The Labour Market Is Tightening But
It’s important context for our current situation.
In the last six months, Australia’s labour market has been tightening so rapidly it’s taken policymakers by surprise.
Due to a unique combination of massive amounts of fiscal stimulus, ultra-loose monetary policy, closed international borders and a widely-vaccinated population, the unemployment rate has been driven down quickly to 4 per cent.
That’s where it’s sitting now: at a 13-year low.
It’s pushed the employment-to-population ratio and the participation rate to record highs.
Underemployment has fallen back to 2008 levels.
And a senior economist at ANZ thinks the unemployment rate could even fall to 3.3 per cent by the end of this year.
So, how come more people are relying on unemployment benefits today than before the pandemic?
See the graphic below.
Experts say it’s a baffling phenomenon they’re trying to figure out.
And how come so many people are still struggling to find work?
Well, remember what type of labour market Australia had before the pandemic hit, where there weren’t enough jobs to go around.
Currently, the Bureau of Statistics says there are 423,500 job vacancies, which is a record high.
There are still 607,900 officially unemployed people .
And those official numbers don’t include the hundreds of thousands of people who aren’t in the labour force but who may also want to work.
There’s still a lot of competition for jobs.
And some personal experiences are worth listening to.
Vulnerable Workers Will Be Harmed Most By The Federal Reserves Actions
In September 2022, the Federal Reserve released projections for its economic outlook that showed it expects unemployment to rise to 4.4 percent in 2023, higher than both its earlier projection of 3.9 percent and the current unemployment rate of 3.5 percent. Yet this topline unemployment rate of 4.4 percent masks the experiences of some of the most vulnerable workersincluding workers without a college degree, workers of color, and disabled workerswho will undoubtedly face disproportionate job loss. These same groups of workers have long faced struggles in the labor market and persistent economic insecurity.
Workers without a college degree
Workers of color
Simply put, low-wage workers are viewed as more expendable in the U.S. economy. And these workers are overwhelmingly disabled people, people of color, and people without a college degreethose who society has deemed to belong in those jobs and receive less protection than more privileged groups.
What Official Figures Tell Us
Let’s start with the misconceptions. An unemployment rate of 3.7% does not mean that 96.3% of people in the US are gainfully employed.
Nor does the official unemployment rate represent how many people are collecting federal unemployment insurance. A large percentage of people without jobs aren’t even eligible to collect unemployment, such as independent contractors, as well as employees who quit voluntarily or were fired for cause. And a lot of workers who do qualify for jobless benefits remain without work long after their aid runs out, which is usually around 26 weeks.
The BLS’ unemployment data comes from the Census Bureau’s Current Population Survey, which interviews about 60,000 eligible households each month. For the main BLS figure, called the U-3, the number of unemployed people is recorded as a percentage of the civilian labor force. Individuals are classified as unemployed if they meet the following criteria: They must be currently available to work and must have looked for a job in the last four weeks.
That means that someone without a job who is not “actively” seeking work — whether due to pessimism, family obligations or multiple other reasons — is considered outside of the labor force and excluded from the U-3 figure.
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Unemployment By Country 2022
The unemployment rate is defined as the percentage of unemployed workers in the total labor force. The unemployment rate includes workers who currently do not work, although they can do so. For 2021, the global unemployment rate is estimated to be between 6.3-6.5%, depending upon the source. The unemployment rate is a lagging indicator, meaning it responds to changing economic conditions rather than influencing or predicting them. When the economy grows at a healthy rate, the job market is plentiful and the unemployment rate drops. When the economy is experiencing a recession or other turbulence, the job market tends to retract and the unemployment rate rises in response.
Average American Will See A 65 Percent Decrease In Unemployment Benefits
Depending on your state, the percentage could be more or less than 65 percent. States set their own benefit levels. So, depending on how much you receive from your state on a weekly basis, you might experience a greater drop.
For example, in Oklahoma, the lowest-paying state in May, the average person will see a 93 percent reduction in unemployment aid now that the $600 per week benefit has ended.
In contrast, in Washington state, which paid the highest average weekly benefit, the aid will drop by 55 percent. Unfortunately, the drop in your benefits depends on where you live.
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Economists Have Been Surprised By Recent Strength In The Labor Market As The Federal Reserve Tries To Engineer A Slowdown And Tame Inflation
- : U.S. employers continued to hire at a fast clip, adding 261,000 jobs in the 10th month of the year despite the Feds push to cool the economy.
- A Self-Fulfilling Prophecy?: Employees seeking wage increases to cover their costs of living amid rising prices could set off a cycle in which fast inflation today begets fast inflation tomorrow.
- Disabled Workers: With Covid prompting more employers to consider remote arrangements, employment has soared among adults with disabilities.
- A Feast or Famine Career: Americas port truck drivers are a nearly-invisible yet crucial part of the global supply chain. And they are sinking into desperation.
That is bad news for workers, particularly those at the bottom of the pay ladder who have been able to take advantage of the hot labor market to demand higher pay, more flexible schedules and other benefits. With inflation still high, weaker wage growth will mean that more workers will find their standard of living slipping.
But for employers and for policymakers at the Federal Reserve the calculation looks different. A modest cooling would be welcome after months in which employers struggled to find enough staff to meet strong demand, and in which rapid wage growth contributed to the fastest inflation in decades.
Too pronounced a slowdown, however, could lead to a sharp rise in unemployment, which would almost certainly lead to a drop in consumer demand and create a new set of problems for employers.
Recession Risks Climb For 2023
“Risks are elevated but it isn’t certain that we will get a recession sometime over the next year year and a half or so,” said PNC Bank chief economist Gus Faucher.
Faucher, who spoke Tuesday to private banking clients gathered for a luncheon at The Community House in Birmingham, puts the probability of a recession in 2023 at around 45%, which he says is about double what it was prior to when Russia invaded Ukraine on Feb. 24.
“The biggest risk,” he told me in an interview, “is that either the Fed makes a mistake and tightens rates, raises rates, too much or there is no alternative but to raise rates and cause what would hopefully be a mild recession to bring inflation back down.”
Inflation, Faucher said, has proven stubborn and spread to more areas of the economy, including services. “That does raise concerns that the only way to get inflation under control is through a recession. We don’t like to see that obviously.”
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What’s working in our favor: Many consumers but certainly not all continue to have extra cash in savings that built up during the pandemic after the federal government rolled out financial relief, including stimulus checks. While prices are higher, many can continue to spend by tapping into savings or some of the wage gains they saw in 2021 and 2022.
The labor market, Faucher said, “continues to do very well.”
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The Labor Market Needs To Softenbut Not As Much As Some Think
Earlier this week, the Bureau of Labor Statistics released the Job Openings and Labor Turnover Survey covering September 2022. This latest readout on the labor market accords with our recent economic analysis highlighting the useful information provided by the fill rate . This months report shows extremely high rates of job openings based on either the fill rate or the ratio of job openings to unemployment, the labor market is very hot.
However, the two measures suggest different gaps between the current strength in the labor market and what a more sustainable level would be:
- The openings-to-unemployment ratio suggests substantial tightness and the need for a much higher unemployment rate to achieve a sustainable and more-typical level of job openings.
- The fill rate, on the other hand, suggests less tightness and therefore less need for a substantial softening of the labor market.
The fill rate shows that firms looking to hire large numbers of workers are indeed expanding employment at a rapid pacebecause hires are also relatively high firms are clearly finding available workers. In contrast, while the Beveridge Curve has been moving in the direction of less tightness since July as the number of openings per unemployed has declined, that measure suggests that the matching of workers to jobs has dramatically worsened.
An Increase In Precariousness
Australia’s labour market has been radically restructured in recent decades.
In the 1970s, policymakers abandoned the old full employment model of the post-World War II era.
They replaced it with a new model that allowed much higher levels of unemployment to suppress wages and inflation.
Since then, there haven’t been enough jobs to go around by design.
It has coincided with the casualisation of the workforce, rising underemployment and declining wages growth.
And according to economics Professor Ross Garnaut, ordinary Australians experienced a period of income stagnation between 2013 and 2020 that was unprecedented since the Great Depression of the 1930s.
He says 2013 to 2020 were Australia’s “Dog Days.”
He included the above graph in his 2021 book Reset: Restoring Australia after the Great Crash of 2020.
In that book, he said Australians could be forgiven for being angry.
“In the best of circumstances, by 2025, Australians will have lived through the longest period of real income stagnation in our national history,” he warned.
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Georgia Unemployment Rate Remains Significantly Lower Than National Average
Atlanta, GA – Georgia Labor Commissioner Mark Butler announced today that Georgia’s October unemployment rate was 2.9 percent, eight-tenths of a percent lower than the national October 2022 unemployment rate of 3.7 percent. Georgias October rate was half a percent lower than last years October rate. Additionally, job numbers reached another all-time high, increasing by 3,700 from September.
“Although Georgia’s unemployment rate went up slightly from September, the rate of job creation still far exceeds those in the workforce looking for employment,” said Commissioner Butler. “We must continue to encourage jobseekers to join the workforce and take advantage of the incredible job opportunities we are seeing.”
Job numbers increased 3,700 from September to October to an all-time high of 4,808,800. Job gains included opportunities in Arts, Entertainment and Recreation, 1,600, Finance and Insurance, 1,500, Local Government, 1,400, Health Care and Social Assistance, 1,200, and Professional, Scientific, and Technical Services, 800. Job numbers were at an all-time high in Financial Activities, 272,200, and in Education and Health Services, 637,600.
The sectors with the most over-the-year job gains included Accommodation and Food Services, 31,400, Health Care and Social Assistance, 23,900, Administrative and Support Services, 22,900, Professional, Scientific, and Technical Services, 19,800, Wholesale Trade, 16,500, and Transportation and Warehousing, 14,900.
Trend And Cycle Of The Current Low Unemployment Rate
We next assess how much the trends in the transition rates contribute to the unemployment rate trend. We construct a trend in the unemployment rate from the transition rate trends between employment, unemployment, and OLF, using the relationship that links the transition rates to the unemployment rate. This measure of the unemployment rate trend is analogous to conventional estimates of the long-run natural rate of unemployment. Figure 3 shows the unemployment rate and its estimated long-run trend.
Figure 3Unemployment rate and estimated long-run trend
Note: Trend constructed from transition rate trends between employment, unemployment, and OLF.
First, we find that the unemployment rate trend fell substantially over the past decade. This decline accounts for the entire difference between the unemployment rate during the previous business cycle peaks of 2000 and 2007 and current unemployment. For example, the unemployment rate at the end of 2019 was 0.9 percentage point lower than in 2007, while its trend is 1.2 percentage points lower than in 2007.
Second, further analysis shows that the entire decline in the unemployment rate trend during the past decade can be attributed to the long-run declines in the transition rates into unemployment, equally split by the decline in the trends of the transition rates into unemployment from employment and from OLF.
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Unemployment Is Projected To Rise Employment To Fall And Participation To Decrease During 2023 Driven By An Anticipated Recession Starting In Q4 2022
These projections highlight the large change the US labor market may undergo over the coming year. Although the robust 2022 labor market would weaken in 2023, the relatively small projected increase in the unemployment rate would mean that labor shortages might lessen but not completely disappear.
The following five factors suggest why the unemployment rate may only slightly increase:
- A relatively shorter recession is projected, with economic growth contracting from Q4 2022 to Q1 2023. In such a short period, job losses may also be more limited.
- Employers may try to hold on to workers in a very tight labor market as rehiring could be difficult and expensive.
- Understaffing is more common, represented by the historically high number of job openings compared to hires. The need for layoffs will therefore be lower as companies have not yet returned to full employee capacity.
- Workers who lose their job, or current job seekers, may stop actively looking for work and drop out of the labor force. Indeed, labor force participation is projected to decline. Only people who are actively looking for work are considered unemployed.
- Demographic factors are constraining labor supply. The working-age population is not growing anymore, driven by baby-boom retirements and a decline in international immigration. This means fewer people are entering the labor force to actively look for work.
Why Is Unemployment Currently So Low
Unemployment is at a 50-year low. The low rate is not from an unusually high job-finding rate out of unemployment but, rather, an unusually low rate at which people enter unemployment. The low entry rate reflects a long-run downward trend likely due to population aging, better job matches, and other structural factors. These developments lowered the long-run unemployment rate trend. At the end of 2019, the unemployment rate was below the trend but no more so than in previous business cycle peaks, indicating that the labor market is no tighter.
The current U.S. unemployment rate is at a 50-year low. Is it so low because the rate at which people find jobs and leave unemployment is unusually high, or because the rate at which people become unemployed is unusually low? How does it compare to the previous business cycle peaks?
In this Letter, we analyze the underlying transitions between unemployment, employment, and out of the labor force and assess the trend and the cycle of the current unemployment rate. We find that current unemployment is so low not because of the high job-finding rate but because of low entry rates into unemployment, from both employment and OLF. In fact, at the end of 2019 the job-finding rate remained below its peak reached prior to the 2007-09 recession, while the rate at which people separated from jobs into unemployment was at its lowest point in four decades.
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Who Is Counted As Unemployed
The BLS defines unemployed workers as those who are out of a job and currently available to work, and who have actively looked for work in the past four weeks. It also includes workers who are temporarily laid off but expecting to return to the workforce, whether they have been actively looking for a job or not.
Employment Participation And Hours Worked
Seasonally adjusted employment decreased by 41,000 people in July 2022.
“This is the first fall in employment since October 2021, following the easing of restrictions after the Delta lockdowns in late 2021.
During the pandemic, it has not been uncommon to see larger-than-usual changes or slowing in employment and hours around school holidays, Mr Jarvis said.
With the fall in employment, the employment to population ratio decreased 0.2 percentage points to 64.2 per cent.
Youth employment increased further into July, increasing by 13,000 people , the third consecutive increase.
In line with the fall in employment, and continued illness-related worker absences, seasonally adjusted hours worked fell by 0.8 per cent in July 2022.
The reference period for the July 2022 survey most closely aligned with the July 2017 survey. In July 2022, 28.4 per cent of employed people worked fewer hours than usual or no hours, compared with 27.1 per cent five years earlier.
“In addition to people taking annual leave around the winter school holidays, there were also around 750,000 people working fewer hours than usual due to being sick in July 2022, around double the usual number we see during the middle of winter.
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