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Australia's Lower Jobless Rate is Masking Record Underemployment

Kick to economic growth from hiring has been weaker than usual

The strength of Australia's jobs market is being overstated by a surge in casual positions and an inability by workers to secure more hours.

While the unemployment rate fell to 5.7 percent in July from 6.3 percent a year earlier, 87 percent of the jobs created in that period were part-time: a definition that covers anything from 1 hour a week to 35 hours. At the same time, the underemployment rate is stuck near a record high of 8.5 percent.

The changing labor market reflects more jobs generated in services industries -- which rely less on full-time employees -- amid the waning of a mining-investment boom. The resulting lift in part-time jobs, along with a rise in underemployment, has seen a sharp slowdown in wage growth. The flow-on effect: weak inflation that spurred the Reserve Bank of Australia to cut rates to a record-low 1.5 percent last month.

``The kick to economic growth from the lift in headline employment has been weaker than usual'' because of the prevalence of part-time jobs, said Gareth Aird, a senior economist at Commonwealth Bank of Australia. ``We think that inflation will continue to dominate the bank’s near-term decisions and we think that more policy easing is coming.''

Only a ``material lift'' in business investment will herald a renewal of full-time jobs growth, according to Aird, who sees little prospect of a turnaround in the short term. A boost in public investment will help at the margins, but is unlikely to be large enough to see a fundamental shift, he said. Second-quarter capital expenditure data is released in Sydney Thursday.

The central bank, in its quarterly update of growth and inflation forecasts last month, noted that underemployment remained elevated and the share of workers wanting to work more hours had failed to decline.

Another key measure used for the labor market is the underutilization rate, which is the sum of underemployment and unemployment. It currently sits above the level hit during the global financial crisis and is a block to fatter pay packets.

``Wages growth is unlikely to lift until the unemployment rate gets closer to the non-accelerating inflation rate of unemployment'' of about 5.25 percent, Aird said. ``Or to put it more generally, spare capacity in the labor market needs to be gobbled up for wages growth to increase. We are some way off that.''