Does Working 1 Hour a Week Equal Employment?

Plant in hands of people.

Unexpected strong jobs growth has lowered our unemployment rate to 5.9%.

The market liked the news. The Aussie dollar rallied. And talk of further cuts to interest rates has been stifled.

The unexpected good news on the employment front means the Australian economy is showing signs of strength.

According to The Australian:

Australias official unemployment rate dropped to 5.9 per cent in October as employment surged, beating economistsexpectations by a wide margin.

The ABC was equally has enthusiastic (emphasis is mine):

Australia’s unemployment rate has dived to 5.9 per cent driven by a surprisingly strong growth in new jobs. The October figure is the lowest rate of unemployment since April 2014 and down 0.3 per cent on the September. In seasonally adjusted terms the number of jobs increased by 58,600, a substantial increase on the market forecast of 15,000. Full-time employment increased by 40,000, while part time jobs were up 18,600.

Go out on the street and ask anyone, who looks like they care, how many jobs were created last month. I guarantee you the answer will come back 58,600 (assuming they’ve botherered to read the newspapers or listen to news).

The reality is there wasn’t 58,6000 new jobs created. In fact, no one actually knows how many real jobs, if any, were created.

Those two words — seasonally adjusted — completely distort the statistics (which in themselves are hardly reliable — more on that shortly).

Seasonal adjustments are meant to smooth out the numbers. Workforce numbers are subject to fluctuations such as before, during and after holiday periods. School leavers entering the workforce and a surge in part-time employment to cope with the Christmas rush is one example.

A seasonal adjustment — based on historical data — is really a plus and minus exercise in guesswork.

If we take out the seasonal adjustments, then we look at the raw data — actual jobs created without the pluses and minuses.

How is that data obtained?

Here’s an extract from The Daily Reckoning article I wrote in October 2014 (after the Australian Bureau of Statistics (ABS) conceded they had a minor problem with the calculation of the unemployment number). It begins with the ABS’s key points on how unemployment figures are guesstimated:


  • The ABS uses internationally agreed standards in defining unemployment and the key indicators have been measured in a consistent way since 1966.
  • To be classified as unemployed a person needs to meet the following three criteria:
    • not working more than one hour in the reference week;
    • actively looking for work in previous four weeks; and
    • be available to start work in the reference week.
  • The ABS produces a range of measures, in addition to the unemployment rate, to help users understand the extent of underutilised labour supply, such as underemployment.


Firstly, the ABS uses internationally agreed standards. Agreed by whom? Other governments is the short answer. Politicians the world over have been cooking the unemployment numbers for years. So they sat down and had a little pow wow to decide whats in and whats out. Presto, we have internationally agreed standards.

Secondly, you are counted as employed if you worked ‘more than one hourin the week the ABS give you a call. Wait till you hear the ABSs justification for this definition of employment:

“While a one hour cut-off point could be argued to be insufficient to sustain a family or person financially, there are several reasons for including everyone who works at least one hour a week as employed.

From an economic perspective, any time in paid work, no matter how small, contributes to economic production and is therefore included in the national accounts. Fundamentally, labour force statistics are economic indicators and need to be coherent with other economic measures.

Socially, it is recognised that employment is associated with improved psychological and social well-being. It is therefore important to distinguish between those who have any work (even if a small number of hours) and those who do not.”

Improved psychological and social well-being from working one hour a week. Really? Heres a test, how about we reduce the ABS staff to one hour a week and then measure their social well being. To make them feel better we can also reassure them they are making a valued contribution to our nations economic production.

Thirdly you need to have been actively looking for work in the past four weeks. What if you were sick, a family member needed care or you are suffering depression because you couldnt find work? Technically you are not unemployed.

Finally, you have to be available to start work that week. Again what if you are unwell etc.? Then for statistical purposes you are not unemployed.

Selected households participate in the ABS survey over an eight month period. Each month, one-eighth of the data is replaced with the new months information.

After the ABS conduct their ring around they feed the data into the following flow chart and we have our official unemployment figure…seasonally adjusted of course.

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Do you still think there were 58,600 genuine jobs created last month?

Roy Morgan Research conducts its own monthly estimate of how many Australians are unemployed.

The process Roy Morgan Research uses differs from the ABS (emphasis is mine):

The Roy Morgan Unemployment estimate is obtained by surveying an Australia-wide cross section by face-to-face interviews. A person is classified as unemployed if they are looking for work, no matter when. The results are not seasonally adjusted and provide an accurate measure of monthly unemployment estimates in Australia.

Not surprisingly Roy Morgan Research (who aren’t employed by the Government to produce political acceptable numbers) paint a slightly different un- and under-employment picture.


or ‘Under employed’

Unemployed Looking for ‘Under-employed’*
Full-time Part-time
Oct. 15 2,198 17.4 1,110 8.8 464 646 1,088 8.6


According to the Roy Morgan survey, there are 17.4% of Australians who are un- and under-employed.

The ABS numbers are deeply flawed. Their data doesn’t pass the ‘sniff’ test.

But the ABS is just playing follow the US leader. The US are masters at doctoring data.

I often refer to them as ‘Michael Jackson’ statistics — on face value they bear little resemblance to reality.

Shadowstats offer an independent assessment of the un- and under– employment in the US.

Again, there’s no surprise Shadowstats data differs to the official numbers.

The red line is the official number. The light grey line is the official number on un- and under– employment. The blue line is the Shadowstats number based on how the number used to be calculated before the politicians started to heavily massage the numbers in 1994.

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While the official US numbers — like in Australia — show an improvement, the real employment situation is far worse than we are led to believe.

The statisticians can fool some of the people, but not all of them. If people don’t have genuine jobs or enough hours of employment, they won’t spend money or go into debt (unless it is to pay for essentials).

This is why the economic data (that also has a thick coating of lipstick and make-up on) looks so weak.

Which is why we see negative interest rates in Europe. Which is why we see Japan still going full tilt with its wacky print-and-be-damned policy. Which is why we see such wailing and gnashing of teeth over a 0.25% interest rate rise in the US. Which is why Australia’s GDP growth rate slumped to 2%. Which is why we are seeing mining companies scrambling to find creative ways to pay down their debts.

Next time you hear ‘good news’ on the unemployment front, think a little deeper than the headline.

And here’s a final thought for the weekend…

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Vern Gowdie

Editor, The Daily Reckoning

Vern Gowdie

Vern Gowdie

Vern Gowdie has been involved in financial planning in Australia since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top 5 financial planning firms in Australia. He is a feature contributing editor to The Daily Reckoning and is Founder and Chairman of the Gowdie Family Wealth advisory service and editor of the Gowdie Letter To follow Vern's financial world view more closely you can you can subscribe to The Daily Reckoning for free here.

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