The official stats are giving us a completely distorted picture of what’s happening in the labour market.
A lot of people are living in fairyland right now.
That’s the only thing I can take from the analysis of the unemployment numbers last week.
On the face of it, they were bad, but perhaps not as bad as people were expecting, given the carnage-grade statistics we’ve gotten used to through the Covid Crisis.
The unemployment rate jumped up to 7.1% in May, up from 6.4% in April.
In any other month, a 0.7% jump would be horrendous. But in times like these, it almost feels comfortable.
But like most things in economics, the devil is in the detail.
Because while the pick up in the unemployment rate has been on the tame-side, the loss of jobs has been brutal.
Check out the chart:
That’s over $200,000 jobs in May, following up on the 600,000 odd jobs that were lost in April.
Put it together, the Australian economy has seen 850,000 jobs go up in smoke in the past two months.
And why isn’t the unemployment data telling a story of staggering like the jobs data?
Because the unemployment data only counts people who were actively looking for work.
A lot of people who lost work in April didn’t bother looking for other work. They knew there was none to be found.
And so what happened was our participation rate – the share of working age Australians actually working or looking for work – fell sharply.
The light blue line in this chart shows just how sharp that drop off was.
So when the participation rate goes over a cliff like that, it helps keep the unemployment rate down.
If you assume that people didn’t leave the labour force – that everyone who lost work kept looking for work and the participation rate remained constant, then you get a very different read on the unemployment rate.
That’s what the red line above shows us – it shows the unemployment rate spiking to 11.4%.
It tells a story of one in ten workers out of work.
But wait, it gets worse.
Because a lot of those people who technically had jobs in the survey month actually lost hours, or worked no hours at all.
360,000 people were employed in May, but worked zero hours.
If you include those ‘zero-hours’ workers, the unemployment rate spikes even higher to 13.7%.
Can it get any worse?
Well, what about the 3.5 million Aussies on JobKeeper?
If you include them, then you’re looking at something like 20%.
And that number, as downright terrifying as an unemployment rate of 20% is, is actually a better reflection of how the Australian economy is tracking.
So let’s keep it real.
2.3 million Aussies have lost work since the crisis began. They have either lost their job altogether or seen a significant reduction in their hours.
Let’s not polish that turd.
This crisis is deep and it’s scary.
Our response needs to be heroic in equal measure.