MEDIA RELEASE | 19 August 2023
The unemployment rate used by the Reserve Bank to help publicly justify policy decisions – including increases to interest rates – is based on strict and outdated definitions that significantly underestimate the actual number of people looking for work, according to new research released today by the Australia Institute.
The findings in Tip of the Iceberg: Measuring unemployment in Australia, shows that the national unemployment rate could be three times higher if definitions were updated to include people who are looking for work but currently classed as being ‘not in the labour market’.
The report challenges the RBA’s prevailing narrative about record low unemployment and its insistence that the official jobless rate must rise to 4.5% to tame inflation.
- The ‘shadow pool’ of unemployed people who are not being included in the ABS’s strict definition of unemployment could be more than three times the official number.
- The majority of people gaining and losing employment completely bypassed the ABS definition of ‘unemployment’ and instead moved into and out of what the ABS defines as ‘not in the labour force’
- Of the 629,500 people who left their jobs in December 2022, only 17% went into what is considered unemployment, while the remaining 83% were considered ‘not in the labour force.’
- Of those who entered jobs, only 21% were previously considered ‘unemployed’ by the ABS, as the remainder came from ranks not considered part of the labour force at all and therefore excluded from the definition of unemployed.
- The proportion of people bypassing the ABS definition of unemployment also appears to be increasing over time, making long term comparisons, like the claim unemployment is at a 50-year low, more problematic.
- The definitions for employment are also too broad: anyone working more than one hour counts as employed. However, over recent decades Australians are increasingly likely to be casual, part-time, or gig-economy workers.
“Any organisations who use the official figure for unemployment should understand that it is just the tip of the iceberg of people looking for work,” said Matt Grudnoff, senior economist at the Australia Institute.
“The way we work out who is employed, which can mean as little as one hour of work a week, and who is unemployed and actively looking for work, is based on 1950s-era assumptions that bear little resemblance to the workforce today.”
“The definitions of 'employment', 'unemployment', and 'not in the labour force' stem from an era when men were the primary breadwinners who were more likely to rely on full-time work. Women’s workforce participation was a fraction of today’s rate. Part-time and casual work was far less common and the gig economy as we know it did not exist.”
“The failings of the ABS definitions mean policymakers who reference the unemployment rate are only taking into account a small portion of those looking for work.”
“When the RBA uses the unemployment rate to help justify increasing interest rates, they’re using a figure that does not give people an accurate understanding of what is actually happening in job market. In reality, there could be more than three times as many people looking for work than the unemployment rate suggests.”
“The current definitions of unemployment also underlie claims about a potential wage-price spiral, because when unemployment is low, workers have power to push wages up.”
“Our research shows that policymakers and the media needing to broaden their focus from just the narrow unemployment rate in order to provide a clear picture for everyone about the state of our economy.”
The Australia Institute research, ‘The Tip of the Iceberg: Measuring Unemployment in Australia’ by Lilia Anderson and David Richardson is attached.
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