Australia’s headline economic numbers do not reflect the economic and social hardship of many Australians currently enduring lockdowns.
The thousands of Australians who have had their jobs and businesses destroyed by lockdowns will find little solace in the fact that GDP growth in the June quarter has staved off a second recession in two years, and that the official unemployment rate sits at 4.6% – the lowest rate recorded in more than a decade.
GDP growth of 0.7% for the June quarter, shown by the National Accounts data released on Wednesday by the ABS, means that Australia will avoid another recession. A slight decline in the June quarter combined with the widely anticipated decline in the current quarter would have constituted two consecutive quarters of negative GDP growth – the technical definition of a recession.
While not entirely useless, GDP is a highly aggregated and abstract number with many assumptions, limitations, and conceptual issues that divorce it from the economic experience of many Australians. Despite its shortcomings, much is made of trivial changes in growth rates from quarter to quarter. Had the ABS spreadsheet formula given a slight decline instead of the modest 0.7% increase we would be hearing about a second recession in two years, but there would be no discernible difference in the economy.
In fact, the only reason Australia broke its 29 year record without a recession last year was due to an unfortunately timed 0.3% GDP decline in the first quarter of 2020. Had the global impacts of COVID-19 been delayed a few weeks it is possible Australia would have only had a decline to GDP in the second quarter of 2020 and avoided a technical recession.
In July this year millions of people in NSW were locked inside and prevented from going about their daily lives. Millions more in other states were subject to various levels of restrictions that negatively impacted their ability to work. But that didn’t stop the unemployment rate for the month of July falling to a historically low 4.6% – a sign that “the economy has an amazing resilience and the fundamentals are strong” according to Treasure Josh Frydenberg.
A look under the surface of the employment data reveals the impact lockdowns are having on the ability of Australians to work and provide for their families. While the number of unemployed Australians fell by nearly 62,000 between May and July, this number was swamped by the more than 300,000 increase in people classified as employed but who were working zero hours for economic or other reasons.
While these individuals may maintain a connection to an employer, they are effectively without work and are not earning a wage. The number of workers working zero hours in these categories has increased substantially at the beginning of each lockdown. If these individuals were to be included in the unemployment rate it would be 7.3% for July and likely increasing in August as Victoria entered its 6th lockdown.
The full extent of the damage from ongoing lockdowns in NSW and Victoria is yet to be revealed, but history shows lockdowns harm certain segments of the population while leaving others relatively unscathed.
Lockdowns have disproportionately affected the young rather than the well established, private sector workers rather than those paid by the public purse, small business owners and workers rather than those working in big business, lower income earners rather than those more well off, and those who go to a worksite to directly produce goods rather than the privileged members of the stay-at-home laptop class.
Between March and May last year, during the nation’s first lockdown, employment fell 17% for those aged 15 to 24 while only falling 4% for those over 35. Between August 2019 and August 2020, over half a million low-income jobs were on net lost (from the bottom 20% of the income spectrum) while 50,000 high-income jobs were on net gained (from the top 20%). In the first three weeks of the Greater Sydney lockdown beginning on 26 June this year, jobs in small businesses (with less than 20 employees) declined by over 420,000 while jobs in large businesses (with more than 200 employees) increased by 13,300.
These disparities are not reflected in the GDP and employment aggregates that receive inordinate attention. As a result, the real economic and social hardship of many Australians is ignored by the political class who are disconnected from their suffering. The political class looks to the modest GDP growth and concludes that the economy is on the right track, and to the low unemployment rate and concludes that Australians have never found it easier to find work.
The political class is managing what it measures without questioning the validity of what they are measuring. The use of inappropriate measures has driven the response to COVID-19 over the last 18 months. For example, the obsession over case numbers over actual hospitalisations and fatalities has misrepresented the risk of COVID-19 and driven one of the most severe lockdown regimes in the world.
The over reliance on aggregate statistics hides the real experience of many Australians and ignores what really matters to them. The Australians suffering under lockdowns are unlikely to be impressed by those celebrating abstract GDP numbers as evidence of an economic and social recovery.
Kurt Wallace is a research fellow at the Institute of Public Affairs.