Australia took its eyes off long-term unemployment, for what it thought were good reasons.
Long-term unemployment is defined as unemployment for more than 12 months in a row.
In the early 1990s, after the “recession we had to have”, long-term unemployment grew to a postwar high of 4% and became a major concern for the government amid fears that once Australians had became long-term unemployed, they would never easily get back to work.
Over time, that concern lessened.
Strong economic growth delivered a steady decline in the overall rate of unemployment and, as a consequence, long-term unemployment.
With the long-term rate low, we looked away…
By the time the financial crisis hit in 2008, Australia’s long-term unemployment rate was down to just 0.6%. After the crisis, our lack of attention continued.
The crisis had caused only a relatively small increase in unemployment, and it seemed reasonable to assume that it hadn’t caused much of an uptick in long-term unemployment.
In absolute terms, it hadn’t. Today, long-term unemployment is 1.25%, still way below its peak in the early 1990s.
But that figure of 1.25% demands closer attention.
It is about 0.3 percentage points higher than would have been the case for the same unemployment rate a few years earlier.
…and kept looking away…
Those few fractions of a percentage point mightn’t seem like much, but they add up to 41,000 more long-term unemployed Australians than would be expected.
The surprising growth in long-term unemployment relative to unemployment can be seen in the figure below, which shows rates of unemployment and long-term unemployment from 2003 onwards.
Unemployment rates and long-term unemployment rates, 2003-19
- ^ recession we had to have (en.wikipedia.org)
- ^ ABS 6291.0.55.001 (seasonally adjusted) (www.abs.gov.au)
- ^ briefing on this topic (drive.google.com)
- ^ Buckle up. 2019-20 survey finds the economy weak and heading down, and that's ahead of surprises (theconversation.com)
- ^ highest barriers to employment (docs.employment.gov.au)
Authors: Jeff Borland, Professor of Economics, University of Melbourne