The labour market ossifies (May gross flows)

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The May gross flows data suggests an ossifying labour market: if you have a job, you are more likely to keep it, but if you do not have a job, it’s harder to re-enter employment.


Transitions from employment to unemployment were fairly stable in May, with the trend remaining at ~0.8% of workers to unemployment. The (noisy) SA data suggests an uptick but broadly speaking it’s been bouncing around this level for some time.

Transitions from employment to out of the labour market have been trending down gently and are now ~2.7%  of workers per month. Given this, the probability of remaining in employment if you have a job has been trending up somewhat, and is now ~96.5%.


The gross flows suggest it is getting harder to move from unemployment back into employment.

The probability of transitioning to employment, from unemployment, is now ~19.6%, which is below the GFC low.   A consequence of this is that more people give up looking and exit the labour force (which suggests the decline in the participation rate is mostly cyclical): the probability of moving from unemployment out of the labour market is now 25.4%

To make this concrete, for every 100 who are identified as searching for work and ready to start (meaning ‘unemployed’), ~20 got a job and ~25 quit looking. The other ~55 kept looking.


If you have exited the labour market, things are getting tougher.  The probability of transitioning from NILF to employment has been trending down for the past few years, and is now ~4.7% of the NILF group, down from ~5% at the cyclical peak.   The inability to move directly back into work means we are seeing more transitions to unemployment: this measure continues to trend up, and is now ~3%.

To make this concrete, given 100 folks who were not in the labour force last month, there are 5 who get a job and 3 who identify as searching and ready for work in the current month.

The sum of the unemployed and NILF gross flows data suggest a story of frustration: folks seem to be moving from NILF to unemployed and back again.  They start looking, become frustrated, stop looking, and then start looking again.

A final note about method:

Regular readers will know that I highly rate the information in the labour force gross flows data (despite the various issues).  This month’s edition comes with a major additional health warning — on top of the usual warnings about my questionable seasonal adjustment — two survey groups were rotated in May (as will be the case to August) due to the ABS introducing a new survey design (see here for more).


You can see the consequences of the faster than usual survey rotation in the proportion of the data that’s matched — the sharp drop is due to rotating out a quarter of the frame (rather than the usual 1/8th).  This is widening confidence intervals on the jobs data, but doesn’t have much impact on the unemployment rate — the impact on gross flows ratios is likely to be somewhere in between.