In recent weeks, there has been a lot of discussion about the astonishingly low unemployment rate in Australia. Even though the rate has plummeted, the jobless rate has remained stable in other areas of the country, namely in low socioeconomic areas. At the same time, job vacancies are soaring and individuals are switching or leaving jobs at record speed. This begs the question: why is the unemployment rate so low and is it an accurate measure of joblessness? This week’s article will investigate the true extent of unemployment in Australia, the distribution of unemployment and the upcoming Federal Election, as well as its implications on the Australian economy.
Why the unemployment rate again fails to indicate the true extent of joblessness
Last week, Josh Frydenberg revealed that the unemployment rate had fallen below the 4% mark, reaching 3.95% in March 2022. This is the lowest unemployment rate since 1974 when unemployment fell to a low of 2.0% before the onset of the 1974 recession - a recession caused entirely by rising oil prices and oil export embargoes. With the Federal Election coming up in a month, this is a very impressive figure and will be a headline for the Liberal Party amidst rising political uncertainty in Australia.
What’s even more impressive is that the unemployment rate is expected to dip even further. ANZ has projected the rate to reach a low of 3.3% by the end of 2022, with the RBA arguing that the jobless rate will remain below 4% for the next two years. In Sydney alone, it is believed that the unemployment rate has fallen below 3% and is on a downward trajectory. However, there are significant disparities in employment across the city.
According to the Sydney Morning Herald, the unemployment rate in Sydney’s southwest reached 9.3% in February 2022, which is more than double the current rate for Australia. Yet, this was ‘evened out’ by other LGAs in Sydney, with many districts boasting an unemployment rate below 3% and in some cases, below 2%. This is partially due to the slow recovery of Sydney’s southwest since the Delta outbreak and their associated lockdowns, which were arguably “the most stringent lockdowns” of 2021. With slow growth and a slow recovery comes a reduced derived demand for labour, creating district-wide cyclical unemployment and deteriorating the unemployment rate overall.
The surge in job vacancies and why it isn’t necessarily a good thing
In theory, there should be significantly less unemployment. According to the ABS, there are more than 400,000 job vacancies in Australia, with the number of unemployed persons and the number of job vacancies expected to overlap/intersect in the coming months.
Despite this, Michele O’Neil, president of the Australian Council of Trade Unions, says that the headline unemployment rate boasted by the Federal Government “hides the reality that millions of Australians are in insecure work or working multiple jobs”. This is corroborated by the fact that over 400,000 jobs have been added to the economy, yet the number of entry-level positions has declined by 150,000 since pre-pandemic levels. Therefore, the growing number of job vacancies is not necessarily a good thing - staff are being turned over, short-term work is more prominent than ever and casual employment remains high in Australia.
Thus, whilst the unemployment rate appears to be impressive, the rising number of job vacancies and the evident disparity in jobless rates across socioeconomic areas raises serious concerns - concerns that should be addressed in the lead up to the Federal Election.
The new election date and how it will impact the Australian economy
Last week, Prime Minister Morrison announced the date for the Federal Election in Australia, choosing May 21. This election is expected to be one of the most controversial, yet important elections in the history of Australian politics, following the turbulent two years since the COVID-19 pandemic began. Currently, the polls suggest that the Australian Labor Party has an edge over the Liberal-National Party. The latest Roy Morgan poll suggests that the ALP will obtain 57% of total votes, compared to the LNP’s measly 43%, on a two-party preferred basis.
If the election results are anything like the polls, then we should expect Anthony Albanese to become Australia’s new Prime Minister by May. The ALP is endorsing several social services as part of their attempts to garner votes, including cheaper child care, affordable housing, ABC funding and workplace sexual harassment reforms. In contrast, the LNP are focused on increased mental healthcare funding, tax cuts, military spending, pensioner income support and vaccine rollout funding.
Regardless of each Party’s policies, any Federal Election has an immediate impact on any mixed-market economy. Typically, in democratic societies, an election with this amount of media frenzy and debate leads to high levels of uncertainty. This translates to reduced levels of consumer and investor sentiment, potentially dissuading investment and preventing any short-term surge in growth.
Moreover, the exchange rate tends to fluctuate and becomes increasingly volatile in times of an election. This is because investors are unsure how the Australian public will react to the news, how quickly proposed policies will be implemented, and how the election result will impact investor sentiment within Australia, alongside several other factors. Ultimately, we should expect some short-term economic uncertainty amidst the election result, but this won’t be fully realised until the big day (21st of May 2022).