How the government responds to unemployment will be crucial to COVID-19 recovery: Bill Evans

EXPERT OBSERVATION

This week we received important updates to the state of Australia’s labour market.

In times of economic crisis the labour market, quite rightly, attracts more attention than any other economic series.

The most indelible imprint that recessions make on economies is the legacy of high sustained unemployment.

Following the recession of the early 1980’s it took six years for the unemployment rate to return to its pre-recession level; after the early 1990’s recession it took fifteen years; and the 4% unemployment rate we enjoyed in the lead up to the Global Financial Crisis has never since been achieved – nearly thirteen years later.

On June 18 the ABS reported that the unemployment rate had jumped to 7.1% in May – the highest since October 2001.

Employment decreased by 227,700 following a 607,400 reduction in employment in April.

The unemployment rate would have been much higher if not for a number of factors:

Over the April-May period 623,600 people left the labour force (that is employed or actively looking for work and available for work) – largely, we expect, due to displaced workers being discouraged with the prospects of finding work; complications around school closures or the physical limitations of looking for work during a shutdown.

Without these people leaving the workforce the unemployment rate would have been 11.3%.

In May over 360,000 did not work at all but were categorised as “employed” because they still had an attachment to their employer (reasons include being stood down for less than four weeks; insufficient work; or no work available).

This represents a reduction from 750,000 in April as some workers who had been stood down transitioned to actually losing their jobs.

In May nearly 1.2 million did some work, but worked fewer hours than usual.

BILL EVANS is Westpac’s economic spokesman and the head of economic research