Australia’s last recession in 1990-91 provides a sobering illustration.
The unemployment rate, which was around 6 per cent when the downturn began, kept rising long after the economy returned to growth. The jobless rate peaked at 11.2 per cent in late 1992 and was stuck above 10 per cent until April 1994. It was about a decade before unemployment returned to pre-recession levels.
This year’s economic crisis – triggered by a pandemic – will be different.
Because the government has effectively shut down a raft of major industries (such as aviation, tourism, international education and hospitality) unemployment is rising very quickly.
The sectors in lockdown will spring back once the coronavirus threat passes. But employment is still likely to take much longer to recover than other economic indicators.
“Will unemployment simply go back to normal again? The answer is no,” says Westpac labour market economist, Justin Smirk.
“The decline in unemployment will probably be faster than after recessions in the past because of the nature of the shock but we are still going to see unemployment higher at the end of 2021 that it was in early 2020.”
Older workers and low-income people who have the weakest attachment to the labour market will be hard-hit because they are likely to find it hardest to get employment as the economy recovers.
Debate about unemployment was a dominant theme of federal politics during the 1970s, 1980s and 1990s. As the jobless rate moderated during the past two decades political attention shifted.
Even so, the number of unemployed Australians has been hovering around the 700,000 mark for much of the past year.
Australia’s unemployment rate of 5.1 per cent is far higher than a number of international peers including the United States (3.5 per cent), New Zealand (4 per cent) and even Brexit-plagued Britain (3.9 per cent).
The labour “underemployment rate”, which measures the share of employed people looking for more hours of work, stands at an elevated 8.6 per cent and has hardly changed in a decade.
With numbers like that it is surprising employment has not received more attention.
The coronavirus crisis has put the politics of unemployment back front and centre.
“Employment and unemployment are going to become much bigger issues,” says Smirk.
The government has already made sweeping changes to unemployment policy. Last week it effectively doubled the rate of the JobSeeker payment for six months starting from April 27 and waived a number of restrictions on the payment including a liquid assets test.
The coronavirus-induced downturn will put many more Australians at risk of long-term unemployment, defined as being out of work for a year or more.
While Australia’s unemployment rate has hovered between 5 per cent and 6 per cent for much of the past decade there has been a troubling rise in the share of jobs seekers out of work for a year or more.
One in every four Australians now looking for a job is in the long-term unemployed category compared to just one in seven prior to the global financial crisis in 2008.
Trend figures show that last month 176,000 people had been out of work for a year or more, nearly 15,000 more than a year earlier.
Research shows those who have been out of work for a year or more tend to become socially isolated and are at much greater risk of a range of health ranging from mental illness to heart disease. It also makes people very unhappy.
The Herald/Age-Lateral Economics wellbeing index, which uses a range of economic and social indicators to create a broad measure of national welfare – underscores the huge cost of long-term unemployment.
It estimates the cost of skills atrophy (the loss of unused work skills over time) caused by long-term unemployment was at least $1.4 billion last year. And that does not capture the many non-economic costs of being jobless for a long period including its effects on mental health.
The index’s author, economist Nicholas Gruen, says the social and economic damage being caused by long term unemployment “should be showing up on the dashboard much more than it is”.
Peter Davidson, a policy analyst and principal adviser to the Australian Council of Social Service, says the first step is to “keep lay-offs to a minimum.” But then governments will need to invest far more to help people find employment.
“As a share of GDP we spend less than half the OECD average on labour market assistance for unemployed people,” Davidson said. Crucial services will include matching the unemployed with new jobs being created once the recovery is underway as well as re-training opportunities for workers.
Our current crop of political leaders doesn’t talk about unemployment much and they are rarely asked what they’re doing to help Australians who are out of work.
But that’s about to change.
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Matt Wade is a senior economics writer at The Sydney Morning Herald.
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