The Radical COVID-19 Transformation of the Australian Labour Market

The Radical COVID-19 Transformation of the Australian Labour Market

The COVID-19 pandemic, which has been in train for more than 18 months, represents the most disruptive event to the Australian economy since the Great Depression of the 1930s.

The severe restrictions to civil and economic activity imposed on the economies around the world and the extraordinary economic stimulus by governments and central banks is having major ramifications in the immediate term which will linger in the years to come.

As noted in the article, “Accelerated Stagflation Now in Full Swing”[1], the result to date of both pandemic measures and economic policy responses around the world has been the phenomenon of accelerated stagflation, which is a combination of weak economic growth, sluggish employment outcomes (e.g., stubbornly high and rising unemployment) and surging inflation.

The effects are likely to continue into the future given that global macroeconomic and prudential policy is geared towards preventing the largest debt bubble in world economic history from collapsing.

These impacts have not escaped the Australian economy and the debate among economists and financial market practitioners has turned to what the path to normalisation may be in terms of restoring economic activity, productivity and growth as well as more sustainable macroeconomic policies.

As noted recently by the Reserve Bank of Australia (RBA), policy normalisation is highly dependent on a number of factors including the evolution of the COVID-19 pandemic and the ability to meet pre-defined economic objectives.

One of the RBA’s defined core objectives includes reaching full-employment resulting in robust wages growth.

Given this, it is important to analyse the radical transformation that has been underway in the Australian labour market since February 2020 and to consider the subsequent implications to Australian macroeconomic policy.

Monetary Policy Context to the Australian Labour Market

Before analysing the impact of the COVID-19 pandemic on the Australian labour market, it is important to establish the significance of the Australian labour market in determining of monetary policy in Australia.

As noted in the article, “RBA trapped in a never ending dead end debt bubble“[2], in order to keep intact the largest debt bubble in history, Australia’s nine governments and the RBA unleashed the largest fiscal and monetary stimulus package in Australian history.

Recently, the RBA Governor after the Board’s July 2021 meeting suggested that ending the RBA’s quantitative easing program and raising its official cash rate was dependent on the annualised growth in the Consumer Price Index (CPI) being above 2 per cent for multiple consecutive quarters, which will in turn requires annualised wages growth to be above 3 per cent.

For this to be achieved Governor Lowe stated that unemployment would need to fall below the non‑accelerating inflation rate of unemployment (NAIRU) which the RBA has estimated to be approximately 4 per cent.

In contrast to many prominent private sector economists, the RBA Board has publicly stated its belief that these conditions won’t be achieved until 2024 at the earliest. Given the sudden lockdown recently implemented in New South Wales (NSW), forecasting with accuracy so far out is a difficult and fraught task in the current environment.

Thus, determining what impact the COVID-19 pandemic has had on the Australian labour market to date and how this impact may evolve over time is critical to understanding whether the forecasts set by the RBA are realistic and achievable.

Impact of the COVID-19 Pandemic on the Australian Labour Market

To assess the impact of the COVID-19 pandemic on the Australian labour market, differences from February 2020 through to June 2021 in Australia’s:

• above 15 years-old population;
• labour force;
• participation rate;
• levels of employment (including full-time and part-time employment); and
• levels of unemployment and underemployment levels

will be analysed using the original data series from the Australian Bureau of Statistics (ABS) labour force data reports[3].

The following key elements of the Australian labour market will be analysed:

• from the Australian national perspective;
• by gender;
• by state and territory; and
• by age demographics.

This analysis will be accompanied by an analysis of data relating to Australia’s international borders to determine the impact that restricting the freedom to enter and leave Australia has had on the labour market.

It is important to note that the data presented in the Tables 1 through 5 are presented in the thousands of people, whereas the data presented in Tables 6 and 7 are presented in whole units.

Population and Labour Force Analysis

In this section we analyse, via Table 1, changes in population (15 years-old and above), labour force and those not in the labour force during the period from February 2020 through to June 2021 for each Australian state and territory by total, males and females (and for Australia overall).

Table 1: Difference in Population and Labour Force from February 2020 – June 2021 by Australian State & Territory

Participation Rate

In this section we compare and analyse, via Table 2, labour force participation in February 2020 and in June 2021 for each Australian state and territory by total, males and females (and for Australia overall).

Table 2: Participation Rates in February 2020 versus June 2021 by Australian State and Territory

Employed & Unemployed – Australian State and Territory

In this section we analyse, via Table 3, changes in total employment, full-time employment, part‑time employment and unemployment during the period from February 2020 through to June 2021 for each Australian state and territory by total, males and females (and for Australia overall).

Table 3: Differences in numbers of Employed and Unemployed from February 2020 – June 2021 by Australian State and Territory

Labour Force Analysis by Age Demographics

In this section we analyse, via Table 4, changes in labour force during the period from February 2020 through to June 2021 by various age demographic categories.

Table 4: Differences in Labour Force from February 2020 – June 2021 by Age Demographics

Employed & Unemployed – Age Demographics

In this section we analyse, via Table 5, changes in total employment, full-time employment, part‑time employment, unemployment and underemployment from February 2020 through to June 2021 by various age demographic categories.

Table 5: Differences in number of Australians Employed, Unemployed and Underemployed from February 2020 – June 2021 by Age Demographics

Impact of Australia’s International Borders on the Labour Market

One of the hallmarks of the COVID-19 pandemic is the radical policy changes made by the Australian Government to the management of Australia’s borders – i.e., who was able to enter and leave Australia.

Given Australia’s high level of both short-term and long-term visitor and resident immigration over the past two decades, examination of how the pandemic has impacted this flow of people is critical given the potential impact on the labour market, especially the supply of labour.

To assess what impact (if any) the pandemic has had on the flow of people into and out of Australia, two specific datasets from the Department of Home Affairs are presented and analysed below.

Firstly, inbound to Australia Temporary Entrants Visa Holders data[4] is presented in Table 6 at two specific points in time, being 31 December 2019 to 31 May 2021. The differences between these two points in time are also calculated.

Table 6: Temporary Entrants Visa Holders (Inbound to Australia)

Secondly,overseas arrivals to and departures from Australia are presented in Table 7[5]. This data is presented across two important timeframes:

• February 2020 – April 2021; and
• April 2020 – April 2021.

These two important timeframes are presented for very important reasons. While the COVID-19 pandemic started to become a serious, economically disruptive event in early February 2020, important policy changes to Australia’s international borders were not made until 20 March 2020[6] which meant that structural changes to Australia’s flow of overseas arrivals and departures were not fully borne out and witnessed until April 2020.

In Table 7, the net difference per type of arrival and departure is also calculated which includes:

• long-term resident;
• long-term visitor;
• settler;
• short-term resident; and
• short-term visitor.

Table 7: Overseas Arrivals and Departures for Australia

Data Observations

By examining the official data from the ABS and Department of Home Affairs, as presented above in Tables 1 to 7, we can observe that:

Australia’s International Border

• Severe policy limitations placed on Australia’s borders – while starting on 1 February 2020[7], was made complete by late March 2020[8] - resulted in significant reductions in issued temporary visas for visitors, students, working holiday makers and temporary residents (skilled employment).
• The COVID-19 pandemic has seen a significant net outflow of people from Australia especially among short-term visitors, long-term visitors and short-term residents from April 2020 to April 2021.

Labour Force

• Comparing June 2021 to February 2020, Australia’s labour force grew in net terms by 21,720 people, predominately by more women entering the labour force (+35,6700 females) relative to a reduction of men leaving the labour force (-13,960 males).
• This growth was driven by higher growth in the 15 years‑plus female population and a fall in the participation rate of males from 71.4% in February 2020 to 70.9% in June 2021 (while the participation rate of females was constant over this period at 61.7%).
• Most of this growth in the total labour force was experienced in QLD (52,080 people), NSW (30,650 people) and WA (11,280 people).
• Among the age category of 15 - 34 years, the total labour force shrank by 192,390 people, whereas, importantly, the labour force grew by 114,300 among those of 35 – 54 years and by 99,800 among those of 55+ years.
• For those of 35 - 54 years, the labour force grew more strongly among females (95,820 females) compared to males (18,480 males).
• For those 55+ years, the labour force grew more strongly among males (60,890 males) compared to females (38,920 females).

Participation Rate

• Comparing June 2021 to February 2020, participation rates rose in NSW and QLD and fell everywhere else. Interestingly, the participation rate among males in NSW fell, whereas the participation rate among females in NSW rose.

Employment

• Comparing June 2021 to February 2020, a net of 115,400 additional people became employed in Australia consisting of 88,110 females (or 76.4%) and 27,290 men (or 23.65%).
• Of these people, 108,160 additional people obtained part-time employment and only 7,240 people were able to secure full‑time work. Importantly, 43,890 fewer males were able to secure full-time work.
• Most people who secured employment did so in QLD (73,620 people), NSW (26,850 people), WA (22,000 people) and SA (11,570 people).
• Of these people, fewer males were employed in NSW (33,810 males), whereas more females were employed in NSW (60,650 females), QLD (30,950 females), WA (17,960 females) and SA (1,790 females).
• In total (i.e., both genders combined), fewer people secured employment in Victoria (5,290 people) which was a result of fewer women in work (15,190 females) relative to the more men in work (9,990 males).
• Whether Australian or not, 118,370 fewer people were employed in Australia between the ages of 20 and 34, whereas 108,260 more people were employed among those of 35 ‑ 44 years, 97,090 people among those 55+ years and 22,000 people among those of 15 - 19 years.
• The majority of people in the age category of 55+ years who gained employment were male (61.0 per cent) whereas the majority of people in the age categories of 35 - 44 years and 15 ‑ 19 years who gained employment were female (70.7% percent and 85.5 per cent respectively).
• Significantly, of the fewer employed between the ages of 20 and 34 employed, the majority of them were women (although only less than 5,00).
• Within the 45 - 54 years category, fewer men were employed whereas more women were employed.

Employment (Full-Time)

• Comparing June 2021 to February 2020, fewer full-time jobs were witnessed in NSW, VIC, NT, ACT and TAS whereas more full-time jobs were witnessed in QLD, SA and WA.
• Interestingly, significantly fewer males were in full‑time employment in NSW (70,530 males) and VIC (11,280 males), whereas more males were in full‑time employment in QLD (40,810 males). Alternatively, more females were in full‑time employment in NSW (43,010 females) and QLD (17,090 females), whereas fewer females were in full-time employment in VIC (6,010 females), NT (4,110 females) and WA (3,340 females).
• 165,260 fewer people were in full-time jobs between the ages of 20 and 34, whereas 105,380 more people were employed among those of 55+ years and 77,140 more among those of 35 ‑ 44 years.

Employment (Part-Time)

• Comparing June 2021 to February 2020, more part-time jobs were witnessed mainly in NSW (54,360 people), WA (20,920 people), QLD (15,720 people) and VIC (12,000 people). More males were able to secure part-time employment in all states and territories except for WA, whereas fewer females were in part time work in VIC (9,180 females), ACT (6,180 females), SA (760 females) and TAS (540 females).
• For both genders combined, more people were employed in part-time jobs across all age categories with the exception of those of 55 - 64 years. The bulk of part-time jobs taken up were people between the ages of 15 - 24 years. The majority of additional people employed in part‑time jobs were male (65.8 per cent).

Unemployment

• Comparing June 2021 to February 2020, 93,680 fewer people were unemployed in Australia, consisting of 52,430 females (56%) and 41,250 males (or 44%).
• The largest fall in the number of unemployed people were mainly in VIC (53,700 people), QLD (21,540 people), WA (10,720 people) and SA (9,250 males), whereas the number of unemployed people rose in NSW (3,800 people) and the ACT (2,320 people).
• The number of males unemployed dramatically rose in NSW (15,400 males) and significantly fell in VIC (33,750 males), QLD (16,200 males) and WA (2,440 males), whereas the number of females unemployed fell in all Australian states and territories, expect for TAS (100 people).
• Importantly, the unemployment rate worsened for males in NSW from 4.9% in February 2020 through to 5.6% in June 2021 and in the ACT from 2.4% in February 2020 through to 4.5% in June 2021.
• Alternatively, the rate of unemployment for males in Victoria witnessed a dramatic improvement from 5.6% in February 2020 through to 3.9% in June 2021.
• The unemployment rate for women fell in all states and territories except for Tasmania where unemployment rose from 4.9% in February 2020 to 5.0% in June 2021.
• The bulk of the reduction of those unemployed comprised of people between the ages of 15 - 24 years old (87,150 people or 93.0%). The total number of people unemployed between 35 - 44 years rose, driven by a greater number of females unemployed within this category.

Underemployment

• Comparing June 2021 to February 2020, the number of underemployed people fell by 66,700 people. Interestingly, the number of underemployed males rose by 18,680 whereas the number of underemployed females fell by 85,380 females.
• The largest increase in underemployment occurred in Victoria, which consisted of an additional 46,640 underemployed males and an extra 9,590 underemployed females.
• For those genders combined, the bulk of the reduction in underemployment occurred among those of 15 - 24 years (59,220 people). However, sizeable reductions in people underemployed also occurred among those of 55 - 64 years (17,850 people) and of 45 - 54 years (16,950 people).
• Interestingly, underemployment among males above 24 years of age rose by 25,630.

Analysis and Interpretation

From the data and observations identified above, the following interpretations can be made:

• The likely reason for the reduction in people employed between the ages of 20 - 34 years is related to the net outflow of people who left Australia – especially those on student visas, working holiday makers and temporary residents (skilled employment).
• Queensland has been the Australian state or territory that has enjoyed the largest increase in the size of its labour force and the number of people employed, whereas men in NSW who previously were employed in full-time roles experienced the largest reduction in employment.
• In NSW, a clear shift from full-time work to part-time work can be observed, especially for men.
• The closure of Australia’s international borders has provided for middle-aged (35 - 44 years) and older Australians (especially 55+ years) with the opportunity to re-enter the labour force and secure full-time work. But the bulk of these employment opportunities have been filled by women.
• The combination of the extraordinary economic stimulus measures and the shutdown of Australia’s international borders has resulted in a reduction in over 150,000 unemployed and underemployed people during the course of the pandemic.
• Australia’s large net immigration levels in the past two decades has been contributing to additional competition in the labour market. This in part explains why we have had relatively high (or stubborn) levels of unemployment and underemployment and weak wages growth (which has long-confounded the economic forecasters at the RBA and Federal Treasury).
• The re-opening of Australia’s borders (whether rapid or gradual) will pose a threat, particularly to older Australians who have enjoyed greater job opportunities during the COVID-19 pandemic. In the short‑term, this may push unemployment up or cause older Australians to leave the labour force altogether without passing through the unemployment statistics or queues.
• Returning to the polices of the pre-pandemic era will make it less likely that the RBA will achieve its full-employment, wage and inflation objectives (particularly that of solid wages growth).

Conclusion

The COVID-19 pandemic has caused the greatest disruption to the Australian economy since the great depression of the 1930s.

To save the largest debt bubble in Australian history, the most extraordinary fiscal and monetary economic stimulus package was unleashed to offset the disruptive economic impacts of the COVID‑19 lockdowns, including shutting down Australia’s international borders.

In mid-2021, the Australian public policy debate has moved towards when and how economic policy will be normalised and to what degree.

Within this context, the RBA has indicated that the cessation of QE and the raising of the official cash rate is dependent on the Australian economy achieving a rate of unemployment below full employment (as measured by the NAIRU), resulting in the annualised growth rate of wages reaching approximately 3% in order to sustainably lift the annualised growth rate of the CPI above 2% for multiple consecutive quarters.

Such pre-requisites invite an investigation of the Australian labour market to understand what impact the COVID-19 pandemic has had on employment conditions in Australia, especially in light of the severe restrictions imposed to Australia’s international borders.

What the pandemic has exposed is that Australia’s pre-pandemic immigration policy was denying employment opportunities for Australians, particularly older ones.

Creating slack within Australia’s labour market through mass immigration has been a contributing policy to keeping a lid on wages growth and therefore the official rate of inflation.

This has in turn allowed the RBA to keep official interest rates much lower and thus enticed extra real estate speculation and leverage, which is the core contributor to Australia’s current record household debt bubble.

Returning back to Australia’s pre-pandemic border and immigration policies will make it less likely that the RBA will meet its defined pre-requisites necessary to normalise monetary policy.

John Adams is the Chief Economist for As Good As Gold Australia

[1]https://www.adamseconomics.com/post/accelerated-stagflation-now-in-full-swing

[2] https://www.adamseconomics.com/post/rba-trapped-in-a-never-ending-dead-end-debt-bubble

[3] The ABS has revised the original Labour Force series for the previous two years to reflect the latest available preliminary and final estimates of the Estimated Resident Population. In response to COVID-19 related changes in travel, the ABS has been revising preliminary Net Overseas Migration estimates more frequently.

The usual resident civilian population in March 2021 was revised down by around 0.2% (around 39,600 people). Given the largest source of revisions to population estimates and survey benchmarks are revisions to net overseas migration estimates, the largest revisions were to age groups which comprise a higher share of migration. For example, the largest revision was to the number of people age 25-29, which was revised down by around 0.7% in March 2021.

Further information: https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release

[4] The data presented in Table 6 is ‘stock data’ given that the total number of temporary entrant visa holder data is presented at the two specified points in time whereas the calculated difference is known as the ‘flow data’.

[5] The data presented in Table 7 is ‘flow data’ given that the data presented is not data fixed at a point in time, but rather data that shows movement of people over time.

[6] See the following media release issued by the Australian Prime Minister on 19 March 2020: https://www.pm.gov.au/media/border-restrictions- “Australia is closing its borders to all non-citizens and non-residents. The entry ban takes effect from 9pm AEDT Friday, 20 March 2020, with exemptions only for Australian citizens, permanent residents and their immediate family, including spouses, legal guardians and dependants.”

[7] https://www.bbc.com/news/world-51338899

[8] https://www.pm.gov.au/media/border-restrictions