Why business does not believe unemployment statistics

EDITORIAL - The disjoint between what Australian business people witness daily in operating environments and what is presented in upbeat government economic figures has its roots in statistical changes made during the Howard Government era.

Business should not have to grind away at official statistics to verify the facts.

That has been highlighted in the recent website re-posting of an unpublished letter to the Australian Financial Review in 2003 from Roy Morgan Research.

Titled 'It's Time' for a Realistic Measure of Unemployment in Australia, the letter by Roy Morgan Research executive chairman, Gary Morgan, responds to articles questioning changes to the way unemployment statistics were created at the time.

It is now clear that the anomalies raised in this letter have morphed even further towards a rose-coloured glasses approach to unemployment and underemployment measures by successive Australian governments, including the current Federal Labor Government.

It also explains why an exchange on a recent edition of ABC Television's Q&A program, in which Liberal National Party Senator Barnaby Joyce was taken to task by a Labor Government panellist for questioning the Australian Bureau of Statistics' unemployment figures, suddenly petered out.

It is astonishing that such a myth of 'low 5.5 percent' unemployment in Australia is being perpetuated when the country is facing the sorts of economic challenges that demand a clear picture.

The fact is, both sides of politics know the figures do not reflect the reality of unemployment in Australia today.

But who in politics would be brave enough to step up and say so?

Small and medium business people deal with the real numbers every day. It is no wonder they are becoming increasingly cynical of messaging coming from the Federal Government when there is a clear example in these 'enviable' unemployment statistics that the books are still being cooked.

In fact, today they are being cooked in a reflection of the distractive 'reality TV' era of Masterchef and My Kitchen Rules.

Small and medium business is where effective employment growth will come from. That is a present-day as well as historical fact.

The sort of change and initiatives within the economy that SMEs need to do that will not emerge while political decisions are mis-directed because of misleading numbers.

-Mike Sullivan, Managing Editor, January 2013.

Here is the text of the 2003 letter, as presented on the Roy Morgan Research website:

Roy Morgan 'Paper No. 20030801 - Letter to the Editor, Australian Financial Review.: August 22, 2003'

Peter Saunders' commentary on unemployment figures (1) addressed only part of the problem with the official unemployment statistics.

By re-classifying some unemployed people as permanently disabled (or by inventing a Youth Allowance that disguises youth unemployment figures), the official statistics hide a huge number of people who would actually like to be employed.

But re-classification of people on welfare benefits is only part of the masking problem.

Hugh Morgan's weekend essay correctly pointed out that "the monthly unemployment statistics…understate the numbers of people who are seeking more work, or would like to get a job but did not fit the official definition of unemployed"(2).

The Australian Bureau of Statistics Unemployment Estimate classifies an unemployed person as part of the labour force only if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week and if they were available for work in the reference week.

That instantly cuts out those who have become disenchanted with the process of looking for a job and so are not regularly seeking employment — not because they don't want a job but because they have given up hope of finding one.

It is obvious that these people must be included in the unemployed if Australia is to have an accurate picture of the true state of unemployment.

As pointed out in Michele Levine's article in September's New Investor (3), these unemployed people are included in the Roy Morgan Unemployment Estimate.

By asking respondents who are not employed if they are actually looking for a paid job (regardless of whether they've looked in the last four weeks), the Roy Morgan Unemployment Estimate (4) obtains a more accurate number than the official ABS figure.

This was pointed out by Dr Peter Brain, Executive Director of the National Institute of Economic and Industry Research, after the Institute released a report on unemployment in Australia's regions in 2001 (5).

"Underemployment" is another issue that also needs to be measured properly. The ABS Estimate does not take into account people who have been employed for a small amount of part-time work but would like to work additional hours.

The Australian Council of Social Service (ACOSS) and other commentators have estimated that by taking into account "hidden" and "underemployment" the real level of joblessness is approximately double that given by the official data (6).

Even the ABS's Labour and Statistics Branch acknowledged in 2001 that the official unemployment rate alone may provide a misleading picture (7).

Unfortunately, no Government will change the way unemployment is measured if the "number" is higher.

But until the Government is honest with the electorate, the problem of joblessness will not receive the attention that it deserves.

The unemployment measurement issue is too important to ignore for the sake of political expediency.

Mr Tony Abbott, Minister for Employment and Workplace Relations, knows the ABS unemployment figure is deceptively low. He must show leadership by correcting an ongoing error.

- Gary C. Morgan, Executive Chairman, Roy Morgan Research.


1. Saunders, P. (2003) 'Lies and Statistics - It is easy to fudge a low employment rate (PDF 48kb)', AFR, August 16-17, p. 71.

2. Morgan, H. (2003) 'Unlocking jobs is key to sustaining growth (PDF 111kb)', AFR, August 16-17, p. 70.

3 Levine, M. (2003) 'A delicate balance - national security and domestic issues (PDF 495kb)', New Investor, September pp. 14-15.

4 Roy Morgan Research (2003) Unemployment still low despite slight rise to 8.0%, July 2003. Retrieved August 21, 2003 from /news/polls/2003/3654/ .

5 Milburn, C. (2001) 'Is unemployment at 10%? (PDF 473kb)', Age, June 13, p.13.

6 ACOSS Paper 325: Overcoming joblessness in Australia: 12 Budget priorities, February 2003. Retrieved August 21, 2003 from 7 Long, S. (2001) 'Hidden jobless could bring Howard down (PDF 411kb)', AFR, June 15.





The unspoken concern: Australia's business IP still being liquidated or lost ...

EDITORIAL: THE biggest problem business people have with the rhetoric of all sides of politics is that it is mostly missing the point. Image

Here are three interrelated concerns that are rarely spoken of: Formerly successful businesses are failing or being liquidated in record numbers and this has been increasing since 2008; financial recoveries by creditors of those businesses that have failed are at all-time lows and the receivers and administrators of those businesses are struggling to even recover their own (astounding, by the way) fees; the digital revolution has changed business fundamentals and navigating ‘the new normal' is an enormous challenge for business owners and leaders.

While political leaders and certain big business leaders back-slap themselves to varying degrees in being able to ‘recover' the economy through various plans and programs, the old adage of needing to know where you are before you decide where you are going rings truer than ever for Australia.

In this current political and economic environment, it is both vital and unlikely.

Everyone seems to agree that the engine of job creation is small-to-medium enterprises (SMEs) - a disparate, versatile, energetic, obedient, innovative, economically patriotic, hard to communicate with and invariably struggling band of about 2.05 million organisations, according to the Australian Bureau of Statistics (ABS) in 2010.

According to the ABS, more than 70 percent of all employment in Australia was attributable to SMEs in 2009-10. In terms of business numbers, more than 95 percent of businesses were classified as ‘small' or ‘micro' - up to 19 staff - and another 4 percent were classified as ‘medium' which is defined by the ABS as 20-199 employees.

Put another way, only 1 percent of businesses in Australia are ‘large'. Yet this remains the sector we hear most about and governments interrelate most with.

Experience in Australia supports research utilised in the US by the Obama administration, while grappling with the Great Recession in 2008-09, which showed clearly that start-ups and early-stage businesses created new jobs at an overall rate embarrassing, and largely impossible, for big business.

In fact, in times like these, recent research shows big business is more likely to shed jobs than maintain them, let alone create them. A simple example is the propensity for Australia's Big Four banks to ‘offshore' and ‘downsize' jobs in favour of new technologies, while enjoying successive years of record profits.

Established organisations reach a point at which net job losses come regularly - and especially in times of recession - in the name of efficiency and as new labour-saving technologies are utilised. Checkout operators in Coles supermarkets and Bunnings warehouses are currently making way for self-service machines.

But research by the Kauffman Foundation in the US is clear: Over the past 20 years, most growth in the US has come from SMEs in their first five years of operation. Real net job growth comes consistently from start-up businesses, no matter what condition the economy is in.

Family businesses are singled out in Australian research for their ability to provide generational employment, flexibility and stability to employees and, hence, economies.

These types of SME organisations, upon which so much faith is being placed for economic recovery, are those ranked most risky by the banks and the investment sector in general. SMEs, even with decades of profitable history behind them, have since 2008 borne the brunt of capital top-up requests, capital value write-downs and punishing interest levels from their banks - and the other financial institutions they may have been forced to turn to, such as the debtor finance groups.

Contradictory notions to all this include the often touted Australian ‘world's-envy' unemployment statistics and the regular aside by Federal Labor politicians that the numbers show Australians have never had it so good ("really").

These things seem to be in direct contradiction to the apparent carnage in the SME sector. The most visible sign of that continues to be the proud ranks of For Lease and For Sale signs fronting commercial and industrial property throughout most Australian cities and towns.

Politicians and public servants, of course, will always use the numbers that work best for their point of view. Unfortunately, many of those numbers are coming out of reputable sources and are regarded as beyond question. The trouble is, they do not accord with the experiences of the majority of business people (or the unemployed/underemployed). So they are not helpful.

A simple example is the ABS unemployment statistics that qualify the starting point for ‘employed' as a person enjoying more than two hours pay for work in a fortnight. These numbers are determined by surveys, not Centrelink (or the old CES) registry statistics as in the past. Unemployment comparisons with times prior to 2005 are irrelevant as these were calculated using different methodology.

(The closest figures available to make such comparisons are those produced by Roy Morgan Research, which has had the same methodology since 1948. Roy Morgan currently asserts that the unemployment rate is 10-11 percent and the underemployment figure is closer to 20 percent. Roy Morgan Research also qualified this by saying large numbers of long-term unemployed people, over the past three years have dropped off the radar and have ‘given up' seeking work. These numbers seem reasonable to business people as they concur with what they are seeing every day.)

Where does the Federal Government - whomever that is post-September 7 - start to reinvigorate the sector? First it must figure out what state the SME sector is in.

That is difficult, seeing as it has so few touch points that provide genuine information. Its most likely touch point, the Australian Taxation Office (ATO), may even be part of the problem.

This was alluded to during the election campaign by Shadow Federal Treasurer, Joe Hockey, who said the ATO should stop treating business people as "the enemy" rather than as clients. In fact, business acts in as an information partner and ‘paying client' of the ATO, even though it is donating its resources to collecting revenue for the ATO. 

This is at a time when ATO figures show there were just 493 wind-ups in 2009-10, when it was taking it easy on GFC-affected businesses, but that figure shot to 1,066 in 2010-11. In the 2012 Financial Year it rose to 1555 wind-ups initiated by the ATO. There is no figure published of liquidations in which the ATO was a party.

It is difficult and a little frightening to translate that growing figure into actual jobs lost, even taking a median figure. In the case of SMEs, the loss of a business, no matter what the circumstances, also usually means the owners have lost homes and retirement nest-eggs as well, given the way banks and even equipment finance companies insist upon bonding business loans to personal assets. That is something big end of town directors also rarely have to deal with.

It begs the question, how high have the hurdles now been set for starting a business in Australia? Has the engine for job creation in this country got any fuel in the tank? How much easier is it, really, for innovative Australian tech start-ups to head for Silicon Valley, where there is money and legal protection, rather than slogging it out at home?

So, what point is the Australia's real economy starting from? What is the Australian SME landscape ("really")?

When the SME sector does recover, in this new digital economy, will they need to re-occupy and re-purchase that commercial and industrial space that is today dormant, for instance? Unlikely.

One thing is for sure - the government doesn't know. It had better find out, before it starts making plans.

-Mike Sullivan, Managing Editor, September 2013.




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