six years.
That's the magic number, the elusive holy grail of employment policy, the level at which most economists and our very own Reserve Bank reckon we are motoring along at full employment.
As events transpired, voters clearly had other issues on their minds and it now appears the 'jobs and growth' mantra that has been the Government's catchcry for the past three years is falling on deaf ears.
Perhaps, it's because the official portrait of our economy no longer gels with those working part time and struggling with the lowest rate of wages growth on record.
It's worth remembering that you only have to work one hour a week to be classed as employed. And while the growth in full-time jobs easily has outstripped casual jobs in the past year, vast numbers of Australians are underemployed.
That's particularly the case for our youth. It's a trend that is worsening and that's seen a serious erosion of job security for younger Australians. At some point, that will curb spending behaviour and our economic health.
What happened to wages growth?
According to economic orthodoxy, once unemployment dips to 5 per cent, we start treading into inflationary territory.
At that point, or so the theory goes, the supply of labour becomes so tight that workers have the upper hand in wage negotiations.
To cover the extra wages bill, firms are forced to jack up prices, and inflation takes off.
It's a fundamental belief, known as the Phillips Curve, held dear by most economists. Except this time, it has failed to deliver.
Wages growth has been sluggish here and across the developed world. Inflation, the great cure-all for a deeply indebted world, so far has failed to materialise.
It's not just here. In America, unemployment has dropped to 4 per cent, the lowest since the Summer of Love in 1967 and while wages have begun to lift, particularly for lower paid unskilled hospitality jobs, it is still tepid.
When a job just isn't enough
So, what's gone wrong? Some fear the theory may no longer apply, that wages growth may permanently remain subdued.One of the biggest causes has been the dramatic shift towards part-time work in the past three decades. That may suit some. But an increasing number of Australians with jobs simply don't have enough work to eke out a decent living.
They are the underemployed and their ranks are growing.
Underemployment has overtaken unemployment as the major concern when it comes to jobs and, as this graph below from the Australian Bureau of Statistics shows, the gap has been widening for the past four years.
Globalisation, that saw lower skilled jobs shift to low-income countries, in the mid 1990s, began the first wave. More recently, new technology, particularly the rise of the digital world and artificial intelligence, has made it easier to source technically skilled labour offshore.
Skilled workers no longer are competing only against locals. They now have to vie for jobs against foreign workers in the developing world, who can undercut them on price.
The truth behind the jobs boom
Since coming to power in 2013, the Government has trumpeted its record on employment. When Tony Abbott was elected, he promised to create a million new jobs in five years.That promise has been fulfilled. But how hard was it? Australia's population growth has been steaming ahead in the past few years.
According to the World Bank, it now sits at 1.6 per cent, outstripping India at 1.1 per cent and the US at 0.7 per cent.
More people create more activity and hence, more jobs. Looked at another way, without all those new jobs, our unemployment rate would have soared.
Again, if you just look at the headline numbers, there's an equally cheery message about youth unemployment as well. During our last recession in 1992, almost 20 per cent of our youth were idle. Today it is down to 11.2 per cent.
But youth underemployment has soared, particularly in the decade since the financial crisis, as this graph from the Australian Bureau of Statistics highlights.
Macro business economist Leith van Onselen highlighted the disparity after Thursday's ABS numbers were released.
"Since the GFC hit 10 years ago, overall youth employment has risen by just one per cent in trend terms, well below the 8.3 per cent lift in youth population over this time, and full time jobs are down an incredible 18.1 per cent," he wrote.
Compare that to the rest of the population where overall jobs are up 20.7 per cent and full time positions have lifted 16.7 per cent.
Any parent with kids trying to break into the workforce knows these problems only too well.
The lack of bargaining power, even among new graduates and highly qualified youth, has seen an incredible erosion of conditions and pay. Many work on short term contracts, with little or no security.
While many business leaders argue the merits of a "flexible workforce", if the current trends are not arrested, the impact with flow through the economy.
Lower wages and insecure employment mean less spending. That hits corporate earnings and economic growth.
It should also be a wake-up call for politicians wanting to sound credible to start looking a little beyond the headline numbers when trying to spin a tale in an election year.
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