Part time employment growth points to under-employment

Latest employment data likely points to a labour market where under-employment is becoming ever more significant. With average hours of work in Australia declining and total hours worked pretty flat, more people are in employment but many have at least a bit of spare time on their hands. At different times, the state of the labour market is both an economic and a political issue and when productivity is a national question, it could be all the more significant.

Starting with the unemployment rate, as the chart below shows, the primary measure of employment indicates the number of people actively seeking work is declining and sits at 5.6%.

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

However, the unemployment rate is only one measure of relevance. The often-discussed participation rate measures as a proportion of the total working age population, the number of people who are in or actively seeking work. We can see in the chart below that the participation rate has been declining and in October 2016, it fell 0.1% to 64.5%.

That is, the number of people seeking work fell slightly, for whatever set of reasons that drove individuals, including early-retirement, illness and just giving up on getting a job or possibly, a job with the sort of hours they need to make it worth their while.

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So, what the data tells us is that more people are in work, but that less people are in the labour market. We can see that, put in a different way, in the orange line which shows the proportion of the working age population which is in employment – 61.0% in October 2016.

The implication is that the labour market has been working to get people employed, but there may be some ‘quality’ issues with the employment that is available. Quality in this instance is defined pretty broadly, because this is not just about the job the individual may prefer or the hours they need, it is also about the best use of the nation’s human resources to meet its growth objectives and living standards expectations, for instance.

We can observe this reflected, at least to some extent, in the chart below. Over time, employment has grown, but over the same period, the average hours worked has declined and most recently, has done so while the total hours worked has not grown.

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Now some might argue that this points to the emergence of a more leisurely society in which less hours have to be worked by each individual. But if that were the case, the participation rate would hardly be likely to have fallen. 

What is more likely, is that the Australian economy is experiencing a period where its labour force is under-utilised and individuals are becoming disheartened by their seeming inability to get the work they want and need.

This is not mere sophistry. As the Reserve Bank of Australia commented in early November:

“Part-time work has accounted for all of the increase in employment since the beginning of the year and more than two-thirds of the increase since 2013. Over the longer run, the share of part-time employment has increased steadily to be around one-third of total employment, compared with 10 per cent in the mid 1960s.”

The chart below shows that this trend has occurred on an all industry basis, as well as for specific industries, but is most concentrated in the household services sector, which coincidentally, happens to be where the highest employment growth has occurred over the last three years.

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Following on from this, the RBA comments that:

“… the underemployment rate – which captures the share of employed people who want and are available to work additional hours – has remained elevated. This suggests that the recent strength in part-time employment is more likely to have been driven by weakness in labour demand than changes in employee preferences.”

The ratios of underemployment for each sector are displayed in the chart below.

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While it is important not to conflate issues unreasonably, the RBA has a further point to make, that could go to the question of evident unease that has been observed in countries like the UK (Brexit) and the USA (recent Presidential election). The RBA comments that:

“The underemployment rate has risen noticeably for males, in part because of the relatively high proportion of male employment in goods- related industries where full-time employment has declined. In contrast, employment growth has been strong in the household services sector and the underemployment ratio in this sector has stabilised. The elevated level of underemployment implies that there is more spare capacity in the labour market than indicated by the unemployment rate alone.”

Whether your eye is on sector or firm level productivity or your attention is firmly planted on social cohesion, the employment, unemployment and under-employment data tells us something of relevance.