Participation rate holds key to unemployment
Alongside softer labour market conditions over the past two years, the Reserve Bank says there is a possibility that some workers have become discouraged enough in their search for employment that they have stopped looking altogether, thereby dropping out of the labour force.
But more interestingly, the central bank says that the largest declines in employment over the past year have been in the area of public administration and safety, and, because some of those workers losing their public sector roles have reportedly received large redundancy packages, then this "may have reduced their incentive to look for work immediately".
Other factors affecting the male participation rate had been the recent sharp decline in self-employed workers in the construction sector, who may not be recorded as actively seeking work.
Over the last year, the participation rate - which measures the percentage of the total population who are in the labour force - has fallen from 65.3 per cent to 65 per cent, according to Bureau of Statistics data. At the same time, the unemployment rate has increased from 5.1 per cent to 5.4 per cent.
"All other things being equal, if you had the same participation rate [from a year ago], the unemployment rate would be 0.3 percentage points higher, at 5.7 per cent. That would be a simple way of saying it," the National Australia Bank chief economist, Alan Oster, said.
"I'm still happy to say the labour market is OK, but I think it's softening. You can't always rely on the participation rate declining to offset unemployment, and employment growth is very weak."
Frequently Asked Questions about this Article…
The article says the unemployment rate remained steady at 5.4%. Over the past year the participation rate—the share of the population in the labour force—fell from 65.3% to 65.0%, while the unemployment rate rose from 5.1% to 5.4%.
A lower participation rate removes people from the labour force denominator, so measured unemployment can appear steadier than underlying job losses. The National Australia Bank’s chief economist Alan Oster noted that if participation had stayed at last year’s level, the unemployment rate would be about 0.3 percentage points higher (around 5.7%).
The Reserve Bank suggests some workers may have become discouraged and stopped looking for work. The article also notes public sector redundancies—where workers reportedly received large redundancy packages—may have reduced the immediate incentive for those workers to seek new jobs.
The article highlights that the largest declines were in public administration and safety. It also mentions a recent sharp decline in self‑employed workers in the construction sector, which has affected the male participation rate.
The Reserve Bank flagged the possibility of discouraged workers leaving the labour force. NAB chief economist Alan Oster said the labour market is 'OK' but softening, warned that you can’t rely on participation falling to offset unemployment, and described employment growth as very weak.
The participation rate measures the percentage of the total population who are in the labour force (working or actively seeking work). For investors, it matters because changes in participation can mask true labour market strength or weakness—keeping an eye on both participation and the unemployment rate gives a fuller picture.
Alan Oster from NAB said that, all else equal, if the participation rate were the same as a year ago the unemployment rate would be 0.3 percentage points higher—that is, about 5.7% instead of 5.4%.
The article suggests investors should watch the unemployment rate, the participation rate, employment growth, and sectoral job trends (especially public administration and safety and construction). These indicators together help reveal whether the labour market is genuinely holding up or quietly softening.
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