1.1 Impact of COVID-19 on the Australian labour market

Employment and unemployment

While COVID-19 has had a significant negative impact on the Australian labour market, there are now definitive signs of improvement.

Against the backdrop of the shutdown of non-essential services and trading restrictions, employment initially contracted sharply – by 871,600 (or 6.7%) between March 2020 (when Australia recorded its 100th COVID-19 case) and the trough in the labour market in May 2020.

Part-time employment accounted for 61.2% of the decline in employment between March and May, falling by 533,700 (or 12.9%), while full-time employment decreased by 337,900 (or 3.8%) over the period.

However, reflecting the significant decline in coronavirus cases and the subsequent easing in restrictions, employment has rebounded strongly, by 648,500 (or 5.3%) since May, to stand at 12,773,900 in October 2020, although it remains 223,100 (or 1.7%) below the level recorded in March.

Encouragingly, employment surged by 178,800 in October, with Victoria accounting for almost half (81,600) of the increase, as COVID-19 was brought under control and restrictions in the state began to ease.

Since May, part-time employment has recovered strongly (up by 538,200 or 15.0%) and is now 4,600 (or 0.1%) above the level recorded in March 2020. Over the same period, full-time employment rose by a more modest 110,200 (or 1.3%) but remains 227,700 (or 2.6%) below the level recorded in March 2020. It is worth noting that full-time employment rose by 97,000 (or 1.1%) in October, the largest monthly increase on record.

While trading restrictions, as well as school closures, had a negative impact on employment, they also resulted in 665,100 people leaving the labour force between March and May, pushing the participation rate down by 3.3 percentage points, to 62.7% in May 2020. So, while the unemployment rate rose from 5.2% in March 2020, to 7.1% in May 2020, the significant decline in employment did not translate into a similar increase in unemployment, due to the large number of people who left the labour force over the period.

Table 1: Labour market indicators, October 2020

  October Change between March and May 2020 Change between May and October 2020 Change between March and October 2020
    (‘000) (%) (‘000) (%) (‘000) (%)
Employment (‘000) 12,773.9 -871.6 -6.7 648.5 5.3 -223.1 -1.7
Full-time employment (‘000) 8,643.7 -337.9 -3.8 110.2 1.3 -227.7 -2.6
Part-time employment (‘000) 4,130.2 -533.7 12.9 538.2 15.0 4.6 0.1
Unemployment (‘000) 960.9 206.5 28.9 38.5 4.2 245.1 34.2
Unemployment rate (%) 7.0 - 1.8 pts - -0.1pts - 1.8 pts
Participation rate (%) 65.8 - -3.3 pts - 3.2 pts - -0.1 pts
Underemployment rate (%) 10.4 - 4.3 pts - -2.7 pts - 1.6 pts

Source: ABS, Labour Force, Australia, October 2020 seasonally adjusted data.

Note that changes in the table are calculated from more detailed data and may not match changes calculated manually from the figures

Since May the labour force has risen by 687,000, which has pushed the participation rate up by 3.2 percentage points (to 65.8% in October), with fewer COVID-19 cases and eased restrictions lifting confidence and encouraging people to enter the labour force in search of work. The increase in labour force participation, together with only a partial recovery in employment, means the unemployment rate has fallen by just 0.1 percentage point since May, to 7.0% in October 2020.

In summary, while labour market conditions in Australia have improved significantly since May 2020, most key labour market indicators have not returned to their pre-COVID-19 levels. In particular, employment remains 223,100 (or 1.7%) below the level recorded in March 2020, with full-time employment 227,700 (or 2.6%) lower over the period, while the unemployment rate remains 1.8 percentage points above the 5.2% recorded in March. Moreover, 960,900 Australians remain unemployed, 245,100 (or 34.2%) more than there were prior to the onset of the pandemic in March.

Hours Worked

Given that businesses often reduce the hours of their workers as an early response to a labour market shock, it is not surprising that the number of monthly hours worked in all jobs declined significantly, by 185.5 million hours (or 10.4%) between March and May 2020 (see Figure 2).

As COVID-19 cases have abated and restrictions eased, however, monthly hours worked have recovered somewhat, increasing by 117.6 million hours (or 7.4%) between May and October 2020 to 1,711.0 million hours. However, monthly hours worked remain 3.8% below the pre-COVID-19 level. The number of people who worked zero hours due to economic reasons (defined as people who were either stood down, had insufficient work or no work available) rose from 76,500 in March 2020, to a peak of 766,900 in April 2020, but has since declined to 133,800 in October 2020.

Underemployment

In line with the significant reduction in hours worked, the level of underemployment increased by 500,400 (or 41.4%) between March and May. Since May, however, underemployment has fallen by 283,100 (or 16.6%), to 1,424,800 in October, although it remains well above the 1,207,500 recorded in March.

Similarly, the underemployment rate increased significantly at the onset of COVID-19, rising from 8.8% in March to a record high of 13.8% in April. While the underemployment rate has since declined to 10.4% in October, it is still 1.6 percentage points above the rate recorded in March.

The increase in underemployment between March and October was entirely due to an increase in the number of underemployed full-time workers who worked part-time hours for economic reasons1 (up by 177,900, or 160.5%, to 288,700). The number of underemployed part-time workers actually contracted by 2,900 (or 0.3%) over the period, to 1,067,800 in October.

Reflecting the impact of COVID-19 on hours worked, the share of total underemployment accounted for by underemployed full‑time workers rose from 9.4% in March, to a peak of 42.9% in May, before declining to 21.3% in October.

Prior to April, underemployed part-time workers had routinely comprised at least 90% of total underemployment each month since monthly underemployment data became available in July 2014.

1 Henceforth referred to as ‘underemployed full-time workers’.