The latest unemployment rate figures brought the bad news that the unemployment rate is again rising, but perhaps more concerning is that February saw a record level of underemployment. With weak full-time employment growth, underemployment is in many ways now a better indicator of the health of the economy than the unemployment rate.

Before the 1990s recession, underemployment wasn’t really a thing. During the 80s the underemployment rate was rarely above 4%; after it, and the destruction it wrought on full-time work, it was rarely below 6%:

The global financial crisis also had a significant impact. Before the GFC, at the height of the mining boom, 5.9% of the labour force were underemployed; last month this figure hit 8.7% and hasn’t been below 7% for more than five and a half years.

The rise in underemployment has been a big factor in the dislocation of the unemployment rate from the real-world experience of the labour market.

Traditionally, underemployment and unemployment are closely linked. When unemployment rises that is usually a sign that the economy is weakening and businesses cut the hours of workers, which increases underemployment. When things are going well, the opposite usually occurs – not only are businesses employing more people they also increase the hours worked by those already employed – ie, reducing underemployment.

But in the middle of 2014, the relationship between the unemployment and underemployment broke down:

The reason (as I have noted a few times) is the lack of full-time work compared with part-time. Since May 2014, 329,000 new part-time jobs have been created compared with just 152,000 full-time ones. That is a massive change given that two-thirds of all jobs are full time.

And as I have also noted the hardest hit have been the youth, and not surprisingly they are the ones who have the highest level of underemployment.

Nearly 20% of women in the labour force aged 15 to 24 are underemployed, and 16.2% of men that age – both records. Since May 2014, the rates of underemployment for both genders under 25 have risen by more than any other age group:

And while it would be easy to think it is a just an issue of youth – and thus might be something that is quarantined from the broader economy – the reality is that underemployment is now affecting workers of all ages at record levels.

A comparison of the unemployment and underemployment rates for workers aged 25 to 54 shows a similar disconnect occurring in 2014:

The impact of weak full-time employment growth is evident when we compared the percentage of adults aged 25 to 64 who are employed and those employed full time.

A decade ago 74.7% of 25- to 64-year-olds were employed; that has now risen to a near record 75.9%. By contrast the percentage of this prime-working aged group of adults who are employed full time has fallen from 56.7% to 55.7%:

The last time so few prime-working aged adults were working full time was in 2005.

The big reason is the absolute collapse of male full-time work since the GFC.

Despite weak economic growth, women have continued to find more full-time work than in the past. Currently, 39.5% of women aged 25 to 64 work full time – just down on the record of 39.8% reached in the middle of last year.

By contrast the proportion of prime-working aged men in full-time jobs has fallen in the past 10 years from 75% to a new record low in February of 72.4%:

One difficulty in comparing underemployment with the past is that there are two reasons why people want more hours – one negative and one positive.

Mostly with men the issue is a negative – men want more hours because they are seeking full-time work or more part-time hours. But for women the issue is not completely negative. There are more women underemployed now than ever before despite there also being more women working full time than ever before. Women not only are working full time more than ever before there are also more women than ever before desiring to work full time.

That is not necessarily a bad thing but it does still indicate that there is a lot of spare capacity in the labour force.

And that spare capacity is a big driver of the current record low wages growth.

I noted last month that wages and unemployment normally are in sync – when one falls the other rises – but over the past two years the relationship has broken down. Wages growth has fallen even while the unemployment rate has fallen:

But if instead of the unemployment rate we use the underemployment rate, we see the relationship remains in sync:

While we still have wage growth slightly below what we would expect, it is not out as whack as it seems when comparing it with the unemployment rate.

And the bad news is that given we have just hit a record high rate of underemployment, it suggests that for those hoping for an improvement in wages growth will probably have to wait a bit longer.