The HALE Index Q1 (Jan to Mar). 2015

Summary of the March Quarter

HALE Q1 2015

Above: NNI, GDP and HALE ($ bil) from Jun 2005 to the present (Q1 20015). The changes during the most recent quarter are contained inside the two vertical red lines at the right hand margin of the figure.

The HALE has recorded a reduction in wellbeing for the first part of 2015. In the March quarter it contracted by 0.4% which is against the long-term rising trend.[1] This is despite GDP recording above average growth this quarter. However, NNI was weaker than long-term trend as a result of continuing terms of trade declines.

The primary cause of the contraction in the HALE, despite the strong GDP performance, is the large reduction in human capital. This was driven by the significant skills atrophy produce by the rise in long-term unemployment. This quarter, long-term unemployment (LTU) experienced its largest ever jump, pushing it to its highest recorded level. The quarterly increase in LTU was so high; that it outweighed substantial increases in human capital from improving workforce qualifications that characterise most quarters.

  • GDP growth was above average (0.9%). Income (NNI) increased by significantly less, improving by just 0.2%, with the difference largely due to the continuing decline in the terms of trade.
  • Human Capital contracted this quarter by $1.3 bil (0.85%), reversing the continued growth it recorded in 2014. This was driven by increased skills atrophy.
  • Skills atrophy (the loss of skills from sustained unemployment) cost the HALE $3.9 bil more this quarter than last quarter. This is due to the substantial increase in the number of long term unemployed. This quarter, a record 51,000 additional people were considered unemployed for more than 52 weeks (an increase of 32%). This is significantly larger than quarterly changes over the last three years, where long-term unemployment tends to increase by just 2,400 people (which is equivalent to an average quarterly increase of just 2.4%).[2]
  • Adult Formal Education (AFE) continues to support Human capital as greater proportions of the adult population attain higher levels of education.[3] It is estimated that this quarter, an additional 63,000 people obtained post school qualifications. The value of AFE increased by $2.6 bil (3.4%) over the quarter, but this was not large enough to offset the decline in human capital caused by skills atrophy.
  • The weakness in the labour market, apparent in the rise in unemployment and underemployment, is also negatively impacting wellbeing through a reduction in Work Satisfaction.[4] This reduced wellbeing by a further $0.2 bill (2.1%) this quarter. The lion’s share of this is due to the rising unemployment level. The non-economic costs of unemployment experienced a significant deterioration this quarter, worsening by $0.26 bil (10.9%). This is due to a rise in unemployment which peaked in January at 6.8%, which constituted a decade long high. Recent improvements in unemployment however, are expected to at least partially reverse this in the next quarter. Although underemployment improved slightly this quarter, it remains high by historical standards and continues to detract from wellbeing.
  • The extent to which Health reduced non-economic wellbeing grew by $0.4 bil (3.8%). This is due to costs of mental illness and obesity growing by a greater amount than other indicators of health that continue to slowly improve.

[1] This quarter the HALE contracted by $1.29bil. This is $3.1bil below the quarterly trend for the HALE.

[2] The February figure from the ABS puts one person in 60 who is either in work or looking for work as someone who has been unemployed for 52 weeks or more. In February 2013 the ratio was one in 95 and in February 2009 the ratio was one in 124.

[3] In the HALE, the AFE contribution to human capital is measured by estimating the proportion of the population between 20 and 64 years of age who have attained a post-school qualification (Certificate III level or above). The recent growth in AFE is driven by both population increase and increased attainment of qualifications. We estimate that close to 60% of 20-64 year-olds will now have a cert III qualification or higher. This compares favourably to the results from a decade ago where only 47% of 20-64 year olds obtained post school qualifications.

[4] Work Satisfaction (previously referred to as “Job Satisfaction”) is an index in the HALE which examines the wellbeing impact of unemployment, underemployment and overwork over and above direct effects on earnings.

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