The real unemployment rate is a disaster waiting to happen

Two or three years ago, it seemed reasonable to be optimistic about unemployment. Around the world, the plague of mass unemployment, like that of the Albert Camus novel La Peste, seemed to be disappearing as mysteriously as it had arrived.

Unemployment rates were below five per cent in the United States and a number of European countries. Rates were falling in the core European countries like Germany and France, where recovery from the slump following German reunification had been painfully slow. Even in Australia, where nothing serious had been done about unemployment since the Labor government scaled down Working Nation in 1995, a rate of five per cent seemed within reach.

There were to be sure, some negative signs. Many of the 'success stories' turned out to have their dark sides. In the Netherlands, for example, unemployment rates had fallen to around 3 per cent, but as much as 10 per cent of the working-age population was receiving disability benefits. In the United States, around 2 million of the least-employable members of the population were in prison. Nevertheless, both overt unemployment and many forms of disguised unemployment were falling in most countries.

Three years later, there is much less cause for optimism. The poor performance of the US labour market has undermined claims that reform and flexibility provide the route to full employment. The official unemployment rate has risen to nearly six per cent, and there has been rapid growth in disguised forms of unemployment such as disability benefits. The increase over the 1990s is equivalent to around four per cent of the workforce, suggesting that the true rate of unemployment in the US is at least 10 per cent, and probably higher for men. Meanwhile, the decline in European unemployment has stalled, with rates stuck around 8 per cent.

Taking both official unemployment and disability support into account, Australia's current performance on unemployment is best described as 'mediocre to poor'. Official rates of six per cent unemployment, bad as they are, do not tell the whole story. Around 300 000 Australian men of working age are currently receiving disability or sickness benefits. This is about six per cent of the working-age population, compared to less than two per cent the late 1960s.

Since health has generally improved over that time, it is reasonable to treat the entire increase as disguised unemployment, reflecting the fact that, particularly for men over 40, even a mild disability is sufficient to render one unemployable. Rather than take any action to remedy this situation, the government has confined its efforts to harassment of the victims, whom it is trying to force onto unemployment benefits with the associated breaching regimes and the spurious system of 'mutual obligation'. The obligation would really be mutual only if the government took responsibility for its failure to generate any real growth in full-time jobs.

Adding the 300 000 extra disability beneficiaries to the official count of 370 000 unemployed, we get an unemployment rate of around 12 per cent for males. And this does not count those who have taken advantage of early access to the age pension, or have no income at all.

An even more disturbing way to look at the problem is to observe that only 70 per cent of males aged between 20 and 64 now hold full-time jobs. In the 1960s, the figure was close to 100 per cent. A little of the decline can be attributed to university students and voluntary early retirement. But as much as 20 per cent of the male working-age population is unemployed or underemployed. Because of the more complex life choices they face, the unemployment situation for women is harder to assess, but it does not seem to be much better.

Taking all the evidence into account it seems reasonable to conclude that unemployment in Australia is worse than at any time since World War II, except for the trough of 'the recession we had to have'. This dismal outcome has been recorded at a time when our economic performance is routinely touted as 'miraculous' and 'worldbeating'.

But miracles do not last forever. Sooner or later the current housing-driven boom will end, with a whimper if we are lucky and a bang if we are not. Having wasted the last 10 relatively benign years, our political leaders will bear the full responsibility for the inevitable upward ratchet in the unemployment rate in the next economic downturn.