The Australian economy has many unique characteristics, the most compelling of which is that it hasn’t experienced a recession in over 25 years. Since the recession it “had to have” in 1991, Australia has not had two subsequent quarters of negative GDP growth (the definition of a recession)[1], a feat no other advanced economy has managed to achieve over such a significant timeframe. To put this in perspective, 1991 was the year “Seinfeld” began its third season, Michael Jordan won his second NBA MVP award and Jim Bolger was New Zealand’s Prime Minister.

Although Australia, like most other members of the OECD, was caught off guard by the Global Financial Crisis (GFC), it had a unique arrow in its quiver being its higher than normal economic exposure to resources, with resource exports accounting for about 10 per cent of GDP in 2016 vs the OECD average of between 2 and 3 per cent[2]. This allowed it to ride the resources boom through the GFC, growing GDP by 1.8 and 2 per cent in 2008 and 2009[3] respectively, while the average advanced economy saw GDP growth of +0.14 per cent and -3.4 per cent in the same periods (International Monetary Fund, 2017).

This resilient economy now faces a much different challenge that has been slowly manifesting for years – underemployment and underutilisation. The Australian Bureau of Statistics (ABS) defines underemployment as “Employed persons aged 15 years and over who want, and are available for, more hours of work than they currently have” (ABS, 2017). Recent data indicates that despite weathering the GFC well, Australians have struggled with underemployment in recent years. This has made a lasting impact on the economy in multiple ways.

Source: Australian Bureau of Statistics (ABS)

The first impact is on the individual, as studies suggest those who experience periods of underemployment are more likely to have lower job satisfaction, higher job turnover, poorer mental and physical health and, of course, lower earnings[4]. This in turn impacts discretionary income, superannuation balances, the availability of credit to those lacking secure income streams and, on a more macro level, inflation.

Another metric, underutilisation, gauges those who are deemed underemployed plus those unemployed. For Australia, this level currently stands at a very high 14.4 per cent. The rosy 5.8 per cent unemployment rate doesn’t accurately depict how efficiently a country is deploying its labour force, as it fails to illustrate the mix between full-time and part-time workers. In Australia, part-time workers as a percentage of the total employed are currently at a record high of 32 per cent, which has caused Australia’s underutilisation to get progressively worse since 2010. It is particularly bad when compared to New Zealand and the US which have seen this rate improve over the same period.

Source: ABS, Statistics NZ & US Bureau of Labor Statistics

In Australia, these underemployed workers are actively searching for additional hours which suppresses overall wage growth in the economy. Nominal wage growth of 1.9 per cent in 2016 was a record low, and real wage growth of 0.43 per cent (adjusted for inflation) was also well below the long-term average of 0.63 per cent. Although real wage growth is not far below historic averages, low nominal wage growth has a psychological impact, as people do not feel as if they are getting wealthier (most employees and personal investors don’t adjust their annual pay movements for inflation).

Australia is still suffering a hangover from the end of 20 years of resource-driven growth as today’s economy struggles to replace thousands of high-paying mining jobs with equivalent positions in other industries. Paracetamol may dull the headache, but in the end, you just need time.

Roland Houghton

Analyst

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.

[1] ABC News: GDP forecast: Australia set to dodge recession as current account deficit shrinks to ’70s levels

[2] Morgan Stanley Internal Research: Australian Resource Exposure

[3] Australian Bureau of Statistics: Australian National Accounts

[4] Li, Duncan & Miranti Research Paper: Underemployment Among Mature Age Workers in Australia