Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds

By Newsdesk

April 03 2024
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New research from e61 Institute has found that while current unemployment measures may not capture all job seekers, broader definitions that include passive job searchers do not provide better indicators of the economic cycle.

Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds

The study, titled "Searching Hard or Hardly Searching: How Should We Measure Unemployment?", compares four different definitions of unemployment and maps them against one another. It finds that unemployment rates would be significantly higher across all age groups if individuals who search for work "passively", such as sending off job applications without actively browsing online, were included. This increase is more pronounced for young Australians, with the unemployment rate rising by about two percentage points.

However, the research suggests that even though the measured unemployment rate would be higher under this broader definition, it does not necessarily mean the Reserve Bank would need to change its approach to monetary policy.

Zachary Hayward, pre-doctoral economist at the e61 Institute and author of the study, said, "The reason this definition may matter for Reserve Bank policy is if the new measure aligned more closely with the economic cycle. If it did, policy responses that ignored these measures would respond slowly to rising or falling inflation – exacerbating cost of living shocks during booms and generating unnecessary job loss during downturns."

The data shows that the new unemployment measure moves in a very similar way to the standard definition over the economic cycle, with only slightly wider gaps during the Global Financial Crisis and the end of the mining boom. "Ultimately, it adds little to no useful information about the economic cycle," Hayward said.

e61 CEO Michael Brennan noted that while it's always good to consider what the current definition might miss, "the overriding issue is what information the measure conveys, and the current ABS definition does a good job of shedding light on the strength of the labour market and the economic cycle."

The study highlights that while the current measure of unemployment may not capture all job seekers, it remains largely appropriate for assessing monetary policy and the economic cycle. However, it also underscores that at any given time, there are more individuals searching for work than headline figures suggest, indicating that barriers to labour market entry affect more people than commonly assumed.

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