Now its official — a staggering 14+% or over 1.6 million of Australia’s workforce are unemployed or underemployed. This represents a vast waste of resources. Put to work, these missing or forgotten workers could drive this country’s development far faster than it is now progressing.

It is good that the Government is now publishing the underutilisation data and the long term trend is particularly enlightening. Even in 2006 and 2007 when the economy was booming and labor shortage was the big concern, there was still a substantial level of underutilisation. Henry Thornton first addressed this issue in July 2006 and Michele Levine, CEO of Roy Morgan Research, made this point at the National Press Club on March 14 in 2008.

This vast cadre helps to explain why wage growth was so low during the boom and has fallen further during the current slump. It helps to explain why industrial strife is low despite the Industrial Relations (IR) rollback — the labor market is in effect far more flexible than analysts, commentators and, dare we say, even Treasury has so far acknowledged.

The evidence that unemployment and underemployment is far worse than suggested by the 5.8% “official” rate of unemployment has great consequences for economic policy. For the thirteenth month “hours worked” dropped. The general point is that the extraordinary recovery of consumer and business confidence hides an underlying fragility in the Australian economy.

This should be carefully considered by the Reserve Bank as it thinks about raising interest rates. Glenn Stevens is likely to focus on the effects of the forgotten workers in restraining wage inflation. Together with the general fragility of the recovery shown by these figures, it will likely modify the Reserve Bank’s determination to remove “emergency” low cash rates.

It is also a powerful argument against removing fiscal stimulus too quickly. To be sure, one can like Henry wish there had been less stimulus and better targeted stimulus, but removing stimulus now would risk destabilising a promising recovery.

The real challenge is for Julia Gillard. Yesterday Ms. Gillard acknowledged that there are “troubling aspects” of the labor market, and this means the vast army of unemployed or underemployed workers. The Government is having to reintroduce piecemeal labor market flexibility as various small businesses make a case for exception from the heavy hand of union and government control.

Henry Thornton first approached Roy Morgan Research in 2007 to measure hours worked when the data was not being made available by the ABS. The breakthrough of real unemployment figures (including underemployment, underutilisation and hours worked) highlights the importance of having an independent polling and research company that will ask the right questions and make the data available in the interest of Australia. When the ABS was not charged with releasing the data they were collecting on the matter, there was no other company that would collect and release publicly such data.

Mr. Rudd and Ms. Gillard are surely smart enough to realize there is a much bigger, more general, issue here. The new ABS data has shown with crystal clarity what is at stake.