While spruiking the mid-year economic and fiscal outlook, the treasurer, Joe Hockey looked ahead to the release next year of the Intergenerational Report. He suggested that next year he and the rest of the government would be “having a conversation with the Australian people about the challenges that lie before our nation over the next 30 to 40 years”. Among the biggest of the problems was revealed in last week’s unemployment figures – not enough hours of work are being done by those under 65 to make up for the unprecedented increase in people who are now retired.
The November labour force numbers were a bit of a mixed bag. Total employment was up, but unemployment was also up, and the unemployment rate was up as well – settling at 6.3%, the highest it has been since August 2002. What was surprising was that despite employment rising by 0.06% in the month, the total hours worked in the month fell by 0.1%.
As a general rule, employment and hours worked moves in sync. Over the past decade the only time the growth of hours worked has not matched that of employment has been during the GFC and 2012 when the economy greatly weakened and the unemployment rate rose by half a percentage point in 12 months:
Thus the growth of hours worked falling behind the growth of employment does not bode well. It suggests that full-time workers are working fewer hours a month, reflecting a lack of work to be done, and also that the majority of new employment is for part-time work.
Indeed, in November, full-time employment fell slightly (down 0.02%) while part-time employment grew by 0.3%:
This is actually par for the course since the GFC. During the boom period of the early 2000s, full-time and part-time employment grew at roughly the same pace. But since August 2008, full-time employment has grown by just 5% compared with part-time employment that is up by nearly 20%:
The decline in hours worked thus is in some way just part of the broader pattern of workers working fewer hours on average than in the past.
Back in the 1980s when full-time employment accounted for 85% of all employment, workers on average worked 149 hours a month. Now, when full-time employment accounts for just 68% of all employment, the average hours worked by all employed is only 138 hours a month:
This is not all bad. The rise in part-time employment has brought many women into the workforce, and part-time employment does not necessarily mean an increase in casualisation. As I noted in October, the rate of part-time casual workers has actually fallen over the past 20 years.
But the hours worked has much larger implications that go to the very heart of the problem of the ageing population.
When attempting to assess the state of the labour force, economists often use the employment to population ratio. Because the unemployment rate measures only those in the labour force it can sometimes make the situation seem better, as it does not count people who have given up looking for work.
As the employment to population ratio is calculated by employment as a percentage of the whole adult civilian population (everyone over 15 years of age) it provides a very clear picture of the employment situation. As it includes those who are retired it also provides good information on the impact of the ageing population.
In November the employment to population ratio was just 60.6% - the lowest it has been since November 2004.
Another similar measure that provides an even more detailed picture is the hours worked each month as an average of the entire civilian adult population.
And on this score the picture is about as bleak as it gets. In November the adult population on average worked a mere 83.8 hours – the lowest average since December 1993:
To give you an idea of how stunning that is, back in 1993 the unemployment rate was 10.7% and only 52% of women were in the labour force compared to 58.5% now. To make it even more clear how bizarre this fact is, back in December 1993 there were 930,000 unemployed compared to just 775,300 now.
So even though we have a great deal fewer people unemployed in both percentage and nominal terms and more women working now than then, the amount of work being done on average by each adult is the same.
Mostly this is to do with the growth of part-time work. Back in 1993, only 56.1% of the population was employed, but of those 76% were working full-time. Now we have 60.6% of the population working, but only 69% are full-time.
But it has been exacerbated since the GFC. As we saw above, there is generally a good link between employment and hours worked; since the GFC this has not been the case.
The employment to population ratio has fallen 3.4% since its peak of June 2008 due to firstly to the weak employment situation during the GFC and then since 2011, the baby boomer generation reaching the retirement age.
But the average hours worked each month per person has in that time fallen 7.2%:
This goes to the heart of the ageing population problem given the main concern is that we will have fewer people working to fuel the taxation revenue needed to enable services such as health, education and social welfare.
The drop in the percentage of the population in employment is worrying enough, but given most employment is paid on an hourly basis, the decline in hours being worked by the average adult is more indicative of the problems we face.
Not only has the percentage of adults in prime working age fallen due to the baby boomers shifting to retirement, those who are working are working fewer hours than before.
The issue is compounded by young people between the ages of 15 and 24 who since the GFC are staying longer in education than before.
We don’t have a breakdown of hours worked by age, but from 2004 until the GFC,the ratio of the prime working age of 25-64 year olds in employment rose at much the same rate as the total ratio of employment to population. Since then the two have split.
While the total ratio fell 3.6% since June 2008, the ratio of 25-64 year old in employment has fallen in that time just 0.8%:
The unemployment rate continues to be a standard and useful indicator of the health of the labour market. But as time goes on, and as our population ages looking at the amount of the population in work, and crucially the amount of hours they are working will become more important in gauging not just the general state of the economy but whether we have enough labour to sustain the services and income support we have come to expect.
