Approaching full employment, effective use of labour remains the big concern

Australia edged closer to full employment in February, with the addition of 4,600 people to the ranks of the employed over the months, contributing to a total rise of 2.3% for the year-ended February 2019. On a seasonally adjusted basis, 12.763 million people were in work in February, with the increasingly important Labour under-utilisation rate falling to 13.0%.

Growing numbers of people in jobs is a very good thing, and one that underscores a basis for optimism about Australia’s future. Even as the national population has grown steadily (but not at dramatic levels), employment has continued to grow largely proportionately.

The growth in employment can be observed in the chart below and to underscore our best point here: there have never been more Australians in work than is the case now.


To go straight to the dashboard and take a closer look at the data, click here.

This position was confirmed by the unemployment data which showed that over the year to the end of February, 664,300 people were unemployed, a drop of 9.5% on the prior year. Equally important, as can be observed below, the number of people who are underemployed (in a job but seeking more work) has also fallen, declining to 8.1% by February 2019.

Combined, the unemployment and underemployment rates yield the labour underutilisation rate. 


To go straight to the dashboard and take a closer look at the data, click here.

This relatively short-run chart shows a falling labour-underutilisation rate, meaning those who want work have it, and those who could use more hours are starting to get them.

It is useful to examine labour under-utilisation in the longest possible context – we can go back to 1978 or forty years ago. Below we can observe that labour under-utilisation has been coming off its second-highest peak over the four decades. This indicates that in around 2014, effective use of labour was at its lowest outside of the last recession (1992-93). It has since tracked down, but at 13.1%, it remains at higher than average levels.


To go straight to the dashboard and take a closer look at the data, click here.

So, what does this mean for the Australian economy?

It is a peculiar situation when new jobs are being created and the economy is at near full employment, yet labour utilisation rates are closer to their top than bottom. 

The orthodox view is this results from structural adjustment that sees work a little easier to find, but part time and casual work and the ‘gig’ economy having a more prevalent role, facilitated by technology. So as employment rises, under-employment also rises.

At its most critical, what the labour under-utilisation rate tells us is that we are collectively squandering a little more than one-eighth of our labour resources. 

The impact on national productivity is significant, and has an effect on economic growth. The reason it is out of mind is because the direct pain is felt by those who earn less income, as a result of their available time and expertise not being fully employed.