If the Australian Bureau of Statistics had to measure the satisfaction with last Thursday’s July jobs data release among its wide and varied clientele, it would have found some very unhappy bunnies — from the Reserve Bank to the Federal Treasury, to quite a few business and private economists in banks large and small. The surprise jump in the headline unemployment rate to 6.4% prompted much commentary about the condition of the economy, but looking at the report, the trend unemployment rate, which rose to 6.1% in July, seems to be more accurate than the 6.4% headline figures.
At the moment the ABS jobs series is the most closely watched economic indicator: policymakers have been anticipating a rise in unemployment for over a year, and the rise in the unemployment rate is particularly important and sensitive given the sluggish growth in the economy and the fact that jobs growth in not keeping pace with growth in the labour market. The RBA said in its third Statement of Monetary Policy of the year on Friday it foresaw no real improvement in the jobs market until 2016 — that’s a year longer than what it was thinking earlier in the year. So naturally, accurate and timely data on the jobs market is vital.
However, in the July labour force survey, the ABS changed the criteria of whether a person was “actively looking for work”. Only those actively looking for work are defined as unemployed. “Actively” includes activities like writing or telephoning about a job, answering a job ad, registering with a job agency or contacting friends. You only need to meet one of the criteria to qualify. But the ABS (in line with an international change agreed last October) introduced two new criteria and dropped two others for active job searching.
The two it dropped were: registering for Centrelink as a job seeker (which calls into question Centrelink’s role in trying to fill job vacancies) and checking noticeboards for jobs. The two it added were: attending a job interview (which seems to be obvious) and starting your own business, which is fair enough. But the ABS thinks the two it dropped and the two it added would offset each other — which hasn’t been tested. It is very possible the two new criteria resulted in more people being deemed to be looking for work.
“These spending cuts from the current federal government are behind the latest stuff up from the ABS.”
For a big change like this the ABS would normally run a control group in a survey so that the new data can be checked for accuracy. It could have merely added the new criteria to the old survey and run it and then produced a new set of results with two sets of figures under the old and new definitions of active search. Why didn’t it? Here’s what the ABS said in Thursday’s release.
“There is no evidence that the introduction of the new active job search steps and the changing of two active steps to passive has had a significant impact on the estimates for unemployment and not in the labour force. In addition, changes in participation and the number of unemployed persons did not occur in a consistent manner across states and territories, males and females, and age groups. This further supports the conclusion that the new questionnaire had no systematic impact on the estimates of unemployed persons and persons not in the labour force.”
The problem for the ABS (where David Gruen is shortly to take over as chief statistician) is lack of resources. Thanks to “efficiency dividends” imposed on the public service in 2008 by Wayne Swan, and in the May budget by Treasurer Joe Hockey, the ABS is short of money and has run up a deficit of close to $120 million, according to a January story in The Australian Financial Review. Last month the ABS announced it will ditch a host of second-tier statistics because of the cost of collecting them, and another 100 jobs are to go.
Problems caused by resource cuts have been happening for a long time. In 2008, after a $20 million budget, the ABS decided to save money by reducing the scope and size of the sample of both the retail trade and the labour force surveys. At a time when the GFC was breaking over the economy, the Reserve Bank, Treasury, banks and others were all but in the dark about how two of the main factors in the economy were travelling — household spending and jobs creation/destruction. For several months, the data produced was inconsistent, and the ABS was forced to revert to the older models under pressure from the RBA, Treasury and others. These spending cuts from the current federal government is behind the latest stuff up from the ABS.
ABS data is critical for public servants, who need accurate data on which to develop policy and advise on implementation. The private sector is also heavily dependent on accurate ABS data — key data like jobs, CPI and retail sales can move markets and drive the dollar up or down and sway key investment decisions. At the moment, we can’t be sure that what we’re hearing about jobs is as accurate as we need it to be.