How much is underemployment costing the Australian economy?

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May 25 2020
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The latest government figures show Australia is heading towards an underemployment crisis, with a leading researcher stating we can’t afford to “snap back” when people are struggling to find full-time employment.

According to a research paper from Per Capita, underemployment is costing the Australian economy as much as $24 billion due to lost wages, which would create $4.3 billion in income tax receipts.

“Underemployment has become one of the greatest drags on our economy, stifling wages and consumption, fuelling the productivity crisis, and ruining careers,” said research economist Matthew Lloyd-Cape, the paper’s author.

“We simply cannot afford to snap back to an economy where over a million workers cannot find enough hours.

“Tackling underemployment must be placed front and centre of the post-COVID economic reconstruction.”

National figures released by the Australian Bureau of Statistics (ABS) showed underemployment increased by 50 per cent, with 15 per cent of the Australia’s workforce now underemployed.

This leaves Australia’s labour force underutilisation rate at 19.9 per cent.

However, while the economic shutdown caused by COVID-19 has exacerbated the problem, over the last five years, Australia’s underemployment rate has been among the highest in the OECD.

This is leading to negative outcomes, with significant damage to livelihood and long-term economic outcomes for Australian workers being highlighted.

“For individual workers, eliminating underemployment would see a significant increase in their standard of living,” Mr Lloyd-Cape said. “For example, for already underpaid workers in the healthcare sector, wages forgone due to underemployment could be as much as $25,503 per year.”

The current COVID-19 slowdown also has the potential to cause “economic scarring”, the research paper said.

“Recessions typically cause deep scarring: for example, the incomes of low-income earners in the USA fell by 20 per cent during the 1980–82 recession and did not return to their pre-recession level until the late 1990s,” the report read.

Economic scarring not only affects employment status, incomes and economic security, it has significant implications for health and wellbeing.

“Levels of mental ill health increase during recessions, and mental health problems persist for workers who emerge from a recession with long-term reduced hours and income,” Mr Lloyd-Cape concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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