The Truth Behind the Unemployment Stats | Ask an Economist

Summary

The video script by Matt, a senior Economist at the Australia Institute, critiques the outdated official unemployment rate, which significantly underestimates the actual number of Australians seeking work. The ABS measures unemployment through household surveys with strict criteria, often excluding those with caring responsibilities or discouraged job seekers. The script highlights the inaccurate depiction of labor market tightness by the RBA, which bases its decisions on these flawed figures, potentially leading to misguided policies in the face of high inflation. It suggests a broader definition of unemployment to better reflect the reality of job seeking and labor market dynamics.

Takeaways

• 📉 The official unemployment rate is considered to be a misleading indicator as it significantly underestimates the actual number of people seeking work.
• 🔍 The Australian Bureau of Statistics (ABS) measures unemployment by surveying 26,000 households, with strict criteria to be classified as 'unemployed'.
• 👩‍👧 Caring responsibilities, such as finding childcare, can exclude many individuals, particularly women, from being counted as unemployed.
• 🚫 Discouraged job seekers, who have given up on active job searching but are still interested in work, are also not counted in the unemployment rate.
• 🔄 The transition from employment to unemployment and vice versa often bypasses the 'unemployed' category, leading to inaccuracies in official statistics.
• 🕰️ The current definition of unemployment is outdated, dating back 60 years, and does not reflect modern labor market changes.
• 👗 The increased participation of women in the workforce and the rise of gig, part-time, and casual work have made the unemployment definition less accurate.
• 💼 Many workers, who appear employed in statistics due to working at least one hour a week, are actually seeking more work and are effectively 'hidden unemployed'.
• 🏦 The Reserve Bank of Australia (RBA) uses these inaccurate unemployment figures to assess labor market tightness and make monetary policy decisions.
• 💰 The RBA's focus on low unemployment to contain wage pressure may be misguided, as the real pressure on wages could be lower than official figures suggest.
• 🔎 A broader definition of unemployment, including those looking for work but not working, could raise the unemployment rate significantly, to as high as 12 percent.

Q & A

What is the main issue with the current definition of unemployment according to the transcript?

The main issue is that the current definition of unemployment is based on strict and outdated criteria, which significantly underestimates the actual number of people looking for work.

Who is Matt and what is his role in the context of the video script?

Matt is the senior Economist at the Australia Institute, and he discusses the limitations of the official unemployment rate and its implications on economic policy.

How does the Australian Bureau of Statistics (ABS) measure unemployment?

The ABS measures unemployment by conducting phone surveys with 26,000 households, categorizing individuals as unemployed if they have been actively searching for work in the previous four weeks and are available to start work in the last week.

What are some reasons why someone who wants to work might not fulfill the ABS criteria for being unemployed?

Reasons include individuals with caring responsibilities who cannot find childcare within a week, and discouraged job seekers who have given up on looking for a job but would be able to start work during the reference week.

What is the term used for people who are not officially categorized as unemployed but are actually looking for work?

These individuals are referred to as 'not in the labor force' or NILF, also known as the 'hidden unemployed'.

How does the movement between employment categories differ from common expectations according to the research mentioned in the script?

Contrary to expectations, most people who lose their job move from employed to not in the labor force, and most people who get a job move from not in the labor force to employed, indicating that the official unemployment measure is not accurate.

Why is the current definition of unemployment considered outdated?

The definition is outdated because it was established about 60 years ago and has not accounted for significant changes in the labor market, such as the increased entry of women into the workforce and the rise of gig, part-time, and casual work.

What are the implications of underestimating unemployment for economic policy, particularly for the Reserve Bank of Australia (RBA)?

Underestimating unemployment can lead to incorrect conclusions about the labor market's tightness, potentially causing the RBA to push for higher unemployment to contain wage pressure, which may not be necessary if the true unemployment rate is higher.

What alternative definition of unemployment is suggested in the script, and what could be the potential unemployment rate using this definition?

The script suggests using a simple definition where if someone is looking for a job and not working, they are considered unemployed. Using this definition, the unemployment rate could be as high as 12 percent.

What does the script suggest the RBA should do to get a more accurate picture of the labor market?

The script suggests that the RBA should look beyond the official unemployment figures and consider the bigger picture, including the underemployed and the hidden unemployed, to understand the true state of the labor market.

How does the script relate the issue of unemployment measurement to the broader economic issue of inflation and wage growth?

The script argues that the inaccurate measurement of unemployment can lead to misguided economic policies, such as the fear of a wage-price spiral based on low unemployment figures, which may not reflect the true pressure on wages.