Thursday, September 12, 2013

On A Per Capita Basis, Australia Is In A Recession

Employment in Australia fell in August compared to July, but was still up by 0.9% compared to August 2012.

Despite the increase in employment, the unemployment rate still rose from 5.1% to 5.8% during the latest year. This does not reflect a rising participation rate. The participation rate has in fact fallen during the same period.

Instead, the explanation is that Australia's population is growing by nearly 2% per year. When the population is growing that fast , 0.9% employment growth is too low to prevent unemployment from rising.

Similarly, an increase in real net disposable national income of 0.7% is too low to prevent average income from falling. One might say that on a per capita basis Australia is in a recession.

Which is why Matthew Yglesias' assertion that Kevin Rudd lost the election despite Australia avoiding a recession, and that Australia's economy is "recession proof" is misleading. With people's standard of living in Australia in decline, most Australians will perceive it as a recession even though the high population growth rate makes formally avoid recession.


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