The Truth Behind the Unemployment Stats | Ask an Economist
Summary
TLDRThe video script by Matt, a senior Economist at the Australia Institute, critiques the outdated official unemployment rate, which significantly underestimates the actual number of Australians seeking work.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
- ๐ The official unemployment rate is considered to be a misleading indicator as it significantly underestimates the actual number of people seeking work.
- ๐ The Australian Bureau of Statistics (ABS) measures unemployment by surveying 26,000 households, with strict criteria to be classified as 'unemployed'.
- ๐ฉโ๐ง Caring responsibilities, such as finding childcare, can exclude many individuals, particularly women, from being counted as unemployed.
- ๐ซ 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.
- ๐ The transition from employment to unemployment and vice versa often bypasses the 'unemployed' category, leading to inaccuracies in official statistics.
- ๐ฐ๏ธ The current definition of unemployment is outdated, dating back 60 years, and does not reflect modern labor market changes.
- ๐ 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.
- ๐ผ 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'.
- ๐ฆ The Reserve Bank of Australia (RBA) uses these inaccurate unemployment figures to assess labor market tightness and make monetary policy decisions.
- ๐ฐ 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.
- ๐ 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.
Outlines
๐ Flawed Unemployment Rate Measurement
The paragraph highlights the inadequacy of the official unemployment rate as a true reflection of joblessness in Australia. Matt, a senior economist at the Australia Institute, explains that the current definition of unemployment is outdated and does not account for the actual number of people seeking employment. The Australian Bureau of Statistics (ABS) measures unemployment by surveying 26,000 households, but the criteria for being classified as unemployed are restrictive, leading to an underestimation of the jobless population. For instance, individuals with caregiving responsibilities or those who have become discouraged from job searching are not counted as unemployed, even if they are willing and able to work. This misclassification results in a significant number of 'hidden unemployed' individuals being categorized as 'not in the labor force.' The paragraph also points out that the labor market has evolved significantly over the past 60 years, with more women and gig economy workers, yet the definition of unemployment has not kept pace with these changes.
๐ The Larger Picture of Unemployment
This paragraph emphasizes the need to look beyond the official unemployment figures to understand the true extent of joblessness. It suggests that the Reserve Bank of Australia (RBA) and other entities should consider a broader perspective that includes the underemployed and the hidden unemployed. The paragraph points out that the current low unemployment rate, as claimed by the RBA's governor, does not tell the whole story. It implies that the official figures may be misleading policymakers and could result in inappropriate economic decisions. The paragraph concludes by urging a reevaluation of how unemployment is measured, suggesting that a more inclusive definition could reveal an unemployment rate as high as 12 percent, which would significantly alter the economic narrative and policy responses.
Mindmap
Keywords
๐กUnemployment Rate
๐กSenior Economist
๐กReserve Bank of Australia (RBA)
๐กInflation
๐กLabor Force
๐กDiscouraged Job Seeker
๐กNot in the Labor Force (NILF)
๐กGig Work
๐กPart-Time Work
๐กHidden Unemployed
๐กWage Price Spiral
๐กCorporate Profits
Highlights
The official unemployment rate may not fully represent the number of Australians seeking work, as it is based on outdated definitions.
When considering a broader definition of unemployment, the number of job seekers could be more than three times the official rate.
Matt, a senior economist at the Australia Institute, discusses the impact of the Reserve Bank of Australia's (RBA) interest rate decisions on inflation and unemployment.
The ABS measures unemployment by surveying 26,000 households, with strict criteria for categorizing individuals as unemployed.
To be considered unemployed, individuals must actively search for work in the past four weeks and be available to start work in the last week.
Caring responsibilities and the inability to find childcare can exclude many women from the unemployment category.
Discouraged job seekers, who have given up on finding work but are interested and available, are also not counted as unemployed.
These individuals are categorized as 'not in the labor force' (NILF), also known as the 'hidden unemployed'.
Research shows that most people who lose their jobs move from employed to NILF, rather than becoming officially unemployed.
Similarly, many who find employment transition from NILF to employed, indicating inaccuracies in the official unemployment measure.
The current definition of unemployment has not kept pace with changes in the labor market, such as the increased participation of women and the rise of gig and part-time work.
Workers who are employed for as little as one hour a week are counted as employed, even if they are seeking more work.
Underestimating unemployment can lead to incorrect conclusions about the labor market's tightness and wage pressures.
The RBA's reliance on outdated unemployment figures may result in misguided policies to contain wage pressures.
Inflationary pressures may be attributed to corporate profits rather than higher wages, contrary to the RBA's assumptions.
A simple definition of unemployment, considering those looking for work and not employed, could yield an unemployment rate as high as 12 percent.
The RBA and other institutions should consider a broader perspective on unemployment to understand the true state of the labor market.
Transcripts
the official unemployment rate is just
the tip of the iceberg and when you look
past this outdated and overly strict
definition the number of people that are
looking for work more than triples
[Music]
hi I'm Matt and I'm the senior Economist
at the Australia Institute
Institute
the rba's interest rate decisions rely
on balancing inflation and unemployment
the theory is that when unemployment is
too low workers can demand higher wages
and this could cause inflation the
problem is the official unemployment
rate is based on strict and outdated
definitions and significantly
underestimates the actual number of
Australians looking for work when you
look past the tip of the iceberg that is
the official unemployment rate the
actual number of people looking for work
more than triples
so Matt how does the ABS measure
unemployment well basically they call up
26 000 households and they survey them
they ask them and to be categorized as
unemployed you've got to have two things
number one you have to be actively
searching for work in the previous four
weeks and secondly you must be available
to start work in the last week so Lilia
what are some of the reasons why someone
who wants work might not be able to
fulfill those criteria well Matt I'll
give you two examples
she might be the one with caring
responsibilities for children and you
just can't find child care in a week so
that means you wouldn't be able to start
work in the reference week a lot of
women are excluded from the category on
this basis second you might be someone
who has given up on looking for a job
you're what's called a discouraged job
Seeker even though you're interested in
work and you would be able to start work
during the reference week you haven't
actively looked for work in the job
search period so you would be excluded
from the category on this basis
both these types of people are pushed
into a category called not in the labor
force or nilf let's call them the hidden
unemployed now you might expect that
when someone loses their job they would
move from being employed category to
being unemployed you might also expect
when somebody gets a job they move from
unemployed to employed but our research
has found that most people lose their
job go from employed to not in the labor
force and most people who get a job move
from not in the labor force to employed
the result of this is there's lots of
unemployed people that fall into the not
in the labor force category meaning that
our official measure of unemployment is
not accurate so Lilia was this
definition of unemployment always a bad
definition so today's definition for
unemployment is based on one we used
about 60 years ago since then the labor
market has changed a lot so two big
changes have been first the entry of a
lot of women into the workforce as women
have traditionally been carers of
children they often take more than one
week to take up a job offer
second there's a lot more gig work
part-time work and Casual work in the
economy so workers accounted as employed
if they work at least one hour a week so
these workers look like they're employed
in the statistics but in reality they're
often unemployed and are actually
looking for more work this means that
the definition of unemployment has
become inaccurate as a measure of
unemployment today because it largely
hasn't accounted for these changes what
are some of the problems that come from
underestimating unemployment well the
issue is when places like the RBA The
Reserve Bank of Australia use these
figures which exclude the underemployed
and the hidden unemployed to make
conclusions about the tightness of the
labor market for example Philip Lowe the
governor of The Reserve Bank claims that
there have been the lowest unemployment
in 50 years when we look at this it
looks like workers have a lot of power
to push up wages
so when we are in a period of high
inflation like we are right now they
point to the unemployment and say it's
too low and they're fearing that there
might be a wage price spiral the RBA
then say that we need to push
unemployment up to contain the pressure
on wages a lot of this inflationary
pressure actually comes from corporate
profits seeking not higher wages This
research shows that the pressure on
wages is probably lower than the
official figures suggest so Lilia if
we've got problems with our unemployment
how should we measure it well if you go
by the simple definition that if you're
looking for a job and not working then
you're unemployed the results are going
to be much higher if you use this
definition the unemployment rate could
be as high as 12 percent
so while Philip Lowe and the RBA might
say that unemployment is at a 50-year
low and thus they're trying to increase
unemployment they need to understand
that these figures are just the tip of
the iceberg of people looking for work
they would do well to perhaps zoom out a
bit and look at the bigger picture of
what's really going on
[Music]
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