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Unemployment vs Not in the Labour Force

The Australian Government often refers to an ABS (Australian Bureau of Statistics) figure called the Unemployment Rate. Everybody goes on about it, but nearly everybody I speak to has no concept of what it really means.

Essential reading for understanding the problem of Australian men outside the workforce is a Staff Working Paper published by the Australian Productivity Commission in January, 2007 – Men Not at Work: An Analysis of Men Outside the Labour Force by Ralph Lattimore. In particular, I would encourage journalists to read Men Not at Work so their commentary moves from the general perception of unemployment toward a role of educating the public about the true meaning (and obfuscation) of the unemployment statistic.

Lattimore used a simple pie chart to contextualise the unemployment number provided by government. There are two categories:

  1. Those who are participating in the labour force (employed + unemployed)
  2. Those not participating in the labour force (pensioners, stay at home mums, retirees… neither employed nor unemployed)

Lattimore's chart for unemployed, employed and not in the labour force

The figures aren’t that different today so we’ll stick with Lattimore’s pie chart for the male demographic: (1) 68 per cent of men employed + 4 per cent of men unemployed – all participating in the labour force; and (2) 28 per cent of working age Australian men classified as ‘not in the labour force’. Number 1 is refered to as the ‘Participation Rate’ (grey and white in Lattimore’s pie chart).

Consider those figures for a minute. Not only is current unemployment at 5 per cent but there are also approximately 30 per cent of Australian men, Lattimore calls them the ‘invisible men’, who are not counted in the official ABS unemployment figure provided to the Australian public by the government of the day. In obfuscating the meaning of this statistic we are hiding a simple fact from ourselves about Australia – there are TWO Australias. Were we to be directly confronted by over 30 per cent unemployment in Australia I would hope there would be marching in the streets because it is an outrage. How can we be prospering in the global marketplace when a whole third of our nation is broiling in unproductive poverty?

A major component of those ‘not in the labour force’ were targeted with tough love in the Federal Budget delivered by Wayne Swan last night. There is a lot to be said for a bit of tough love, but that tough love speech was somewhat out of kilter towards the public perception that DSP (Disability Support Pension) recipients – a figure that has grown every year since the 1930s in Australia – is actually a part of the unemployment figure. You could give employment to every DSP recipient in Australia and it would not affect the unemployment figure simply because they are ‘not in the labour force’ to be counted as unemployed.

So the next point to understand is the ABS definition of employment.

According to established international standards, everyone who works for at least one hour or more for pay or profit is considered to be employed. This includes everyone from teenagers who work part-time after school, to a partially retired grandparent helping out at the school canteen. While it is unreasonable to expect a family to survive on the income of an hour of work per week, one could also argue that all work, no matter how small, contributes to the economy. This definition of ‘one hour or more’ – which is an international standard – means that ABS’ employment figures can be compared with the rest of the world.ABS

My point is that while governments tell us the figure of unemployment in Australia is a mere 4 or 5 per cent there is the inference in the common mind that employment in Australia must therefore be 95 or 96 per cent. The figure that should be put to the Australian people:

True Unemployment = the unemployed PLUS those ‘not in the labour force’.

Any other representation of the unemployment problem in Australia is a down right misdirection of every government we elect into office… True Unemployment is over 30 per cent in Australia.

The average Australian reading these figures should now pull out their fingers and start counting – on Lattimore’s pie chart only 68 per cent of Australians had at least 1 hour of paid work in the referenced week. That means far less than 68 per cent of Australians are working at a level the average person’s perception would equate to ‘real employment’. So we should also be provided a Real Employment figure.

Real Employment = people 15 years and older who made enough money to pay their rent, food and survive modestly and contribute to the Australian Tax coffers. Anything less is a downright misdirection.

The problem is that within the 68 per cent employment statistic are people no reasonable Australian would consider ’employed’. The problem of ‘underemployment’ is that a vast number of Australians worked more than 1 hour in the reference week BUT they wanted to work more… no opportunities exist for them to earn more. Many underemployed people hold down numerous base wage casual or part-time jobs that also skew the statistic – if I hire five people to do 8 hours per week the statisticians report that five jobs were created NOT one 40 hour per week job performed by five people who all receive Centrelink benefits.

The facts on DSP are a massive concern to Australia: Lattimore reported that over 420,000 men over 16 years of age were on DSP in 2005 (Update 19/8/14: this figure is now well over 800,000 on DSP payments); around half of all men between 25-64 who were inactive received DSP; the budgetary cost at that time for males and females on DSP was a whopping $8 billion while the NewStart only cost $4.6 billion; the number of DSP recipients was rising as the unemployment statistic fell; and “Simulations suggest possible forgone economic output of male inactivity over the next 45 years of cumulatively around $2150 billion (in non-discounted form).”

All I can suggest is that everbody, especially the journalists, read Men Not at Work and employ simple finger counting. It’s easy to point at DSP recipients who generally progress along a certain path… 1 year Unemployment then 1 year Long Term Unemployment… before being disappeared off the ABS unemployment statistic by moving them ‘outside the labour force’ onto the DSP. Where, you should be aware, the ‘invisible men’ will remain for an average of 7 and a half years and have four times more chance of dying than of gaining full time employment. All the while, associated with poverty, mental illness and lack of opportunity that binds them to a cycle of increasing long-term cost to the community.

Wayne Swan is correct in that Australia has a participation problem. However, I would say that successive Australian Governments, the OECD and the United States are all hiding behind a world reality that vastly more people are unemployed and underemployed AND vastly fewer people are really employed in the common sense of the word. The Australian people, at the least, deserve to have a proper conversation about this tough love on our society’s most vulnerable.

The first step in that process is to propagate throughout our society an understanding of the ABS unemployment statistic.

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About the Author

Steven Clark Steven Clark - the stand up guy on this site

My name is Steven Clark (aka nortypig) and I live in Southern Tasmania. I have an MBA (Specialisation) and a Bachelor of Computing from the University of Tasmania. I'm a photographer making pictures with film. A web developer for money. A business consultant for fun. A journalist on paper. Dreams of owning the World. Idea champion. Paradox. Life partner to Megan.

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