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Workers return in force

After a horror year, Australia’s labour market ended 2020 with a bang.

Think back to May - unemployment had jumped to 7.5%, job losses totalled 875,000, more than 650,000 of those people had left the labour force and more than three million workers were supported by JobKeeper.

The news this week? Nine out of every ten of those lost jobs are back. And more than that, the unemployment rate has continued to track downwards. At the same time, the participation rate has never been higher. That’s right – labour force participation is not only high for the COVID era – it is at an all-time high! That means the improvement in the unemployment rate has come in spite of the participation rate, not because of it.

Chart: Labour force participation rate, Australia

And if you’re thinking that Australian workers must be paying for these new jobs with reduced hours, think again. Through December the underemployment rate continued to trend down, falling 0.8pp to finish the year at 8.5%, just 0.3pp higher than the same time a year earlier.

To be clear, there is more than a smattering of pain still being felt in the economy. At 6.6%, the unemployment rate remains 1.5pp above the pre-COVID level. It is after all an oft-repeated economic tenet that unemployment is only ever in a hurry on its way up. In fact, our forecasts show that unemployment may remain elevated until the start of 2024, three years from now. Nonetheless, Australia is an outlier and we’re on the right side of the pack.

Consider what we’re up against. The unemployment rate in the US, with recovery flatlining in the face of a second wave, sits 3.2pp above the pre-COVID level. In Canada the unemployment rate sits at 8.6%, with employment and participation both falling through December. Meanwhile, the UK has seen its unemployment rate rise in each of the last 14 months.

The good news has spread to Victoria as well. The state’s unemployment rate sat at 7.4% in October, 0.4pp above the national average. At 6.5% in December, Victoria’s unemployment rate is now below that of Australia as a whole. And even more starkly, the participation rate has risen 3.1pp over four months, finishing the year just 0.2pp down on the national average. Victorians have come out of their State-imposed exile ready to work.

But the pandemic did not finish at the end of 2020. The optimistic narrative that these numbers support remains at risk to future outbreaks and subsequent lockdowns. That said, with vaccines on the way and state borders reopening, these numbers are cause for cautious celebration.