Real unemployment will be a lot more than 10 per cent

Reserve Bank of Australia governor Phillip Lowe. Picture: AAP

The forecast that unemployment will rise to 10 per cent is a convenient, reassuring, round-number fiction, as is the idea that it would have reached 15 per cent without the $130bn JobKeeper package.

The ABS might even pronounce that unemployment is, in fact, 10 per cent in June, and we will all faithfully report that, but that won’t make it true. Actual unemployment is probably already more than 15 per cent and could end up being twice that.

The ABS is very specific in its definition of an unemployed person: it’s someone who didn’t work for more than an hour in the past week, had actively looked for work in the past four weeks and was available to work in the past week, or was waiting to start a new job within four weeks. They ask those questions of 25,000 households per month, or about 50,000 people.

For a start, the $750 per week the JobKeeper Allowance is budgeted to be paid to six million people in place of their salary, since there is no work for them and their employers can’t afford to keep paying them. They’ll be unemployed, and on welfare, but the ABS won’t count them as unemployed because they’ll say they’re not looking for a job. And by the way, for many of them the $750 will be a pay rise.

The JobSeeker Allowance, which used to be called the Newstart Allowance, which used to be called the Unemployment Benefit, has been temporarily increased from $282.85 per week (single no kids) to $557.85 a week or $581 for those with children.

In other words, having for years staunchly resisted pleas to increase the dole on the grounds that you can’t live on $282.85 a week, arguing that the best form of welfare is a job, the government has doubled it — bang! Just like that.

That’s because there are no jobs, or not many, and unemployed people need to live, and you can’t live on $282.85 per week.

At the moment the difference between the total number of unemployed (718,600 in early March) and the number receiving the JobSeeker Allowance (going by the allocation for it in the budget) is about 15,000.

That difference is about to blow out massively, because most people on the dole won’t be job-seeking because there’s no point, and/or they don’t need to, having had a 97 per cent pay rise. Those with children will be too busy looking after them and won’t be available to work every day in the past week, as required by the definition.

So very few people on the JobSeeker Allowance and none on the JobKeeper Allowance will be defined as unemployed by the ABS, even though they will all be unemployed.

In fact, the official rate of unemployment could even end up below 10 per cent, because the participation rate is about to collapse, even as the economy shrinks by the most since the Great Depression. Happy days!

Well no. If you simply counted those on some form of unemployment benefit from the government, the figure could be … well, pick a number. In the US it’s now 26 million, or 16 per cent of the workforce, and it’s still early days.

Meanwhile, RBA governor Philip Lowe picked a number this week when he said total hours worked is likely to decline by 20 per cent.

In March there were 1.78 billion hours worked by Australia’s 13 million employed workers, which is 137 hours each on average for the month (34 hours per week). A 20 per cent decline equals 1.42 billion hours. Divide that by 137 and you get 10 million, a drop of 3 million workers. Another 3 million unemployed on top of the 718,600 already unemployed produces an unemployment rate of 28.5 per cent.

Of course average hours worked per person is also declining since hours and shifts are being cut, but keeping the unemployment rate at 10 per cent while hours worked falls by 20 per cent would require a huge cut in average hours worked by those working, and that would also lead to a cut in incomes, uncompensated by either the JobKeeper or JobSeeker allowances.

And then there’s the simple, but confusing, arithmetic of the JobKeeper Allowance. Six million people are budgeted to get it, which is 46 per cent of the Australian workforce. Would they have been unemployed without it? Does that mean the unemployment would have been 56 per cent, not 15 per cent, without the JobKeeper Allowance?

By saying the unemployment rate would have been 15 per cent without it, the government seems to be suggesting that only 650,000 people will get it, which would cost $12.6bn, not $130bn.

But the important thing is that however many people end up getting that $1500 a fortnight, they won’t be unemployed, with all the personal and psychological problems that go with that, and they won’t go on the jobless statistic.

By the way, Roy Morgan Research does a smaller survey than the ABS (1000 people per week versus 50,000 per month) and asks similar questions. Last week they came up with an unemployment rate of 16.8 per cent, heading ­higher.

Bottom line is that the official figures are going to be more or less meaningless throughout the downturn, which is to say they are media headlines, intended to reassure people.

Scott Morrison, along with other leaders, has likened the coronavirus pandemic to a war, which is fair enough: truth is the first casualty in a war.

Is reassurance a worthy goal in war, worth hiding the truth? Maybe it is.

I suspect that in his speech this week, Dr Lowe was quietly telling us to watch hours worked instead of the unemployment rate, which is good advice.

Any data series that has been increasing at an average of 0.1 per cent per month for 40 years with not much deviation (as this one has done since 1980) and suddenly drops by 20 per cent is definitely worth watching.

Alan Kohler is editor in chief of Eureka Report