Melboure. It's a town of services, not manufacturing

MELBOURNE'S future is here. In the past decade, new professional services firms have mushroomed in inner Melbourne, becoming the state's strongest source of growth in private sector jobs, a conference on Victoria's future has been told.

The Victoria at the Crossroads conference, co-sponsored by The Age, heard that new firms in Victoria's two fastest-growing industries finance, and professional and scientific services are overwhelmingly choosing to set up in the CBD and inner suburbs, in the buzz of the city.

By contrast, new workplaces in transport, warehouses and wholesale trade are springing up in outer western and northern suburbs, along the Western Ring Road, Professor Bruce Rasmussen of Victoria University said.

These clusters of emerging industries hold the key to Victoria's future producing food, services and tourism, and education opportunities for the booming economies of Asia conference speakers agreed.

The secretary of the Department of Business and Innovation, Howard Ronaldson, said new infrastructure such as a Melbourne metro and the east-west link "is arguably the biggest single factor that will make us more productive".

Mr Ronaldson said most big cities now have metro systems, freeing up inner-city road space for commercial vehicles. Melbourne should do the same, he said: "It's a fair bet that most of the high-value-added jobs will be generated in and around the CBD. One of the big demographic shifts recently has been that close to half of all Melburnians live in the suburb they work in, or close to it."

The conference was convened by Victoria University, the Committee for Melbourne and The Age after the high dollar and high interest bills sent Victoria's economy sliding on a wide range of indicators: jobs, investment, retail and housing.

It ended, however, with a consensus that while the high dollar had created real problems for the state in the medium term, its long-term future looked good after a decade of strong growth in knowledge-intensive industries.

"When the Chinese no longer pay as much for iron ore and coal, what will we sell to the Chinese and other middle-class consumers to our north?" asked economist Saul Eslake, of Merrill Lynch. "The answer is likely to be: agricultural commodities, and commercial and personal services. Victoria is better placed than many other states to cater for the likely sources of export demand in the next 20 years."

Also at the conference, Prime Minister Julia Gillard lashed out at the Baillieu government's $300 million cut to TAFEs, using a speech on the Victorian economy to call it "crazy" and a threat to the state's competitiveness.

Ms Gillard also rejected suggestions from business and commentators that industrial relations reform was a "magic bullet" for boosting productivity, instead nominating strong education and training as a far more powerful avenue.

But Ms Gillard did not address demands for more Commonwealth infrastructure spending in Victoria, including calls from state Treasurer Kim Wells to bring money to the table for the east-west road tunnel project.

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Carbon tax a mere hiccup, economically speaking

THE federal opposition's scare campaign against the carbon tax has failed its first test. The Bureau of Statistics reports that seasonally adjusted employment rose by 14,000 in July the month the tax took effect while unemployment fell to 5.2 per cent.

For the government, it was a double bonus after the TD Securities-Melbourne Institute monthly inflation gauge reported on Monday that inflation rose just 0.2 per cent in July, and was flat over the past three months.

While this was only the first test of the carbon tax, if the duo of rising employment and low inflation continues, it could have huge political implications undermining Opposition Leader Tony Abbott's repeated claim that the carbon tax would be "like a wrecking ball through our economy".

Mr Abbott yesterday stuck to his claim, pointing out that jobs rose only half as much in July as they had fallen in June. "Make no mistake, this is a python squeeze on our economy, and as time goes by it will squeeze families' cost of living, it will squeeze employment in this country," he said.

But Treasurer Wayne Swan was quick to claim vindication.

"It is yet more evidence that Tony Abbott's scare campaign on the carbon price and the mining tax is absolute baloney," he said. "Today's figures are the latest proof that he is deliberately misleading Australians and talking our economy down."

With the election not due for another year or more, the real test of the tax's impact on jobs and inflation lies ahead. But if the economy thrives over the coming year despite the tax as most forecasters expect it could become the political "game-changer" Labor is hoping for, discrediting the Coalition and its leader.

The bureau's preferred trend figures, however, paint a bleaker picture, which, if sustained, could give the debate to the Coalition. The trend data, which smooths out the ups and downs of monthly figures, estimates that job growth slowed to just 24,000 over the past three months, down from 42,000 over the previous three.

Forward indicators for employment are sending warning bells. The bureau's measure of job vacancies shrank by 15,000 in the 15 months to May.

Most of that decline was in Victoria, and mostly in white-collar jobs in professional offices, administration and healthcare.

Yesterday the SEEK index reported online job ads down 5 per cent last month and 11 per cent over the past year. The rival ANZ series was slightly less bleak, but it reported that job ads, online and in newspapers, shrank by 1800 last month and by 18,500, or 10 per cent, since February last year.

In trend terms, the bureau estimates that jobs have grown by 74,000 this year, or 10,000 a month. Only a third of the growth has been in full-time jobs. But the adult population is estimated to have grown by 136,000 in that time. Of the other 62,000, in net terms, the bureau estimates just 5000 more are unemployed, whereas 57,000 more have settled on the sidelines, not looking for work.

The jobs figures show Australia is still deeply divided between boom and bust, with Western Australia at one extreme, Tasmania at the other, and Victoria and NSW somewhere in the middle.

Western Australia is way out in front of any other state, adding 50,000 full-time jobs in the past year and cutting trend unemployment to 3.6 per cent. NSW takes the silver medal, but a long way behind, adding 20,000 full-time jobs in the year to July, with unemployment down to 5.1 per cent.

Victoria and Queensland were fighting out for the bronze. In Victoria, the bureau estimates, full-time jobs shrank by 23,000 in the year, but part-time jobs grew by 42,000. The state's unemployment rate was 5.4 per cent last month, down one notch from June.

Queensland, by contrast, added 4000 full-time jobs in the year while losing 10,000 part-time jobs. Its unemployment rate stayed at 5.6 per cent.

South Australia and Tasmania were clearly going backwards. On the bureau's figures, South Australia lost 18,000 full-time jobs in the past year one in 30 with unemployment up to 5.7 per cent. It now has fewer full-time jobs than it had before the GFC. Tasmania is in even worse trouble, losing 6800 full-time jobs in the past year, or more than one in 25.

Most forecasters still expect unemployment to edge up in coming months, if only slightly, with the Reserve Bank likely to deliver another interest rate cut this year.

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Why on earth is Aboriginal employment shrinking?

ABORIGINAL employment rates have slumped in the past five years, despite unprecedented efforts by the public and private sectors to increase indigenous workforce participation.

The Bureau of Statistics estimates that just 46.4 per cent of adult Aborigines and Torres Strait Islanders had a job last year. That was a slight rise from 45.6 per cent in 2010 but well below the peak of 50.4 per cent in 2006.

The figures suggest that despite federal government intervention, numerous programs and private sector initiatives, indigenous participation in the workforce since 2006 has shrunk, not grown.

On these figures, for every 100 people added to the adult Aboriginal population in the past five years, only 22 had a job, while 78 were unemployed or outside the workforce.

Researchers have challenged the bureau's figures, which are complicated by the end of the Community Development Employment Program in remote communities. The program was essentially a work for the dole program, but the bureau counted those working on it as employed.

Australian National University economists Matthew Gray and Boyd Hunter have estimated that when CDEP participants are excluded, the bureau figures show that indigenous employment in non-CDEP jobs has been rising since 2006, especially among women.

But the bureau figures show a decline in employment rates among indigenous people in every state, every age group, and every type of location: big cities, regional areas and remote communities alike.

Even comparing three-year averages, the trends are the same. They suggest that indigenous workers, like other less skilled workers, have been the victims of the rise in unemployment and slowdown in jobs growth in Australia since the financial crisis began in 2008.

The Aboriginal leader Warren Mundine, the chief executive of GenerationOne, said the figures showed that existing policies were off track and should refocus on giving indigenous Australians clear pathways to jobs.

''I'm not surprised, to be honest,'' he said. ''This is why GenerationOne has been campaigning to end funding of training courses unless there's a guaranteed job at the end of them.

''We've got Aborigines out there with more certificates than a Harvard law professor but they don't have jobs. You've got to get people job ready first.

''The GenOne approach is to deal first with their lifestyle issues, health issues, family issues and their education issues, literacy and numeracy - then give them training with a promise of a job at the end.''

Mr Mundine said GenerationOne, a private sector non-profit group founded by the mining billionaire Andrew Forrest, had put 11,000 indigenous people into jobs and had pledges of 62,000 jobs from 330 companies.

''We're dealing with people who can't read and write, can't do maths,'' he said. ''They're not job ready. Quite frankly, a lot of money is being spent, for very little outcome.

''We could resolve the employment problem in a generation but to do that, governments have to focus on the real issues.''

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We're dropping out, keeping unemployment down

AUSTRALIANS are dropping out of the workforce at unprecedented rates. Since the end of 2010, Bureau of Statistics figures show, two-thirds of the growth in the adult population has been among people who are neither employed nor unemployed, just sitting on the sidelines.

New jobs figures yesterday show that in the past 18 months, the adult population grew by 341,000. But on the bureau's preferred trend measure, only 104,000 jobs were created and only 14,000 more people became unemployed.

Rather, 222,000 people joined the sidelines: neither in work nor looking for it. Most are male. Most live in New South Wales, Queensland or Victoria.

Some are older people moving into retirement. Some are students who in better times might have sought a part-time job. But most appear to be people of mainstream working age.

Yesterday's jobs figures delivered a correction after three months of solid jobs growth. In seasonally adjusted terms, the Bureau of Statistics estimates that Australia lost 27,000 jobs in June, wiping out the gains of May.

Most of the jobs lost were in NSW (down 14,600) and Queensland (10,400). But every state except Western Australia lost ground, and seasonally adjusted unemployment rose from 5.1 to 5.2 per cent.

Share prices and the Australian dollar slumped on the news. Financial markets now see an odds-on chance of another interest rate cut in August, with the Reserve Bank moving to stimulate growth.

The bureau's trend figures, which smooth out the zigs and zags in the data, show jobs are still growing, but slowly. In trend terms, jobs have grown by 12,500 a month since March almost all in part-time work with unemployment steady at 5.1 per cent.

The figures show a startling gap between WA and all other states. On the trend figures, unemployment in WA shrank to 3.7 per cent in June, the lowest rate since the start of 2009. But the next best state is NSW, where unemployment is 5 per cent.

Trend unemployment in June was steady at 5.5 per cent in Victoria, 5.4 per cent in Queensland and 7.3 per cent in Tasmania. The slump has been mostly in South Australia, where it climbed from 5.2 to 5.7 per cent in the past four months.

But unemployment in the eastern states would be well over 6 per cent if not for the 222,000 who have quit the workforce.

In NSW, 90 per cent of all growth in the adult population is among people outside the workforce: 76,000 out of 84,000.

In Victoria, roughly half the population growth has been among workforce dropouts. In Queensland and Tasmania, it has been more than 100 per cent.

The bureau also reports a stunning fall in hours worked, which slumped to their lowest level since January. The figures suggest many workplaces are pressing their workers to take leave or reduce hours, rather than reduce staff.

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Good but not that good. The green lights won't last

HOW do we follow up a week like that? For months the economic data here and abroad has been all red and amber lights. Then suddenly we get a wave of green lights, all at once, that seems to clear away the blockages and open up a clear path ahead.

An interest rate cut on Tuesday was followed by the Bureau of Statistics reporting unbelievably strong GDP growth and a sustained rebound in jobs. Then the rest of the world waved us on: China cut its interest rates and announced huge export growth, and European finance ministers agreed to lend Spain up to 100 billion euro($A125 billion) to prevent the collapse of its banks.

If only every week was like that. Then Wayne Swan and the Pollyanna chorus would always be right, confidence would never be short and there would be no point in reading (or writing) columns on economics.

But we know that things are not that simple. We don't usually get waves of green lights sweeping us past every intersection. Good data behind us even if it survives the revisions does not guarantee good times ahead. It's certainly welcome, but while it eases the problems facing Australia and the world in the next 18 months, it does not remove them.

For Australia, the next big test is the introduction of the carbon tax on July 1, along with $2.4 billion of handouts to households in compensation and the school kids bonus. That will be a test of the hyper-emotional, hyper-negative tone that suffocates political debate in these times. Influential forces are trying to derail the tax, and would not mind if they derailed the economy as well.

For Europe, the next big test will be Sunday's Greek election, and the negotiations that will follow, whoever wins, to either rewrite Europe's fiscal austerity pact or remove Greece from the eurozone. At this stage, everyone is taking positions to try to influence the election result. What will happen after it is anyone's guess; the stakes are immense.

Take Australia first. At face value, last week's GDP figures tell us the economy is powering ahead, propelled by robust consumer spending (up 4.2 per cent in a year), quite extraordinary growth in engineering construction (up 53 per cent in that time), strong growth in payrolls (7.4 per cent) and productivity (4 per cent) and booms in sectors from finance to government administration, healthcare, the professions, wholesale trade and agriculture.

Most of that is probably broadly true, if overstated. As I reported on May 11, the Bureau of Statistics has run into technical problems with its jobs data, leading it to overstate jobs growth in 2010 and understate it in 2011 and 2012. Federal and state tax collections confirm that actual job growth has been stronger than the bureau figures show. And that means the economy has also grown more strongly than we thought.

Healthcare and the professions are growth industries. The farmers have had a lot of rain, wholesalers have had a lot of imports. The big banks are shedding staff, but they are also losing market share to smaller banks and non-bank lenders. And migration figures imply that population growth is accelerating.

But there are serious question marks over the two drivers of growth. Growth in consumer spending actually slowed, yet the bureau says that prices have stopped rising, so we've actually hit the pedal to buy more and more. Tell that to High Street.

Even more amazing, it says engineering construction costs are almost flat, despite the mining boom: in the past 3 years they have risen 1.8 per cent (0.5 per cent a year), a sharp change after 24.8 per cent growth in the previous 3 years. Tell that to the Pilbara.

The GDP numbers are likely to be revised down, but to still fairly buoyant levels. The central problem remains: mining is booming while south-eastern Australia is not. In the year to March, spending grew by 10 per cent in the resource states but only 2 per cent in the south-east. The dollar, after three months of welcome falls, has bounced back up to nudge parity with the US dollar. And, like everyone else, our growth depends on what happens in Europe.

The rescue of the Spanish banks buys time for Europe's leaders to negotiate a growth pact, then either exempt Greece from its budget constraints or push it out of the eurozone and risk the fear and uncertainty that would create.

It was a good week for us, and the world, but there are rough times ahead. The best thing is that we are entering this period in stronger shape than we thought. And more than most countries, we are able to make our own fortune.

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The jobs growth figures are wrong - here's why

The official jobs figures published by the Bureau of Statistics have significantly underestimated recent job growth, due to forecasting errors that first overstated, then understated, the growth in the adult population.

The errors, which have serious implications for economic policy, began when the number of foreign students living in Australia fell rapidly after immigration laws were tightened in late 2009.

The unforeseen fall at first led Bureau forecasters to greatly overstate population growth — and When it realised the error, rather than correct it by revising the previous jobs figures the Bureau decided to understate population growth in future forecasts, depressing the labour force figures. These then reported a net loss of 900 jobs in 2011.

On one estimate, once the figures are adjusted for the erroneous forecasts, at least 100,000 of the jobs supposedly created in 2010 in fact arrived in 2011.

The errors are not in the official estimates of population growth, which are issued six months after the period to which they apply. They are in the estimates — in effect, forecasts — of the adult civilian population used in the labour force figures.

Usually the two series move together. But in the year to September 2010, population growth (including children) shrank rapidly, from 433,000 to 325,000, whereas the forecasts for the labour force estimated that adult population growth would remain steady at 394,000.

In the year to September 2011, that suddenly reversed. Actual population growth was little changed at 320,000, but the Bureau slashed the forecasts used in the labour force figures from 394,000 to 224,000.

Since most people interviewed in the labour force survey are employed, the effect of understating population growth was to understate employment growth.

The Bureau defended itself yesterday in an article published with the labour force figures, arguing that its main focus is on getting a correct reading of the unemployment rate and workforce participation rate — which come straight from the survey data.

But its approach seriously misled readers, commentators and ultimately the public, about the size of the slowdown in the jobs market — and hence, the true state of the economy.
One prominent commentator seized on the reported fall in jobs to describe the labour market as being in its worst shape since 1992.

The Australian Statistician, Brian Pink, yesterday stood by the Bureau’s figures. “We do not believe that the employment growth that we have shown has been biased in some way by the method - that’s our view,” he said.

Senior economic officials are aware that the data is flawed, but have refrained from making any public statement, so as not to reduce confidence in the Bureau.

But tax data released with the Victorian and Federal budgets confirm that the jobs markets in 2011-12 has been stronger than the official figures show.

The Bureau estimates that jobs in Victoria fell by almost 20,000 in the first nine months of 2011-12, with 38,000 full-time jobs lost. Yet the state’s payroll tax revenue rose 7.7 per cent in that time, with no fall in jobs.

Tuesday’s Federal budget showed PAYE income tax revenues up 9.7 per cent in 2011-12, faster than the 9.4 per cent growth in 2010-11. While officials believe job growth has weakened in recent months, the tax take is strong evidence that the Bureau’s estimates are wrong.

Westpac senior economist Justin Smirk said the bank’s economics team is uncomfortable with the way the Bureau has tackled its problem.

‘‘It does raise concerns about the accuracy of the data, and we still have questions about the actual employment levels and their growth path’’, he said.

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Melbourne's unemployment rate 6.2 per cent

MELBOURNE and Tasmania are taking the brunt of rising unemployment. Melbourne's raw unemployment rate has shot up from 4.5 per cent to 6.2 per cent in a year.

Bureau of Statistics figures show Melbourne suffered most of the sharp rise in Victoria's unemployment in the year to March. It does not publish seasonally adjusted figures for cities, but if it did, Melbourne's seasonally adjusted unemployment would have risen from 4.1 per cent to 5.8 per cent.

Only Tasmania took a bigger hit. Even using quarterly averages to smooth out the volatile monthly data, its unemployment rate climbed from 6.2 per cent to 7.4 per cent. The National Australia Bank survey found business conditions in Tasmania are by far the worst in the country.

Regional Victoria also took a hit in the past year, but only half as severe as Melbourne. Unemployment rose a bit in Sydney, but no other big city went backwards, and unemployment fell sharply in regional Western Australia, to be just 2.4 per cent in the outback, mining's home.

Australia's economy is likely to get increasingly bipolar over the next year, as federal and state budget cuts and the high dollar hurt the south-east, while the mining states are propelled ahead by the mining boom.

New figures show seasonally adjusted imports shot up 11 per cent in March, almost entirely in oil and machinery. Nearly all the growth in imports in the past year was in WA, where imports almost doubled, whereas imports into Victoria fell.

The NAB's quarterly business survey tells a similar story. Confidence and activity are running high in the west, but spluttering along in most states, and falling fast in Tasmania.

Nationwide, slightly more companies predict good times than bad times for the June quarter with a firmer balance predicting good times over the next year. Trading and profits are expected to improve, though with little growth in jobs.

But NAB points out that companies expected similar gains in the March quarter, yet ended up disappointed. The survey findings suggest that job growth in the next year, as in the past year, will be mostly in WA and Queensland.

Manufacturing is the most depressed sector. Half the mining companies surveyed expect to lift employment in the current quarter, and none plan to cut jobs. But only 10 per cent of manufacturers plan to increase hiring, while 29 per cent are planning job cuts.

Manufacturing plants are working at only 75 per cent of capacity, and 43 per cent of manufacturers say profits are poor.

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In the jobs zig-zag, the zigs are getting bigger

AN UNEXPECTEDLY large rebound in jobs has helped NSW reach a record level of employment in March, and cut the headline unemployment rate below 5 per cent for the first time in a year.
In another sign that the state is moving on from its sluggishness over the past decade, seasonally adjusted employment rose for the third month in a row in March, and has now retraced all its 2011 losses.

Seasonally adjusted employment climbed 19,100, mostly in part-time jobs, but with a net 7800 gain in full-time jobs. Unemployment dived from 5.1 per cent to 4.8 per cent.

The Australian dollar soared almost a cent yesterday, and financial markets became less certain about another interest rate cut after the seasonally adjusted figures nationally traced a spectacular zag to last month's zig, with a gain of 44,000 jobs.

It was the fourth month in a row that the figures followed a zigzag pattern, falling and rebounding. But the rebounds have been bigger than the falls, and in March, seasonally adjusted employment climbed to a record of just under 11.5 million Australians in work.

Unemployment remained at 5.2 per cent, with thousands of people coming off the sidelines to look for work. Over the past year, most of the growth in the adult population has been among people who are neither employed nor unemployed, just not looking for work.

But economists pointed out the zigzag pattern of recent months suggests the figures could give a misleading impression, with no certainty that the rise in March will be sustained.

The Bureau of Statistics points to its trend figures, which smooth out the zigs and zags. They show slow growth in employment, with just 25,000 jobs added in the past six months, enough to employ only a fraction of the 118,500 growth in the working age population.

The rebound in NSW is sustained on the trend measure. Even after taking out zigs and zags, the state has added 25,000 full-time jobs in the past six months. While total employment grew just 6000, unemployment fell from 5.4 per cent to 5 per cent.

Western Australia remains the jobs dynamo, after a year in which the amount spent on mining investment climbed more than the entire growth in gross domestic product. In the past six months, the trend figures estimate Western Australia has added 31,000 jobs, while Victoria has lost 23,500.

NSW has now overtaken Victoria as the best-performing state in the south-east, with the first buds of a housing recovery, new mining investment and exports, and solid consumer spending insulating it from the slump in the rest of the south-east.

The state Treasurer, Mike Baird, gave the figures a cautious welcome. "While the current environment is an ongoing challenge ... it's pleasing to see that total employment rose 19,100," he said. "This puts us second to Western Australia in jobs growth.

"However, significant economic uncertainty remains, and we expect that this will put further pressure on jobs over the coming year."

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Jobs. Bad for Victoria, better elsewhere

VICTORIA'S economic slump has touched a new low, with seasonally adjusted unemployment rising to 5.8 per cent, its highest level for two-and-a-half years, despite a rebound in jobs.
With the state's industries punished by the high dollar, the Bureau of Statistics estimates that in seasonally adjusted terms, Victoria has lost 50,000 full-time jobs in the past year.

Unemployment soared from 4.4 per cent in March, 2011 to 5.8 per cent now. Victoria now has the highest unemployment rate on the mainland; a year ago it was the second lowest behind Western Australia. The high dollar is stripping back its manufacturing, tourism, export and education sectors, while high interest rates have subdued housing activity and consumer spending.

But the pain could get worse, after an unexpectedly large rebound in employment nationally. The Australian dollar soared almost a cent after yesterday's figures came out, as financial markets abandoned their earlier certainty about another interest rate cut.

The seasonally adjusted figures nationally showed a spectacular zag after last month's zig, adding 44,000 jobs. It was the fourth month in a row that the figures have followed a zigzag pattern: falling, rebounding.

But the rebounds have been bigger than the falls, and in March, seasonally adjusted employment climbed to a new record of just under 11.5 million people in work. Unemployment remained at 5.2 per cent.

State Treasurer Kim Wells said the rise in unemployment was "disappointing", but pointed out that seasonally adjusted jobs in Victoria grew by 11,000 in March, wiping out the fall in February. He said the rise in unemployment in Victoria would not deter the government from delivering a surplus of at least $100 million.

"We are committed to our fiscal targets and our economic objects," Mr Wells said.

He also confirmed the government will announce new infrastructure spending in the budget. He gave no details, but said a freeway linking the western suburbs with EastLink was the government's top priority.

Opposition Leader Daniel Andrews called on Premier Ted Baillieu to develop a plan to keep people in work. "These are not numbers," Mr Andrews said. "These are families. These are workers who have lost their jobs."

Australian Industry Group Victorian director Tim Piper suggested the state government consider abandoning its pledge to deliver a budget surplus of at least $100 million.

Mr Piper said unemployment in NSW is now 4.8 per cent, a full percentage point lower than in Victoria. "Something needs to be done to stimulate investment in the community, create confidence and to make companies feel like they can be generating some new business," he said.

The data excited the markets. The dollar soared 0.85? in five hours, to $US1.0391 at the close of local trading. The S&P/ASX200 index rose 34 points.

But the zigzag pattern of recent months also means there is no certainty that the rise in March will be sustained. The Bureau of Statistics' preferred trend measure, which smooths out the zigs and zags, shows the nation added just 25,000 jobs in the past six months.

Western Australia added 42,300 jobs in the year to March, Victoria lost 28,200.

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Jobs riddle hints at weakening economy

Australia's jobs market is still flat. Jobs are growing strongly in Western Australia, but collapsing in Victoria. That's the real message coming out of the labour force figures released by the Bureau of Statistics today.

On the seasonally adjusted measures that people are used to focusing on, job numbers zagged after last month's zig.

In the past few months, job numbers rose in November, fell in December, rose in January, and now fell in February: down by 15,000, to end up back where they started.

The headline unemployment rate climbed back to 5.2 per cent.

This shows the naivety of comments last month by Treasurer Wayne Swan and the Reserve Bank seeing the January figures as a sign of improvement, rather than the statistical static you get when you try to use figures for the wrong purpose.

The Bureau keeps warning us that its monthly job movement figures are too imprecise to rely on, and urges us to use its smoothed trend data instead.

Pity the Treasurer and the Reserve don't listen.

And the trend figures this month tell us pretty much what they told us last month: there's virtually no job growth going on out there.

Every month, the potential labour force of people aged 15 and over grows by 18,500, but on average, only 1000 new jobs are created.

Soft spots

That fits with what the Bureau told us yesterday: economic growth has gone soft, above all in the south-eastern states with no coal, iron ore or new natural gas fields.

The economy's output grew at an annual rate of just 2.5 per cent in the second half of 2011, with the great bulk of that going into developing new mines in WA and Queensland.

They don't employ that many people, since much of the equipment is imported, and mining is a capital-intensive industry that employs just 2 per cent of the workforce.

By contrast, the jobs are going from labour-intensive sectors such as manufacturing, retailing, finance and government, which are mostly in the south-east.

That's why Victoria has lost 30,000 jobs since last April, while WA has added 30,000. NSW, South Australia and Tasmania are also losing jobs on balance, but at a slower rate.

In the past couple of months, even Queensland has gone backwards.

Jobs riddle

But if job growth has virtually stopped, and the potential labour force is growing by more than 200,000 a year, why is the unemployment rate stuck at 5.2 per cent instead of rising into the 6s?

Because more than 100,000 people who would normally be in the workforce have stopped looking for jobs, and hence don't count in the figures.

Why? That's the real riddle in these figures, and no one can fully explain it. Most of the people dropping out live in NSW or Victoria.

About a third of them seem to be teenage students deciding not to look for a part-time job. Some of it reflects the ageing of the population, although that is offset by the rapid rise in the proportion of older people staying at work.

But it wasn't happening a year ago. It's another sign of a weakening economy.

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Victoria bears brunt of job cuts

VICTORIA is taking the brunt of Australia's job losses. Official figures show a net 33,000 full-time jobs have been lost since April, equivalent to one in every 60 full-time positions in the state.

Yesterday's bleak jobs data came as Qantas foreshadowed hundreds of job cuts and the possible closure of one of its two heavy maintenance depots at Avalon and Tullamarine, which together employ more than 1000 people.

Late yesterday Caltex flagged that it might shut its two Australian oil refineries in Sydney and Brisbane - raising questions about the future of Victoria's two refineries, the Shell refinery at Corio and the Exxon-Mobil plant at Altona.

Caltex Australia chief executive Julian Segal said the future of its two ageing refineries has been put under review because of the high Australian dollar and competition from newer, large-scale, more efficient refineries in Asia.

Caltex has written down the value of the two refineries from $1.8 billion to $340 million. Just seven refineries are now left in Australia, all of them relatively old.

Yesterday's announcements add to a recent wave of job cuts at major companies across Australia's banking, retail and manufacturing sectors.

Nationally, the jobs figures have gone back to a zig-zag pattern. On a seasonally adjusted estimate, the Bureau of Statistics says Australia gained 46,000 jobs in January, after losing 41,000 in the previous two months.

Seasonally adjusted, unemployment edged down to 5.1 per cent, but the bureau's figures show the big movement has been of people leaving the workforce altogether. In the past year, while unemployment has risen only marginally, the workforce participation rate has fallen by the equivalent of over 100,000 workers.

Roughly half of those lost workers were in Victoria, where the seasonally adjusted figures reported another 15,000 full-time jobs lost in January. Total employment, however, remained unchanged, with part-time jobs growing, and Victoria too had an unemployment rate of 5.1 per cent.

On its preferred trend measure, the bureau estimates that the entire Australian economy has added just 22,000 jobs in the past year, mostly part-time. It is a dramatic contrast with the 344,000 jobs added over the

previous year. The bureau figures show a tale of two economies. In the past year Queensland, Western Australia and the Northern Territory have added 44,000 full-time jobs, while the south-eastern states have lost 38,000 full-time jobs.

Most of those job losses have been in Victoria. After being one of the stronger states over the past decade, Victoria is now clearly the epicentre of job losses, losing about 1000 full-time jobs a week, partly offset by about 500 new part-time jobs.

Federal government ministers hailed January's jobs growth as demonstrating that Australia's economy is fundamentally in good shape. ''There are more Australians in work today than at any stage in Australia's history,'' Employment Minister Bill Shorten told journalists.

The opposition again focused its attack on the carbon tax, saying it would cost more jobs when it took effect in July.

Premier Ted Baillieu said Victoria was experiencing a shift from full-time to part-time employment, but expressed concern that much of it might be reflecting under-employment rather than deliberate choices by workers.

Economists warned that there was worse to come, and in a wide range of industries, as the high dollar sends jobs overseas and diminished spending growth contracts jobs at home.

''We expect that over the next few months NSW and Victoria will bear the brunt of the employment correction under way in retail, manufacturing, construction, business services and finance,'' said Westpac chief economist Bill Evans. ''As such, we see the labour market weakening further in these states.''

New Reserve Bank deputy governor Philip Lowe threw in a cheerier note in his first speech, declaring he saw ''a chain that links the investment boom in the Pilbara and in Queensland to the increase in spending at cafes and restaurants in Melbourne and Sydney''.

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Working longer, retiring stronger

THE number of older workers with jobs in Australia has almost doubled in a decade, transforming workplaces and adding almost a million employees to meet the nation's skills shortages.

New data from the Bureau of Statistics shows that, on average, 1.93 million workers aged 55 and over were employed in 2011, almost double the 1.01 million employed a decade earlier.

A revolution in attitudes and opportunities, along with the ageing of the baby boomers, has meant older men and women worked on rather than take on early retirement.

The data shows that in 2011:

73 per cent of people aged 55 to 59 were in the workforce, up from 61 per cent a decade earlier and 55 per cent two decades ago.

Last year 65 per cent of women in their late 50s were working or looking for work as well as 81 per cent of men. In a decade, the number of this age group working has swelled from 587,000 to 952,000.

53 per cent of people aged 60 to 64 were still in the workforce, a dramatic increase from 35 per cent a decade ago. The participation rate has risen rapidly among men and women, to include 62 per cent of men in their early 60s, and 44 per cent of women up from 22 per cent a decade ago.

The growth in workers in their early 60s has been colossal: from 274,000 a decade ago to 634,000 now. The number of women working at that age has roughly trebled, from 90,000 to 268,000.

In perhaps the most startling development, 25 per cent of Australians aged 65 to 69 are still working, and more of them full-time than part-time.

One in every three men in their late 60s is now in the workforce, up from a bit over one in six a decade ago. Participation rates among women of that age have more than doubled, from 8 per cent to 18 per cent.

Employment and participation rates are also growing among people aged 70 and over, although at less dramatic pace. Last year 102,000 people were working in their 70s, 80s or 90s, up from 59,000 a decade earlier. Treasury forecasts that by 2050, Australia's ageing population will require an extra $60 billion a year of spending, paid for by extra taxes. But Treasury deputy secretary David Gruen has estimated that the gap could close if Australia's workforce participation rates rise to match the best in the Western world.

The fast-rising participation rates among older workers reflect changes in the economy, employer attitudes and aspirations.

Three big recessions in the 20 years to 1991 saw a million workers forced into early retirement. By contrast, with just one small recession and rising skills shortages since then, employers have hung on to older workers, even in the depths of the global financial crisis.

The Keating government's very gradual reform to align the pension ages of men and women has now lifted the female pension age from 60 to 64.5, rising to 65 in 2014. This has removed an incentive for women to take early retirement and in any case, the figures suggest women no longer see anything wrong with working in their 60s if they want to.

With Australians waiting until later to marry, have babies and buy houses, retirement is not an option for many 60 year olds.

Aspirations have risen, too. Surveys have found that people don't want to just retire on the pension, but to live well in their retirement.

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The CPI is not a credible basis for policy action

TOMORROW the Reserve Bank board will decide whether to raise Australia's interest rates, lower them, or leave them unchanged. The consensus among economists and markets is that it will leave them unchanged. You hope they're right but it's not certain.

There is no data the Reserve focuses on more than the consumer price index. Its job is to keep inflation low, and the economy growing. The CPI measures whether or not it is succeeding. If inflation starts climbing too fast, it signals that interest rates need to rise.

Last week's CPI figures seemed to send that signal. The CPI climbed 0.9 per cent in the June quarter, and 3.6 per cent in the year to June well above the Reserve's target to keep inflation, on average, between 2 and 3 per cent over the long term.

Banana prices had a bit to do with that. But what really mattered was that the Reserve's measures of underlying inflation rose 0.9 per cent in the June quarter, after similar rises in March. The annual growth in underlying inflation was within the target range, at 2.7 per cent, but in the first half of 2011 it grew at an annualised 3.5 per cent again, well above the target.

Bankers Trust chief economist Chris Caton summed it up well. If this was the only data you had on the economy, he said, the Reserve would have a clear-cut case to raise interest rates. But it is not the only data we have. And the closer you look at it, the less clear-cut the case is.

The other data tells us that the economy is in a weak condition, outside mining and mining investment. That means the surge in underlying inflation is more likely to be a passing blip a rebound from very low rises in 2010 than the start of a dangerous rise.

A close look at the inflation data confirms this. The weightings given to items in the CPI are based on an old survey of household spending. But the Australian Bureau of Statistics changes them to reflect price rises and falls, assuming that we keep buying the same quantities of goods regardless of price changes. That defies reality, and over time, creates a bias that overstates the inflation rate, as the index increases the weight of items that rise in price, and decreases the weight of items with falling prices.

(We leave aside the third reason to be wary of pulling the interest rate trigger: the slowing global economy, and the serious risks facing it as a result of the prolonged budget standoff in Washington, and inevitable debt defaults by governments in Europe. This is no time for crazy braves.)

What do we know about the economy that should make the Reserve sit and watch for now? Plenty. The strength is largely confined to mining and mining construction. Weakness has now engulfed most of the economy. The broader-based the indicator, the clearer it is.

Jobs growth has slowed to a virtual halt. Even on the smoothed trend figures, the bureau estimates that Australia added just 38,000 jobs in the first half of 2011, compared with 188,000 in the second half of 2010.

There is no light on the horizon. The ANZ job advertisements index says job ads have been shrinking since April. The bureau's employer surveys report job vacancies shrinking since February.

The Reserve's own figures show credit growth has fallen to recession levels. In the first half of 2011, credit basically, the amount we owe the banks rose at an annualised rate of just 3 per cent. Even borrowing for housing is growing at just 5 per cent. Borrowing by business is flat.

Consumer confidence has fallen back to GFC levels. Business confidence is below sea level. In this environment, you need a very, very good reason to raise interest rates and the CPI is not it.

It shows inflation is low in most of its 90 sectors of consumer spending. In the year to June, a third recorded falling prices, a third recorded rises within or below the target, and a third recorded price rises above 3 per cent.

It is a similar story even in the first half of 2011. The unweighted median price rise of those 90 items was well inside the Reserve's target zone. But the weighted median was outside it, partly because the index over time overstates our spending on items with rising prices, and understates spending on those with falling prices.

Take bananas and computers. When this series began in 2005, fruit and vegetables comprised 2.1 per cent of our spending, and computers 1.5 per cent. But fruit and vegetable prices have soared since cyclone Yasi, while computers now pack far more power than in 2005.

But the bureau assumes we still buy just as many bananas, even at $12 a kilo, and buy 2005-strength PCs very cheap. So the CPI is estimated on the basis that fruit and vegetables now comprise 3 per cent of our spending, and computers just 0.5 per cent. And that is wrong.

Likewise the CPI seriously overstates our spending on tobacco, and understates spending on mobile phones. And when the weights are wrong, that means the data itself is also wrong.

The Reserve faces a tough call. But it must not jump at shadows. This is a weak economy; it has time to wait. The next CPI figures will be based on a 2009-10 survey of household spending. That will restore the CPI as a credible basis for policy action.

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Jobs growth slows to a crawl

AUSTRALIA'S previously buoyant jobs growth has hit the wall in 2011, with only 38,000 jobs created in the first six months of the year, compared with 188,000 in the second half of 2010.

The Bureau of Statistics estimates that jobs growth slowed to almost a crawl in the June quarter. In net terms, the trend level of full-time jobs grew by just 4000 throughout Australia, and part-time jobs by 8300.

The unemployment rate has remained unchanged at 4.9 per cent over that time, but only because the proportion of people surveyed in a job or looking for one has dropped from 65.9 per cent at the end of last year to 65.5 per cent now.

The trend is one of the key reasons for the Reserve Bank's sudden change of mood this week, when governor Glenn Stevens flagged that an interest rate rise was now off the agenda, and said the Reserve would cut its bullish growth forecasts.

It was as close as the Reserve ever gets to saying ''we were wrong''. As late as May, it forecast growth in 2011-12 to be 4.5 per cent. Last Saturday, The Age economic survey reported that private forecasters forecast growth of just 3.2 per cent.

Even that would require a big pick-up in jobs growth from its current pace - on these figures, the slowest since Australia emerged from the global financial crisis two years ago.

On the rough measure that two part-time jobs equal one full-time job, Australia added the equivalent of just 34,000 full-time jobs in the six months to June, compared with 161,000 a year earlier.

Victoria was a beacon of light, creating the equivalent of 25,000 full-time jobs, and reducing trend unemployment to 4.7 per cent - the best of any state except Western Australia (4.2). Over the year to June, the trend figures imply Victoria added the equivalent of 84,000 full-time jobs - an astonishing growth of 3.5 per cent.

In New South Wales, by contrast, the trend figures imply equivalent full-time jobs grew by almost 80,000, or 2.6 per cent, in the second half of 2010, yet then fell by 19,000 in the first half of 2011. Experience shows the survey tends to give roller-coaster results as different people rotate in and out of the survey. Nationally and in NSW, even the smoothed trend figures probably overstate the real jobs growth last year, and overstate the slowdown this year.

The even more volatile seasonally adjusted jobs figures rose by 23,500 in June after falling by 29,000 in the previous two months. Seasonally adjusted unemployment remained at 4.9 per cent.

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Age Economic Survey: Is training the answer?

AUSTRALIA'S market economists are divided over whether the economy really is near full employment, as the Reserve Bank and Treasury claim with some saying the real problem is too little investment in skills training.

While Reserve Bank governor Glenn Stevens and senior officials are making a case for interest rate rises to prevent competition for skilled workers driving up wages and prices, economists in the private sector say there are other ways to solve the problem.

Economists in The Age survey argued for more resources to go into skills training, more initiatives to lift the country's low workforce participation rate, more skilled migrants to fill job gaps and more flexible working arrangements.

"Measures to alleviate skills shortages and otherwise encourage labour force participation are the best policy," said John Rothfield of Merrill Lynch. He and others were sceptical that higher migration was the solution, warning that we first need to build "enough supply of houses, utilities and transport systems to carry them".

NAB's chief economist, Alan Oster, warned that without "adequate skilled employees to meet burgeoning demand growth ... a consequence will be stronger wage growth and ... contractionary monetary policy".

Brian Redican of Macquarie ridiculed the official view that a 5 per cent unemployment rate means full employment. "Many other economies have been able to get unemployment below 4 per cent without generating higher inflation," he said. "Australia also achieved this in the '50s and '60s."

If it were true unemployment could not fall below 4.75 per cent without generating inflation, as officials imply, "it reflects a failure of policy to equip the unemployed with the skills demanded by the economy".

Greg Evans of ACCI was particularly trenchant. "The rate of labour force underutilisation stands at 12.2 per cent of the workforce, implying that roughly one in eight in the labour force, or 1.44 million people, are unable either to find work or sufficient hours of work," he said.

"There are a further 1.3 million people who want work, but are not classified as part of the labour force. It is difficult to reconcile supposed 'full employment' with the fact that the labour market is not meeting the needs of 2.7 million Australians."

There was widespread agreement on the panel that Australia needs to invest more resources in training its own workforce to meet its needs. Saul Eslake of the Grattan Institute argued for reducing effective marginal tax rates to improve incentives to work, and doing more to raise the "employability" of the unemployed and underemployed.

But Katie Dean of ANZ argued that training skilled workers takes time, and "in the short term", the best solution is to attract more skilled workers as permanent or temporary migrants.

Masters Builders economist Peter Jones warned that restricting entry of skilled workers would be "extremely damaging for the Australian economy", with skills shortages, project delays and bottlenecks inevitably leading to higher inflation, higher interest rates "and possibly recession".

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Mining boom failing to spark national economy

THE Australian economy has ended the financial year with the brakes biting hard. New data released yesterday reports lending and activity slowing, house prices falling, and job opportunities shrinking.

Separate snapshots released by the Australian Bureau of Statistics (ABS), the Reserve Bank and private research bodies throw doubt on official forecasts that the new financial year beginning today will see a boom in economic activity.

The Reserve has forecast growth of 4.5 per cent over the coming year, and recent speeches by governor Glenn Stevens and assistant governor Phillip Lowe flagged more interest rate rises ahead. Treasury is forecasting growth of 4 per cent, and more than 200,000 new jobs.

But yesterday's figures reported that:

. Net lending by the banks rose just 0.3 per cent in May, after recording no growth in April, as Reserve Bank figures show business and households remain averse to taking on new debt.

. Job vacancies in the private sector, as measured by the ABS, fell by 12,000 or 7 per cent in the six months to May, with Victoria and South Australia recording the biggest falls.

. House and unit prices nationally have fallen in every month this year, according to the RP Data-Rismark index, dropping by 0.3 per cent in May and by 2.7 per cent since December. In Melbourne, the median price fell by 1.8 per cent over the May quarter to $500,000.

. Hotels, motels and serviced apartments recorded a 0.8 per cent fall in takings in the March quarter, ABS figures show, as Australians profited from the strong dollar to holiday overseas while overseas tourist arrivals remained flat.

While the Reserve Bank would not be concerned to see little growth in debt, or house prices edging down, yesterday's figures come after broader-based measures show employment growth has slowed to a virtual standstill in recent months.

They come amid rising fears for the future of the global economy. The US government is now only a month away from running out of money, with Republicans and Democrats locked in a bitter stalemate on how to reduce the deficit.

Global ratings agency Standard & Poor's warned on Wednesday that US bonds would be downgraded to a D, or junk bond status, if it defaults on debt payments. US Treasury Secretary Timothy Geithner warns this is inevitable unless Congress raises the country's debt limit by August 2.

In Greece, Parliament on Wednesday approved an austerity package to cut its deficit but the fear is this will do little more than postpone an inevitable default, with the Greek government's debt now 150 per cent of GDP.

The domestic economy seems to have entered 2011-12 with mining construction booming but the rest of the economy sluggish. That might not stop the Reserve Bank raising interest rates again in coming months, since it believes the weakness is temporary, and next year it will need to rein in growth to stop the mining boom setting off inflation.

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Victoria leads states in jobs growth

VICTORIA has added more jobs over the past four years than any other state, with 278,000 more people in work than at the time of the last state election.

Jobs figures released yesterday by the Bureau of Statistics show that Australia's buoyant jobs growth continued in October, with employers adding almost 30,000 jobs in seasonally adjusted terms.

But the strong jobs market has brought out many more job seekers, with the bureau recording a record 12 million Australians 65.9 per cent of all Australians aged 15 and over now in work or looking for a job.

That lifted the seasonally adjusted unemployment rate to 5.4 per cent in October despite the strong growth in jobs, up from 5.1 per cent in September.

But even on those figures, seasonally adjusted employment has grown by a stunning 375,000 in the past year including 271,000 more full-time jobs while unemployment fell by 23,000.

On the more reliable trend figures used to analyse state data, Victoria has added 95,000 jobs in the past year, with jobs growing 3.5 per cent in the state, compared with 3.2 per cent growth in the nation.

Over the past four years, the bureau reports that Victoria has enjoyed the biggest jobs growth in the nation in absolute terms, and the third fastest growth behind the Northern Territory and Western Australia.

"Victoria is Australia's jobs engine room," Treasurer John Lenders declared. "Not only have we achieved the 150,000 jobs target promised at the last election, we have created 138,000 more jobs than promised and more than any other state."

But shadow treasurer Kim Wells highlighted the jump in seasonally adjusted unemployment to 5.6 per cent. "The number of unemployed Victorians is now higher than in late 1999," he said. "After 11 years of Labor, unemployment remains stubbornly high, and many Victorians continue to suffer in the dole queue."

The rapid growth in NT employment is largely due to federal intervention in Aboriginal communities, while WA has grown because of the mining boom. In Victoria the main driver of new jobs has been the growth in overseas student enrolments, which have now gone into reverse.

In the past year, NSW has overtaken Victoria in jobs growth for the first time in years, as the violence against Indian students in Melbourne, the rising dollar and the federal government's crackdown on work visas for overseas students in low-skilled courses have turned students away.

Even so, the bureau estimates Victoria has added 50,000 jobs in the past six months, with jobs booming in construction, retail, government, real estate and professional services.

Unemployment on the trend measure rose from 4.9 per cent in October 2006 to 5.5 per cent in October 2010. It has edged up slightly in the past six months as more people have come off the sidelines to look for work.

JOBS SURGE

Oct 2006 to Oct 2010

Victoria 278,000 10.8%

NSW 259,000 7.8%

Queensland 214,000 10.2%

WA 141,000 13.0%

Australia 981,000 9.5%

SOURCE: BUREAU OF STATISTICS.

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Catch and skill our own

ONE of the fears you hear in the debate over asylum seekers is that Australia is being flooded by refugees. Well, fear not. Australia is being flooded by new arrivals but they're not refugees.

The people flooding into Australia are primarily foreign workers, being recruited here to fill skills shortages. Why? Because it's cheaper to bring in foreign workers who already have skills than to train our own.

Last year 508,000 people arrived to live in Australia as permanent residents, temporary workers or students. Just over 13,000 of them were refugees, or about one in 40. Even if all the asylum seekers arriving by boat were counted, the 2726 of them would make up about one in 200 of the arrivals.

There is a bigger issue here. In my view, it's also a simpler issue than what to do about asylum seekers (which, frankly, I think is one of the most difficult policy issues I've ever come across, with every option breaking one or other principle of good government).

That issue is Australia's policy of relying on importing foreign workers to provide us with the skills we need, rather than doing all it can to ensure that Australians are trained in the skills we need.

It has a parallel with our reliance on foreign capital. Australia is one of the richest countries in the Western world, yet one of the poorest savers. Despite our wealth, every year we are in the bottom half of the OECD in savings rates. That's why our net foreign debt is now $654 billion, and doubling every eight years. As the International Monetary Fund and many others have pointed out, our reliance on foreign borrowing is a risk to our economic future. But our reliance on foreign skilled workers is a risk to something even more important: our social fabric, and our sense of national unity.

For while Australia is importing hundreds of thousands of workers every year, Governments, both Liberal and Labor, have remained silent on the insidious slow growth of men dropping out of the workforce in the prime of their lives.

In the 1960s, the last decade in which we had full employment which, while some economists seem to have forgotten, means that more or less everyone who wants to work can find a job only 2 per cent of men aged between 25 and 54 were outside the workforce. Roughly speaking, 96 per cent of prime age men had a job, 2 per cent were unemployed, and 2 per cent were either unemployable or doing something else.

But in the 1960s, jobs were simple and wages were low. Married women were mostly tied to the home, so men faced less competition for jobs. Heroin was rare, expectations of life were simpler, and fewer people needed psychologists.

Fast forward to 2009. Bureau of Statistics figures show that last year almost 10 per cent of men in the prime of their working lives aged 25 to 54 were not even looking for work. Only 4 per cent were unemployed, but 14 per cent of those of prime age were not working.

Among women the same age, twice as many were not working: 28 per cent of all women aged 25 to 54. But no one asks the questions that would tell us how many of them were not working because they preferred to be full-time mothers, and how many had dropped out for reasons similar to the men. It seems safe to assume that the problem of people outside the workforce is as widespread among women as among men.

You think these are global problems? Yes, but a report released by the OECD last week suggests Australia has been handling them worse than other Western countries.

The OECD's Employment Outlook reports that in 2009, 21 per cent of Australians in that prime working age group were unemployed or outside the labour force. Of the 27 OECD countries the IMF terms "advanced" that is, part of the rich world Australia ranked 20th on that key indicator. Switzerland was top, with only 13 per cent of its prime working age people not in jobs.

Broadly speaking, over the past 10 years, employment rates have risen for older workers, but fallen for men of prime working age. But do you ever hear any minister talk about it? The Treasury? The Reserve Bank? The Productivity Commission? Why is no one in government asking why so many people in the prime of their working life are dropping out of the workforce and what we should do about it?

But that's not the only weakness in Australia's labour market. The OECD says that while Australia's unemployment rate last year was the eighth lowest among its 30 members (not the lowest, as ministers sometimes claim), "overall slack in the labour market is actually higher than the OECD average".

The reason is not only the millions of people not in the workforce, but also the more than 800,000 people the bureau classifies as underemployed part-time workers who want more work, usually full-time work.

"Even before the current downturn, Australia had amongst the highest rates of involuntary part-time employment in the OECD", the report points out. "More than 60 per cent of involuntary part-time workers have no post-school qualifications, and one-third of them are aged under 25."

These are young people falling through the cracks, without the skills to hold down a good job, and many may lack the desire or self-discipline to get them. These are the kids most at risk of joining those who have dropped out of the workforce.

Shouldn't this be the kind of issue our political leaders talk to us about? Shouldn't this be an issue they tackle?

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THE OECD has questioned whether Australia's labour market is in as good a shape as we think, saying a lack of choice and financial incentive is forcing many Australians to make do with part-time jobs.

THE OECD has questioned whether Australia's labour market is in as good a shape as we think, saying a lack of choice and financial incentive is forcing many Australians to make do with part-time jobs.

In its annual Employment Outlook, the Paris-based Organisation for Economic Co-operation and Development says Australia's relatively low unemployment rates the eighth lowest in the OECD last year coexist with poor performance in other areas.

In unusually sharp comments, the OECD highlights a series of flaws in Australia's labour market. It says:

Australia has "a large pool of under-employed workers", who want to work full-time but can find only part-time jobs.

The clawback of means-tested benefits as incomes rise has the perverse effect of locking people into part-time work with part-timers losing up to 70 or more in every extra dollar they earn to the government.

Australia's overall employment rates are worse than the unemployment figures suggest, because 25 per cent of those with jobs are working part-time, and 21 per cent of people of prime working age (25 to 54) have no job at all.

The OECD figures show that Australia's employment rate the percentage of the population with a job ranks only 20th of the 27 rich OECD countries for prime-age workers.

In 2009, 14 per cent of Australian men aged 25 to 54 had no job, and 28 per cent of women.

By contrast, Australia had the fifth-highest employment rate for younger workers, and was a rapidly improving ninth-best for older ones.

But the OECD's main focus is on Australia's very high rate of part-time employment, the third highest in the OECD.

"Despite having a lower than average unemployment rate, overall slack in the labour market is actually higher than the OECD average," the report says. "This includes a large pool of underemployed workers . . . as well as many people who have given up looking for work."

Fifty years ago, only 2 per cent of Australian men aged 25 to 54 had given up looking for work. But last year almost 10 per cent of men in the prime of their working lives had dropped out of the workforce.

"More broadly, part-time workers in Australia often have poor financial incentives to move into full-time work," the OECD says, because all benefits in the welfare system are means-tested, and are clawed back as incomes rise.

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Australia lagging on helping unemployed back to work

AUSTRALIA spends less than almost any other rich country to help its unemployed people get back to work, OECD figures reveal.

The OECD's yearly employment report shows the government's spending on programs to help the unemployed into jobs in 2008-09 was equal fourth-lowest of the 26 rich countries surveyed. The report shows that, in this area, the change of government has meant no change in policy despite Labor's rhetoric on the importance of giving young Australians the skills employers need.

In 2006-07 and 2007-08, despite intense skills shortages, the Howard government spent just 0.14 per cent of Australia's gross domestic product on training, wage subsidies and other support to make the unemployed employable. In 2008-09, despite rapidly rising unemployment, the Labor government spent exactly the same. Of the 26 rich countries surveyed, only the Czech Republic, Japan and Slovenia spent less.

The figures came as a survey of employers found one in three says their business is already suffering from shortages of skilled workers, and almost half predict that by 2015 skills shortages will limit their activity.

Bureau of Statistics figures show that even among men of prime working age 25 to 54-year-olds almost 10 per cent have now dropped out of the workforce, one of the largest dropout rates in the Western world.

The OECD report shows while Australia's spending on the Job Network was roughly the same as other countries spent on their job agencies, other OECD countries on average spent three times as much as Australia did on support programs.

Other OECD countries on average spent 0.14 per cent of their GDP on training alone. Australia spent just 0.01 per cent, and that has not changed since Labor took office.

Denmark, widely admired for its "flexicurity" programs a tough-love agenda which means people losing jobs get retraining instead of redundancy payouts spent 0.98 per cent of its GDP in wage subsidies, retraining and incentives for employers to take on the jobless. That was seven times Australia's spending level.

Labor has significantly increased the number of places available for skills training, although the true number has been disguised by taking money from old programs for new ones. But little of this has been targeted on the unemployed.

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