Wednesday, August 12, 2009

Trends in Australia's recessionary unemployment

I recently asserted that all recessions are different. Why so? The question is, why is economics not a science? Because it is wrapped up in human affairs, and is a product of human history, which is moving forwards, changing all the time. We are not entirely doomed to repeat mistakes of the past; moreover, economic events are responsive to the political tides, which are constantly changing.

One example: unemployment in Australia.

We have weathered the recession reasonably well, all things considered. The government's economic stimulus packages have had an effect... and unemployment has not shot up as fast as it might have (SMH's Ross Gittens notes here Australia's more favourable position than the major western economies - and that the estimate of peak unemployment has been revised downwards from 8.5 to 7.5%.)

Why? A recent survey has found that employers have largely avoided shedding jobs, and are using a number of strategies to avoid this. Altruism aside, this could be simply because the costs of redundancies are a sufficient disincentive.

About half the employers surveyed cut back worker hours; about 40% froze salaries - one in six reducing executive pay; others cut pay or introduced job sharing.

(On an anecdotal basis, over the past year I have frequently seen companies with resourcing needs that despite looking first at external options, subsequent choose to plug the gap from their existing labour pool.)

The reason for this is said to be immediate past experience with skill shortages, which encourages employers to hedge by retaining skilled staff.

In mitigation, University of Newcastle's Bill Mitchell noted that in the 1991 recession, employers reduced hours - but then subsequently cut jobs anyway.

Countering that: job losses to date have been largely in manufacturing, and another survey had found business confidence at a two-year high (!) - particularly in manufacturing.

Update 13-Aug-09: Boom times indeed! Commonwealth Bank has reported very strong results; now Telstra has too. And Australian consumer confidence has positively rocketed. Perversely, while these are flags for interest rates to rise,employment is likely to lag significantly, as it usually does. Not a good time for unemployment with a mortgage.

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