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Australian Bureau of Statistics figures underestimate unemployment rate

The World Today - Tuesday, 9 December , 2008 12:10:00

ELEANOR HALL: But first to the economy and Australia's unemployment rate could be much higher than
the official figures suggest.

There has been debate for years about the way the Bureau of Statistics calculates the official
jobless rate.

Now a survey by the Roy Morgan Research group suggests that, rather than 4.3 per cent, the real
unemployment rate is 6.4 per cent.

And it has found that there has been a sharp rise in the jobless rate in recent months, with
1.5-million Australians either unemployed or under-employed.

The NAB monthly business survey also indicates that the economy has been shedding jobs since June
and will continue to do so well into 2010.

Richard Lindell has been analysing the research and he joins us now

So Richard, how does the bureau of statistics calculate the unemployment rate?

RICHARD LINDELL: Well it's long been thought that the ABS figures are biased toward counting people
as employed rather than unemployed. In the official figures you are employed if you work just one
hour in a week, you're unemployed only if you're actively looking for work for four weeks and
available to start immediately.

So the definition of unemployed is very narrow and the definition of employed is very broad.

Add to this recent issues this year in the May Budget, the sample size for the ABS figures were
also cut making this survey much less reliable than it already was. So there's a few issues going
on here and many economists have long said that the official figures underestimate the true
unemployment rate.

ELEANOR HALL: So how did the Roy Morgan group come to its figures?

RICHARD LINDELL: So Roy Morgan group takes the broadest possible definition of unemployment, it
does a national sample survey and just asks a simple question; are you looking for work- sorry- are
you unemployed or would you like more work?

It's a very broad definition and in this sample you get 6.4 per cent as unemployed or 700,000
people or 1.5 million-people are under-employed or unemployed which is 13.8 per cent. So much
broader definition, you get a much bigger obviously unemployment rate.

ELEANOR HALL: And is the trend consistent though both surveys? The trend to greater unemployment?

RICHARD LINDELL: It certainly is, if you look at the official figures it's gone up from 3.9 per
cent late last year, early this year, to 4.3 per cent. Many economists expect that to rise to
six-seven-eight even nine per cent by 2010.

Roy Morgan Research survey suggests the unemployment rate has gone from 5.3 per cent in the
September quarter to 6.4 per cent in December quarter.

So both surveys certainly showing that it's trending upwards.

ELEANOR HALL: And has Gary Morgan had anything to say about his research?

Well he has, he believes that there's no political will to report the official figure, here's what
he has to say.

GARY MORGAN: The Howard Government knew this was the case but ignored it and the Rudd Government
know it's the case and are also ignoring it. It's very important though because for instance
interest rates were put up early last year, or early this year and late last year because they
believe that the economy was overheated when in fact it wasn't overheated.

ELEANOR HALL: That's Gary Morgan the executive chairman at Roy Morgan Research, which has done this
survey on unemployment.

Now Richard what does today's NAB survey of business confidence and conditions tell us about the
likelihood of more job cuts in the future?

RICHARD LINDELL: Well pretty much saying the same thing again, the NAB business survey suggests
that businesses outside the mining sector have been shedding jobs since the middle if this year.
The non-farm economy is already going backwards.

Now jobs are coming out of the economy according to this survey, but there's also a hint that
business is hoarding labour a little bit as well, so perhaps executives and management are looking
to see what's going to happen over the next few months.

ELEANOR HALL: How do you tell that they're hoarding labour?

RICHARD LINDELL: Well they look at capacity utilisation across the economy and labour utilisation
as well and they're now diverging which suggests that production is down, but the unemployment rate
hasn't been rising as fast as the lower production should suggest.

So from that they've deduced that there is a bit of labour hoarding going on, but if the economy is
as bad as it looks then early next year it will probably see a much larger rise in unemployment,
jobs will be shed much quicker across the economy because actually labour has been hoarded so
there's plenty of people that can be let go quite quickly.

Now there are a couple of positives in the survey though on the broader economy, there's certainly
signs that the farm sector is bouncing back after drought and the mining sector is still holding
up.

Rob Henderson is a senior economist at the NAB and he says the non-farm economy though is already
going backwards.

ROB HENDERSON: The NAB business survey for November paints a pretty grim picture of how the economy
is travelling at the moment. Across the board the numbers are all pretty terrible; Ford Orders is
also at a record low, employment's also at a record low. So it's painting a very grim picture of
the economy going into the end of the year.

In the forecast that we've released today we do expect a negative quarter for GDP for the fourth
quarter of the year. This will be the first negative we've seen of course since the early 2000.

ELEANOR HALL: And that's Rob Henderson from NAB. No good economic news there, our analyst Richard
Lindell.