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Economics | May 18, 2020

What really happened to the job market in April? Labour Force Employment fell by almost 600,000 between March and April but the majority of these people were

subsequently classified as ‘not in the labour force’ in April rather than unemployed due to the requirements under JobSeeker and JobKeeper.

The jobless rate may not rise as high as originally expected in coming months due to the job scheme classifications and the earlier-than-expected easing of lockdown requirements.

Hours worked will be the best guide to the impact of COVID-19 on economic activity.

A raft of companies is affected by the employment data but especially those dependent on consumer spending.

What do the figures show and what does it all mean?

As a recap, this is what happened to the job market in April:

Employment fell 594,300

Unemployment rose 104,500

The unemployment rate rose from 5.2 per cent to 6.2 per cent

The working age population rose by 20,200

The proportion of the working age population that were employed or unemployed (participation rate) fell from 66 per cent to 63.5 per cent

Hours worked fell by 9.2 per cent

As a result of COVID-19, lockdown restrictions were enforced resulting in businesses closing down or scaling back operations. While some people couldn’t work at all, others worked from home.

The Federal Government protected some workers from ‘losing’ jobs through the JobKeeper and JobSeeker programs. With the easing, and eventual ending of lockdown restrictions, it is envisaged that around 850,000 (source: Treasury) people will potentially return to work. So, many Aussies may have kept their jobs, but were prevented from actually working in April due to social distancing measures

Note that every month when the Bureau of Statistics (ABS) report the jobs data, it does so in ‘net’ terms. That is, each month some people find work and some lose jobs. And the same goes for unemployment and the other metrics.

The ABS reported “a combined group of 2.7 million people were affected by either job loss or having their hours reduced for economic reasons between March and April. This group was much larger than the

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Economic Insights. What really happened to the job market in April?

number of people who gained employment or worked increased hours between March and April, underpinning the net results.”

“Of the 2.7 million people who were affected between March and April:

900,000 people were employed in March, but not employed in April; and

1.8 million people worked either fewer than their usual hours, or no hours at all, for ‘economic reasons’ (that is, they were stood down, there was insufficient work or no work available).

Of the 1.8 million people who worked fewer than their usual hours, or no hours at all, for ‘economic reasons’:

over 750,000 did not work at all; and

over 1 million did some work, but worked fewer hours than usual.”

Now while 900,000 lost jobs in April (employment fell), 300,000 other people found work.

Of the 900,000 that lost jobs, 75 per cent or 675,000 ‘left’ the workforce: they were neither employed nor unemployed.

The ABS noted “Had the increase in the number of people who were not in the labour force (489,900) been a further increase in unemployment (that is, if they had been actively looking for work and been available to work) then the number of unemployed people would have increased to around 1.3 million people, and an unemployment rate would have increased to around 9.6 per cent.

So JobKeeper appears to have been successful in keeping people in jobs. And in terms of JobSeeker, the Government temporarily suspended the requirement for people to actively look for work.

The numbers of unemployed have been kept down while the number of people ‘not in the labour force’ have expanded.

The better measure of what is happening to the economy is the number of hours worked – the record 9.2 per cent fall in April better equates to the drop in economic activity.

Future month statistics: Job market classifications The ABS has provided information on how people will be classified in Labour Force statistics in the COVID-19

period.

https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6202.0Main%20Features15Apr%202020?opendocument&tabname=Summary&prodno=6202.0&issue=Apr%202020&num=&view=

The ABS note:

1. People paid through the JobKeeper wage subsidy will be categorised as employed.

2. For people in receipt of the JobSeeker payment how they are categorised will depend on their labour market activity.

But the Government has temporarily suspended the requirement for JobSeeker recipients to look for work. So those people who couldn’t get JobKeeper and are getting JobSeeker payments instead may be categorised as ‘not in the labour force’ rather than unemployed.

To be classified as unemployed in Labour Force statistics, a person must:

have actively looked for full-time or part-time work in the last four weeks; and

be available for work in the reference week.

3. For people not working any hours, including those who were stood down it will depend on their job attachment and pay, and potentially other labour market activity.

A person will be classified as employed if they:

had taken any kind of paid leave;

were away from their job for any reason (e.g. they were stood down), and were paid for some part of the previous 4 weeks (which could include wages subsidised through the JobKeeper scheme); or

were away from their job for four weeks or less for any reason, without pay, but believe they still have a job to go back to (e.g. they were stood down, with no pay).

If a person is away from their job for four weeks or

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Economic Insights. What really happened to the job market in April?

more without pay, or they believe they no longer have a job to be absent from, they will be classified as:

unemployed - if they have actively looked for work, and are available to start work; or

not in the labour force - if they have not looked for work and/or are not available to start work.

There will be a range of ways in which people will have been stood down without work as a result of COVID-19. Some may be stood down with pay, some through paid leave (e.g. long service leave, annual leave, etc.) and some without pay. Some people will perceive that they still have a job (but just no hours at the moment), while others will consider they have lost their job.

What is the importance of the economic data? The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The

population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.

What are the implications for investors? The job programs will prove a significant cost for the Federal Government. But the measures are part of what

ordinary Australians expect their government to implement in times of crisis. The longer that people are out of work - known as structural unemployment - the harder it is for them to eventually find work in the future.

It is that old adage that the jobless rate climbs the elevator but comes down by the stairs. That is, the jobless rate rises quickly in recessions but comes down slowly in recoveries. In fact, the median length of time it takes for the jobless rate to return to pre-crisis levels – on average – is seven years in Australia.

While there is an upfront budget cost with labour subsidy schemes, the assumption is that the cost would be more significant for the budget and economy, and over a longer period of time, in the absence of the schemes.

Much now depends on a successful exit from lockdown. If the COVID-19 curve stays flattened, the greater the potential for the economy to emerge from the crisis without significant lasting damage. That is important for employees, businesses and investors alike. Federal Treasury is predicting that over 252,000 Aussies will return to the workforce over the next few weeks in ‘Stage One’ of the reopening of the economy.

Craig James, Chief Economist, CommSec Twitter: @CommSec