Australia suffered its largest single-month jump in unemployment on record in April – and there’s more pain to come.

ABS figures released on Thursday showed Australia’s unemployment rate jumped from 5.2 per cent to 6.2 per cent in April.

Although many economists had expected the jobless rate to soar above 8 per cent, most believe the figures don’t tell the full picture.

Grattan Institute household finances program director Brendan Coates said the headline figure disguised a “shocking” reality.

“The number of people with jobs fell by about 600,000, but the number of unemployed people rose by ‘only’ 104,500,” Mr Coates and Grattan Institute senior associate Matt Cowgill wrote in a blog post.

“This dragged the unemployment rate up from 5.2 to 6.2 per cent – the largest one-month rise ever recorded in Australia.”

Notwithstanding the record jump, Mr Coates and Mr Cowgill said the figures don’t capture the full extent of the economic destruction unleashed by the coronavirus.

Grattan’s economists said this was due to the way the ABS defined “unemployment” – with surprisingly little “overlap between people receiving money from Centrelink and considered by the ABS to be unemployed”.

• Michael Pascoe: Why we got a ‘fake news’ unemployment rate

Understanding the unemployment data

BIS Oxford Economics chief economist Dr Sarah Hunter told The New Daily the lower-than-expected unemployment rate is the product of a lower ‘participation rate’.

The participation rate refers to the percentage of all working-age Australians who are either employed or looking for work (referred to as the ‘labour force’).

In April, it fell by 2.4 percentage points, to 63.5 per cent.

Because the unemployment rate refers to the proportion of the ‘labour force’ without a job, rather than the proportion of the total working-age population without a job, a smaller labour force pushes down the unemployment rate.

In this case, the statistics show a smaller lift in unemployment because only about one-fifth of people who lost their jobs in April are currently looking for work and thus counted as unemployed.

The other fourth-fifths are not actively looking for work and therefore not counted as unemployed – keeping the unemployment rate artificially low.

AMP Capital chief economist Shane Oliver said: “But for the collapse in participation unemployment would be 9.6 per cent.”

Tweet from @sarahjhunter84

Dr Hunter said the government’s decision to boost the JobKeeper payment while suspending rules requiring recipients to actively look for work (mutual obligations) had driven down the participation rate.

She said the total number of hours worked by Australians painted a more accurate picture of the labour market.

Hours worked fell 9.2 per cent in April, dragging the average hours worked per adult down from 86 hours through the month to 78.

Unlike the unemployment rate, this measure takes into account the hundreds of thousands of workers who have been stood down or forced to take paid leave.

A pathway for policy

Although the headline unemployment rate is somewhat misleading, the ABS data shows Australia’s world-leading response has crucially kept many workers connected to their employers.

AMP Capital senior economist Diana Mousina noted that in the US – the country hardest hit by the disease – unemployment exploded from 4.4 per cent in March to 14.7 per cent in April.

That surge came despite sizeable falls in the US participation rate.

“Clearly [the government wage subsidy] JobKeeper has worked really well to keep a lot of the people who either had to stop work temporarily or completely lost their job tied to their employers,” Ms Mousina told The New Daily.

But although the government’s policies have protected many jobs, they are only temporary.

The government now faces the challenge of unwinding policies relied upon by millions of workers without inflicting the kind of economic damage seen elsewhere in the world.

“The reason a lot of people can’t work is not because they’ve been fired, but because they can’t do their job because their industry is not open,” Ms Mousina said.

“Hopefully by July we will have those industries back at some capacity.

“What that means is government will need to keep track of how the employment numbers go and see after six months if they need to change the JobKeeper payment.”

That could mean extending the time JobKeeper payments are available for, or providing new support to specific industries that can’t re-open before the program is due to end.