Participation rate holds key to unemployment
UNEMPLOYMENT remained steady last month, at 5.4 per cent, but it would have been higher if the participation rate had not fallen.
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."