## Why do we need 3% economic growth to keep unemployment stable? – Part 2

This series started yesterday when I started wondering about the exact reason we needed economic growth to keep the unemployment rate down.

I wrote an introductory post then, explaining I was going to do some learning in public.  (The risk of embarrassing myself is real). Now I want to dive into this a bit more.

It’s true we need economic growth to prevent the unemployment rate rising. I checked and important people believe it.

RBA Assistant Governor Chris Kent has specifically linked changes unemployment to trend growth. “Since about mid 2012, Australia’s GDP growth has been a bit below trend and so the unemployment rate has been rising gradually.”

And he has given us this excellent graph:

Phew! That’s one thing I got right.

The link between economic growth and changes in unemployment is real and it has been formalised in a relationship called Okun’s Law.

I put the word out on Twitter for an explanation and I was swamped with awesome economists offering helpful explanations. Thanks to everybody.

This was the main thing I heard.  Basically:

• Because of population growth you need growth in output to have jobs for the new people.
• Because of labour productivity changes (people getting more efficient) you need more output or else you’ll employ fewer people.

This is a nice neat story. If you have 2 per cent labour force growth and 1 per cent productivity gains, you need 3 per cent growth. It’s mathematically sound. I learned something.

So is that it? Are we wrapped up? All silent?

I still find myself with questions. I want to understand things in more than just mathematical terms.

Productivity causes growth. It allows us to produce more, using the same. But we also need growth to compensate for it? This sends me into something of a chicken and egg loop.

I’m aware that chicken/egg scenario is why economics uses maths so much. Supply and demand need to be solved simultaneously. You can’t think through a market equilibrium slowly because you need an answer on both sides at once.

So I could stop here. But I have other questions.

If rising labour productivity is both cause and cure for unemployment, why is it spoken of in exclusively glowing terms? Would we not be as well off, in unemployment terms, without it?

And population growth causes economic growth too. This is what I believe, a belief reflected in articles like these:

Fewer people want to live in Australia in growth risk for RBA

RBA’s Glenn Stevens: Australia may need to rethink growth

If we did not have the population growth, would we still have stable unemployment? This remains my sticking point – my reason for wondering about the deeper reasons and implications of why we need 3 per cent growth.

Seems to me an important part of the existing population is employed creating space for the new population to live in.

While the productivity angle makes sense to me, the population one still gives me pause. Establishing the new capital stock to accommodate the lives of new babies and new migrants is a huge cause of economic activity. More roads, more shops for them to shop in, more buildings for them to live in, more pipes going to their houses, more hospitals for them to be sick in, etc.

New population consumes and works the same as the existing population; but also requires extra spending. I intuitively believe population growth causes a rise in employment so I can’t quite grasp that it’s a wash, unemployment wise.

Whenever I think about this question I think about Japan, where capital is being abandoned as the population shrinks, and (while unemployment is low) secure employment is a problem.

Perhaps I need to think about this differently? Perhaps I need some more empirical evidence? I’ll dive deeper and present what I find tomorrow.

If you have any thoughts on this topic or want to suggest some reading, please feel free to make a comment below.

## Who is to blame for the state of the labour market?

Last week unemployment was up. This week wages growth was down.

These two series measure the most important and relevant determinants of Australia’s economic well-being. Both are deteriorating.

Forget interest rates. Forget house prices. Forget the dollar. Forget petrol prices and forget the share market.

How much money people make is the single biggest determinant of how well off they are. And we’re not doing well at all on that score.

This is a failure of economic policy. No government should be complacent in the face of a weak labour market.

The Government is silent on this and to its credit the opposition is squawking at them.

But it is to no avail. No decent policy is evident.

There’s a Productivity Commission report on our workplace relations policies, but nobody really thinks that will make a lick of difference, even if the government had the political capital to implement it.

These days it seems like some on the left actually relish a bit of weak wages growth. They use that to bash the government for hypocrisy over a wages breakout and guard against workplace reform.

I wouldn’t mind seeing a wages break-out. Isn’t that what good economic policy would produce? Wealth shared widely?

The failure of our labour market to do very much in the last few years probably comes down to macroeconomic factors. The high dollar crimped output and hiring. So did weak federal spending.

The high dollar was a result of US quantitative easing and there was little more we could do beyond slashing official interest rates. That policy front was maxed out. But fiscally, we pulled puches.

Esteemed labour market economist Jeff Borland argues our failure to remedy unemployment is due to a shortage of aggregate demand.

“•The rate of unemployment in Australia has increased from 4.0 to 6.4 percent since the GFC. Over that period it has shown little tendency to decline. The rate of unemployment in the US is now lower than in Australia.
• This increase in the rate of unemployment in Australia appears to be explained entirely by the cyclical downturn in aggregate demand.

How could the government have increased aggregate demand? Spending more would have been one answer.

The Swan Budgets in 2012 and 2013 and Hockey’s efforts in 2014 and 2015 were all deficit-obsessed. All were focused on “return to surplus.” None of them achieved it. Instead unemployment has risen from 5.2 per cent to 6.3 per cent.

That deficit obsession hurts us all.

## Disenfranchised but safe: Australia now.

The ABS has just released an odd bundle of data with a whole lot of hidden gems in it.

This part on political enfranchisement caught my eye. Between 2006 and 2014 fewer people felt able to have a say, down from 29 per cent to 24 per cent. Meanwhile, a growing share of people thought they couldn’t have a say.

But it’s not all bad news. Aussies feel a lot safer.

Is this the classic trade-off of voting for authoritarian governments – gaining safety but giving up your voice?  Perhaps that’s a bit glib…

Let’s look instead at how men and women perceive safety.

Women fear more for their safety. They are three times more likely to feel very unsafe.

The question itself though is a bad one. How much you fear for your safety when home alone is less important than how much you fear for your safety when you’re home with your partner.

Intimate partner violence is the leading contributor to death, disability and ill-health in Australian women aged 15-44, according to White Ribbon.

I call on the ABS to lift its game and ask the right questions.

This next set of data didn’t come in a time series, but was interesting. A snapshot of who is happiest, it contains a few surprises: The elderly are the happiest, recent migrants are happier than average, and gays and lesbians are about as happy as the average.

It  shows where society can improve – people with mental health conditions are far worse off than the average, and people who identify as non-heterosexual but not gay or lesbian are the least happy of all. I’m not sure what the policy options are for that last category, but I do know we can and should do more in mental health prevention and treatment.

One simpler issue I’d like to draw attention to is the unemployed. They are more unhappy than a person with a disability, and there’s more of them than there have been for years. Joe Hockey’s first Budget must bear a lot of blame for Australia’s recent surging unemployment rate. His second budget is better, but still not enough to undo the harm. Fixing unemployment is not a parlour game of economic philosophy. It’s an urgent issue to do with human suffering and it should be a national priority.

## Looking for reasons today’s unemployment figures are so wild.

Today the ABS released its usual monthly employment figures. It’s been a normal-seeming month, so what happened next was pretty surprising.

The economy set a record for the most jobs added in a month!

Is there something wrong with the way the ABS treated the data? Maybe. Seasonal adjustment is something they do every month. It allows for months to be treated the same and it is usually helpful. You can compare, for example, the underlying job trends between December, when shops are hiring for Christmas, with January, when all those casuals get let go.

It seems like August is a month where the seasonal adjustment team is very busy. The survey result for August was +32,000 jobs before they seasonally adjusted the data. The adjustment took it to +121,000 jobs.

But if months start behaving differently to how they behaved in the past, seasonal adjustment could make things worse. Here’s 20 years of August numbers (prior to seasonal adjustment). Something is different this year.

Could something else be to blame?

The ABS got in big trouble last month, when unemployment seemed to shoot up in seasonally adjusted terms. Everyone blamed a new survey design and counselled us to ignore the monthly move. It seems they may have been right and what I wrote at the time, arguing for a focus on the more recent data, was unwise.

But July’s data surprise was not in the number of people with a job.  The survey design change was about “looking for work”. Having a job is far more clear cut and July’s figures showed very small and reasonable falls in unadjusted and seasonally adjusted terms. (-11,000 and -4,000 respectively)

So what’s most likely?

• Is it that August has started behaving differently and seasonal adjustment needs adjustment?
• That randomness explains the outlier?
• Or that the economy has really, truly, but very quietly, turned a corner and added a lot more jobs than we expected?

We may need more data to answer this question… Stay tuned for next month!

UPDATE:

I broke down the jobs growth series into full time and part time

Prior to adjustment, the figures are :

• part time +112,000,
• full time -80,000

This means that our massive apparent boost in jobs is dependent on raw survey data that shows 80,000 full time jobs were lost. I trust the ABS but this is weird.

+112,000 is not even a record month for part-time jobs. March 2014 set the record with +168,000.

I ran a correlation that showed full time and part time jobs growth are weakly negatively correlated. Perhaps that means since part time job growth was high they expected a really big fall in full time jobs, that didn’t materialise.

## To have and to hold (a job). The correlation of marriage and employment is puzzlingly strong.

You’d think getting married is relevant to your home life. You wouldn’t expect it to change your employment outcomes.

I mean, I’ve never done it, but I doubt you get back from your honeymoon buzzing with a desire to read and reply to all those emails.

And yet, the correlation between marriage and labour market outcomes is quite astounding.

The unemployment rate for unmarried men is nearly four times higher than for married men (11.3% vs 3.1 per cent). For women, the ratio is over two (8.9% vs 4%).

The difference between married and unmarried makes the difference between men and women look small.

Essentially, if you are a married man, you’re living in a labour market no different from the best parts of the 1970s, with 3 per cent unemployment!

Might this be a statistical artefact? It could come about because the young have poor employment outcomes, and are less to be married. Let’s have a look at an older age bracket.

The absolute levels of unemployment have fallen, especially for men. But the ratios of unemployment rates between married and unmarried are about the same: 4:1 for men and 2:1 for women.

The above graphs make it look like married people are all hard at work in the office. But the unemployment rate hides a big difference in participation rates.

There are two distinct clumps in this chart. Married men, who participate in the workforce at a rate of 95 per cent. And everyone else, who participate at around 75 per cent.

The 80s were a time of rapid change for women. But since 1990, one of the biggest changes in the employment market has been unmarried men dropping out of the labour force. Their non-participation rate basically doubled from 10 per cent to 20 percent.

Given the unemployment graphs on the previous page, I’d be very surprised if the red line (married women) didn’t tick up over the green line in coming years.

Two mysteries remain.

1. Why is the difference between the married and unmarried so strong, and so consistent over time?

I have a few theories.

Perhaps the unemployed are busy proposing, but are rejected because they are unemployed?

Perhaps there are confounding variables, like good looks or intelligence, which are correlated with both earning power and marriageability.

Perhaps it’s not about the kind of people they are but the incentives they face:

Obviously marriage and children are correlated. Obviously children (who are cruelly forbidden by the law to earn the money to feed themselves) are expensive. Could it simply be the compulsion to put bread on the table that explains why married people are so rarely out of work?

2. Why is the labour force participation rate of unmarried men eroding?

Marriage is increasingly rare, and increasingly for the old.

Can that explain the fall in unmarried men’s attachment to the labour force?

(They are also increasingly likely to have a non-religious ceremony, but I’m not sure that’s relevant)

I’m not sure it does, and this makes me wonder if perhaps the “discouraged worker effect” might be true. All those unmarried men might once have worked in factories. Maybe they’re less able or inclined to take service sector jobs.

There might also be an echo of higher immigration rates in the data. The overseas born have lower workforce participation rates. (chart source)

Which looks like a nice simple story, until you fold it back in on itself and see that immigrants actually get married at a higher rate than their proportion in the population! (Number of marriages is on the vertical axis, so in total, this graph shows that at least 40 per cent of people getting married in Australia are overseas-born.)

## How focusing on “trend” unemployment figures is like chanting “scoreboard” at the football.

Today’s unemployment figures were SHOCKING: the unemployment rate shot up to 6.4 per cent, a whopping increase from last month’s result of 6.0 per cent, in seasonally adjusted terms.

Except.

There are two main series that report the unemployment rate. Trend and Seasonally Adjusted. The former is more stable, the latter is more variable,.

There is a constant fight online between two gangs, the “wonks” and the “journos”. The former generally think the latter are too sensational with their taste for the more wildly variable series.

Here’s the latest update on the two series:

Trend looks like a sensible person who never gets too carried away, while seasonally adjusted is a wild ball of emotions, one moment in the dumps, the next elated.

It’s obvious which one serious-minded people should prefer, right?

But what if I told you trend is faking it? See how it claims to be sloping up all year? Let’s go back in time and consider the countenance of our “friend” the trend back in April.

At the time, it also claimed to be feeling glum. Now it has changed its tune. Trend is like a talented politician, flip-flopping around to try to claim the middle ground and seem more reasonable than the rest.

As recently as May, trend was headed downward. Then in June it made a small concession to the last two months of movement in the seasonally adjusted series:Below is how the trend is figured out. Essentially it uses a combination of old and new data to get a sense of how the series is moving over a longer time period.

“The smoothing of seasonally adjusted series to produce ‘trend’ series reduces the impact of the irregular component of the seasonally adjusted series. These trend estimates are derived by applying a 13-term Henderson-weighted moving average to all months except the last six. The last six monthly trend estimates are obtained by applying surrogates of the Henderson average to the seasonally adjusted series. Trend estimates are used to analyse the underlying behaviour of a series over time.

While this smoothing technique enables estimates to be produced for the latest month, it does result in revisions in addition to those caused by the revision of seasonally adjusted estimates. Generally, revisions due to the use of surrogates of the Henderson average become smaller, and after three months have a negligible impact on the series.”

When wonks say “the trend is your friend” they are focusing on a more than just the latest month’s data.

It’s like at the footy. One side kicks a goal and cheers. The other side points to the score, and chants “Scoreboard!” But in doing so, you can miss an important turning point.

Seasonally adjusted data look at what’s happened in the last month alone, just like the goal that just got kicked is the best measure of the passage of play that preceded it. Because it uses less data, it can also include more statistical noise.

The scoreboard, like the trend series, shows more than that and exhibits less statistical noise.

But this is a game that never ends. If you want to know what’s happening, focusing on the most recent figures seems perfectly fair to me.

## Negative interest rates on deposits just got announced in Europe. Here’s how that works.

In Europe, something wild and new and kind of dangerous is happening. They’ve put negative interest rates on deposits.

Imagine putting your money in the bank, and getting a negative interest rate. You’d want to get it out again as soon as possible, right? That’s the point.

Interest rates are used to control activity in the economy. I wrote about this a few months ago: “I know the RBA sets interest rates but I’m embarrassed to ask why. An explainer.

If the interest rate is negative, the central bank is goading you into using your money, not just sitting on it. That should mean more spending. More spending makes more jobs. And like this they hope to get Europe out of the quicksand of high unemployment.

So, if this works, how come it’s never been tried before?

The thing is, interest rates don’t just work on their own. You’ve got to consider inflation. If you get 2 per cent interest on your deposit but inflation is 3 per cent, then really you are losing the purchasing power of your money. (in the business this is called “negative real interest rates” where the word “real” means inflation is taken into account).

You can make “negative real interest rates” by setting the interest rate below inflation. That’s easy. The problem in Europe is there’s so little activity that inflation is very, very low. They have to make the advertised interest rate negative to get the “real” interest rate negative.

Now, it’s worth noting that the negative interest rates don’t apply to the average punter. They are for the deposits that banks have with the central bank. (Millions and billions of euros every night).

The reason for that is simple.  If you or I see that the \$11.50 we have in the bank is attracting a negative interest rate (here I am ignoring the “real” interest rate), there’s a simple trick we can use – take it out of the bank and turn it into cash. Cash gets an interest rate of zero, so that’s a lot better than leaving your money in the bank.

But guess what? There’s talk in some economic circles about getting rid of cash so negative interest rates can apply to  normal people too. It’s not coming from freaky fringe dwellers either, but mainstream people with Nobel Prizes and a lot of clout.

If you only have your money in electronic form, there’s no way to avoid keeping it in a bank account. You can’t put 1s and 0s in a shoebox under your bed.

Negative interest rates would not necessarily cause a riot. Bank fees already work in such a way that we’re used to seeing our bank balances retreat when left alone. A cash free future is plausible. People are using cash less and less.

While the rise of Paypass could end up stranding us in a future where we actually pay banks to hang onto our money instead of the other way around, there are other innovations that make a cashless society with negative interest rates unlikely.

I am talking about Bitcoin. The rise of a kind of cash that is beyond the control of central banks means attempts to control rates on government-issued cash are more futile than in the past.

For now, here’s hoping that rates of -0.1 per cent can help reduce joblessness in Europe, where youth unemployment is a very frightening 23 per cent.

## Should unemployed people be forced to take any job?

Tony Abbott is having a horrendous run. He’s now more unpopular than Bill Shorten, who holds an 11 point lead in approval ratings, a reversal that is truly spectacular.

His big problem is a tough budget that broke promises.

One of the Government’s signature policies is to push young people into taking work. Their policy is called “earn or learn.” It will deny the Newstart (dole) payment to anyone under the age of 25; and people aged 25-30 will not be eligible for the dole in their first six months of unemployment.

”There is no right to demand from your fellow Australians that just because you don’t want to do a bread delivery or a taxi run or a stint as a farmhand that you should therefore be able to rely on your fellow Australian to subsidise you,” said Employment Minister Eric Abetz.

The rationale is to stir up resentment at the welfare state.

“The bludger should not be our national icon.” – Rupert Murdoch, (American citizen)

It’s an entirely political, dog-whistle ploy to make underpaid workers of Australia target their resentment at the unemployed, not the managers that dine with their own remuneration committees.

But doesn’t mean the policy intent is all bad. Here’s why the policy can do good for some people (caveats follow).

Long-run unemployment is one of the most damaging things that can happen to a person. It causes not just a fall in skills (human capital). It is associated with worse health outcomes, including mental health issues, falling life expectancy, higher chances of dropping out of the labour market, and their children’s school performance.

Long run unemployment is also bad for the economy. Hysteresis is now an accepted fact of macroeconomics. It describes the way long periods of high unemployment make the minimum achievable unemployment rate creep higher and higher. An economy that can match people into jobs swiftly increases the welfare of future workers.

Sure unemployment is bad. But people know that and want to get themselves a job. No?

Well, a new paper from the National Bureau of Economic Research shows that unemployed workers set a reservation wage that affects their willingness to take a job.

“workers are 24 percentage points more likely to accept an offer that is equal to or exceeds their reservation wage than to accept a job with a wage below the threshold.”

This fits with some excellent new research by Australian economist Justin Wolfers. He found arbitrary thresholds are a source of important irrationalities in human behaviour, and illustrated it with marathon finishing times.

Wolfers’ article focuses on how arbitrary thresholds could cause irrational investment behaviour, especially the case of people being unwilling to sell their house for less than they bought it for. But the analysis could as easily apply to reservation wages, which can be set with reference to what you used to earn.

If you refuse a job because if pays \$5000 a year less than your old job, but then spend months more unemployed, you may well be worse off.

These pieces of research are part of the new behavioural economics that finds predictable irrationalities in human behaviours.

It is not uncommon for social outcomes to be improved with a “nudge” toward the more rational course of behaviour. Traditionally, of course, conservatives oppose these kind of nudges, preferring to let humans remain “free”, while liberals tend to endorse them. In the case of “earn or learn,” it is more of a shove then a nudge, and conservatives are more likely to be fans of it.

I don’t want to stand up for the exact policies that the Coalition has brought in. I think they are too blunt to have a net good effect. But the concept that the labour market will reach equilibrium without intervention is also likely wrong – unemployed people should be encouraged to not just search for, but take a job.

CAVEATS:

## Is this Budget pushing 50,000 people out of work?

Australia’s economy seemed to be repairing itself, right?

Unemployment was finally falling.

Growth was out of the doldrums.

Corporate profits were rising and the stockmarket too.

So how come the Budget forecasts the unemployment rate to worsen?

The documents released by Joe Hockey last night forecast unemployment rising from 5.8 per cent up to 6.25 per cent by 2014-15. That would represent around 50,000 people out of work.

It makes this forecast despite expecting a fall in labour force participation and a rise in growth in our “major trading partners,” from 4.6 per cent to 4.75 per cent.

There’s been plenty of good news recently. I thought unemployment forecasts might go the other way. In fact unemployment forecasts haven’t improved since MYEFO, despite this:

“Since MYEFO, the near-term outlook for the household sector has improved. Leading indicators of dwelling investment are consistent with rising activity, while household consumption and retail trade outcomes have improved recently, consistent with gains in household wealth.”

No change since MYEFO? That surprised me. Unemployment forecasts often change between a MYEFO and a Budget. For example, 18 months ago, that MYEFO tipped unemployment of 5.5 per cent in 2013-14. Twelve months ago – at the following Budget – the world looked worse and the forecast was 5.75 per cent.

This time, all the good news since MYEFO seems to be nullified by the government’s surplus rush.

The qualification in this sentence is perhaps important:

“The timing and composition of the new policy decisions mean that the faster pace of consolidation in this Budget does not have a material impact on economic growth over the forecast period, relative to the 2013-14 Mid-Year Economic and Fiscal Outlook (MYEFO).”

You could read that like this: ‘All the good news on the economy in the last six months is about to be wiped out by austerity.’

The Budget talks a lot about lower investment in the resources sector. It notes in passing that non-mining businesses are waiting to see what happens. It doesn’t note that a slashing budget might frighten them out of investing. (There are exceptions of course: a business selling new work outfits to School chaplains would be wise to get a new warehouse, ASAP.)

The Budget’s unemployment forecasts are higher than the consensus economics forecast (see chart at right). Perhaps because they wouldn’t cut so hard at the moment the economic recovery is gaining momentum.

All spending helps short-run growth, whether that’s government or private. That’s Keynesianism for you in a nutshell.

The government is apparently allergic to Keynesian concepts of economics. They rail against the spending that flowed during the global financial crisis: cheques for \$900, funding for insulation, school halls. All they see is the years of deficits. They can’t see a counter factual where Australia’s economy hit the skids.

But this allergy is now apparently inflaming the ranks of unemployed.

This budget is austere:

“The headline annual pace of consolidation is 0.7 per cent of GDP over the forward estimates. Abstracting from the one‑off nature of the Reserve Bank of Australia transaction, the pace of consolidation is 0.6 per cent of GDP.”

If you’re thinking, “I’m okay because I have a job,” consider this:

“Subdued wage growth is expected to continue until the spare capacity in the labour market is absorbed. The wage price index is forecast to grow by a still subdued 3 per cent through the year to the June quarters of both 2015 and 2016.”

Also know that your taxes will pay more unemployment benefits. Despite cuts to access to the dole, total spending on it is forecast to rise because of the change in the unemployment rate.

Essentially the budget is pushing more people into a position where they need the dole, but then compensating by – for some – whisking it out of their grasp.

## Quit your job – The time is now!

Bosses should expect a sharp uptick in being told where to stick it, as job-quitting season is about to dawn.

(Job quitting season is a bit like El Nino. You’re never quite sure if it’s about to start until the heat is on. But early signs are good.)

1. Today’s unemployment data show the trend in unemployment is finally pointing downwards. The first time since 2012.

Today’s data were kind of big news. Of course, the unemployment rate fell a lot in March. All the way down from over 6 per cent to 5.8 per cent. So much that it seemed like statistical noise. The fact April has given the same result is amazing.

This means – maybe – you can quit your job and the unemployment rate gets better while you look for a job, not worse!

2. Unlike last month, this result is driven by a lift in full-time jobs, which rose by 14,000.

3. Unlike recent years, the improvement in the unemployment rate is not caused by fewer and fewer people bothering to look for work. The movement in the participation rate this month was rounded to zero.

4. The number of new jobs being advertised is on the up and up. For most of the past few years, Seek.com.au has been an ever more arid wasteland.

But now it is starting to blossom with opportunities. In each of the last four months, the number of jobs advertised in Australia has risen – that’s the best positive streak since 2010. Get amongst it.

Don’t feel bad about quitting your job. It could be good for the economy. This paper suggests you probably will self-select out of a job where your productivity is relatively low. The US even tracks the number of people quitting jobs as a measure of confidence.

Quitting your job could also be good for you:

“Yes, you should not worry too much about the consequences and you should definitely quit your job that you hate and it’ll probably all work out great. Job quitters are the happiest people around.”

And if you’re looking for a job, remember, advertised jobs are just the tip of the iceberg.

## Unemployment is down! We Think!

Unemployment numbers are out and they look like good news. Unemployment fell 0.2 per cent to 5.8 per cent. This matters to everyday life in the following four ways.

1. Lower unemployment should mean bigger pay rises, and more options if you lose your job.

2. Lower unemployment increases the chance the Reserve Bank will hike interest rates, which will get you a better return on the money you have stashed in the bank.

3. Lower unemployment tends to force up the Australian dollar, creating cheaper holidays and cheaper imports. (It jumped over US94c this morning for the first time since last November.)

4. Lower unemployment increases the chance of the incumbent government doing well in the polls. “It’s the economy, stupid.”

But…

There’s not total absence of doubt.

If you look at the numbers more closely, there’s a few little things that might make you worried.

For starters, while the latest data, seasonally adjusted, shows the unemployment rate falling sharply, the trend data (calculated over a longer period) actually has unemployment rising.

There are things doubters can always say about the monthly data, that are not especially helpful.

“It’s just one month!”

“The standard error of the unemployment rate estimate for this survey is 0.2 per cent!”

The top two complaints are true and can only be resolved by waiting for more data (which will, itself, be subject to the same issues…).

But the ABS manages seasonal adjustment pretty well. They even account for the fact that Easter was in March last year and in April this year

March is a big month for falling unemployment.

On average, unemployment has fallen in 19 of the last 20 Marches, by an average of 44,000. Why? perhaps it’s only now that businesses are getting over the summer lull.

The ABS takes that effect out systematically. The red lines are the last 20 Marches, almost all of which show falling unemployment. But the average of the blue lines is just about zero:

We can trust this data for now. But it will be very interesting to see if April results in the effect being magnified or reversed.

## When job hunting is an endurance sport.

Unemployment in Australia is rising, and economists are relaxed about that generally, because it coincides with the end of the mining boom.

But new data out today show there is a hidden group for whom relaxation is just a dream – the long-term unemployed. The unemployment rate now sits at 5.8 per cent and rising, up from below 5 per cent in 2011. Getting a job is proving harder and harder:

The number of people starting new jobs (in the 12 months before the survey) is falling. It was 1.69 million in 2012, but had fallen to 1.67 million by 2013.

What that means is more and more people whose work skills are atrophying.

The proportion of unemployed people who had been looking for work for over 12 months has risen from 19.2 per cent in 2011 to 20.8 per cent in 2013.

And not all long-term unemployed people will show up in the figures. Some people will give up and disappear from the statistics if they stop seeking work, for example if they move onto the pension.

This is very bad news. Unemployment rates tend to rise sharply and fall slowly:

[It’s possible my entire interest in economics and statistics is because of the spike in the middle of the above graph. My first awareness of anything called the “economy” was the 1990s recession, which was also when I first heard the word “unemployment” and heard job losses discussed in hushed tones. I remember seeing newspaper articles about 11 per cent unemployment. Then my whole secondary schooling and university education coincided with the long, slow reversal of the unemployment caused by that short sharp recession.]

Unemployment is very hard to remove because of a concept called Hysteresis. It basically says that high unemployment is sticky – the economy “gets used to” functioning with more people out of work.

What that means is that a period of high unemployment is not just bad in the here and now. Its effects echo down through time in the shape of higher unemployment rates.

The Australian situation is still the envy of the world. Our unemployment rate is well below that in the US. But that is cold comfort when you are scanning the job ads for the 53rd luckless week in a row.

The data also contain another interesting tidbit:

66 per cent of people look for job ads in the newspaper, but 84 per cent of people look for job ads online.

But young people use the internet more, with 85 per cent of them looking for jobs online. But for the first time even those 45 years and over reported they are now most likely to look for jobs online, with 79 per cent scouring Seek, Monster, etc. (And that’s why the newspaper business is in so much strife)