Aussie labour market: Why beauty is in the eye of the beholder

Sat, 18 Mar 2017  |  

This article first appeared in the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/labour-market-why-beauty-is-in-the-eye-of-the-beholder-011836039.html?soc_src=social-sh&soc_trk=tw 

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Aussie labour market: Why beauty is in the eye of the beholder

Economic facts do not always give an accurate reading on the health of the economy. Or rather, they are open to interpretation and, as in most things, the beauty is in the eye of the beholder.

Think of today’s labour force data.

The unemployment rate in seasonally adjusted terms in February was 5.9 per cent. Whether that is a ‘good’ or a ‘bad’ number is open to interpretation. Compared with January, the unemployment rate was 0.2 percentage points higher; compared with middle of 2015 ago, it was 0.4 percentage points lower; compared with the recent low point in the unemployment rate just prior to the global financial crisis, it was almost 2 percentage points higher.

See the difficulty in determining whether it’s a good or bad result?

The fact is that none of these comparisons give a complete picture on the health of the labour market or indeed, whether the unemployment rate at 5.9 per cent is good, bad or indifferent.

Suffice to say, each month the unemployment rate should be compared with the level of full employment in the economy. In other words, it should be judged in context of whether the economy has been performing strongly enough to ensure that everyone who wants a job has a job. Anything less is failure.

Using economic jargon, full employment occurs when the unemployment rate is as low as possible but consistent with a sustainable rate of wages growth that is in turn consistent with the official 2 to 3 per cent target for inflation. The recent history for Australia suggests that the full employment unemployment rate is around 4.5 to 5 per cent or a tick lower.

Today’s 5.7 per cent unemployment rate is far from good. It is around 1 to 1.5 percentage point higher than it should be which owes much to the last half decade of below trend economic growth. The economy simply hasn’t been growing fast enough to generate the economic activity needed boost employment and drive the unemployment rate lower.

The current forecasts from Treasury and the Reserve Bank of Australia are for the unemployment rate to remain around 5 to 5.5 per cent for the next couple of years – and this assumes, perhaps optimistically, further strong momentum in the global economy, a positive influence from the higher terms of trade and ongoing low interest rates.

In other words, the outlook for unemployment is reasonable without testing full employment. And if anything goes wrong, say commodity prices tick lower or the housing market falters, the unemployment rate will remain in a 5.5 to 6 per cent range. It is too high.

To achieve a lower unemployment rate and full employment, domestic policy settings need to be directed at stronger growth. Interest rates could be cut, for example. With the US Federal Reserve hiking interest rates this morning, a rate cut in Australia would probably drive the Australian dollar lower which would boost the local economy. In the budget, which is less than two months away, the government could deliver a mild fiscal stimulus aimed at moving the economy towards full employment.

In the interim, the unemployment rate is too high. That unemployment rate translates to 750,000 people unemployed. A full employment target is not only imposing a social cost, but it represents untapped resources that, if utilized, would add to growth.

Lowering unemployment is not only good for those who are currently unemployed, it is good for the economy.

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THE LATEST FROM THE KOUK

Why don’t governments deliver policies that are good for the electorate?

Mon, 21 Aug 2017

This article first appeared on The Adelaide Review site at this link: https://adelaidereview.com.au/opinion/politics/paying-fair-share/ 

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Paying Their Fair Share

It’s the age-old question: why don’t governments deliver policies that are good for the electorate? Well, the answers are numerous.

Politics and policymaking should be simple. After all, being in government and delivering what voters want — making them happy in other words — and increasing the chances of re-election seems to be the proverbial win-win scenario.

Which begs the question, why don’t political parties do it?

Why don’t they deliver policies that are good for the electorate and good for their re-election chances?

Let’s cut to what the voters, in general, want.

A policy framework where each person who wants a job gets a job is key. In addition, access to quality and affordable health care and education, from kindergarten to university to trades training is fundamental. There are other issues that are basic, simple and fair.

Voters want the government to provide aged-care services that treat the older members of society with dignity. We want decent infrastructure, especially pubic transport and roads. We want people who are doing it tough to be supported by a welfare safety net — a decent rate of pension, unemployment benefits and disability support.

So far, so good.

Australia has given up on solving unemployment

Sun, 20 Aug 2017

This article first appeared on The New Daily website at this link: https://thenewdaily.com.au/money/finance-news/2017/08/16/stephen-koukoulas-unemployment/ 

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Australia has given up on solving unemployment

 It is a sad state of affairs to realise that the current crop of Australian policy-makers have effectively given up on reducing unemployment.

Treasury reckons that the lowest the unemployment rate can go without there being a wages and inflation breakout is around 5.25 per cent.

The Reserve Bank of Australia notes something similar, forecasting that even when the economy is growing strongly at an above-trend pace, the unemployment rate will hover between 5 and 6 per cent.
The current unemployment rate is 5.6 per cent or some 728,100 people – enough to fill the Melbourne Cricket Ground about seven times.

Given the Treasury and RBA estimates, it looks like Australia will never see fewer than about 700,000 people unemployed – no matter what kind of improvement we see in the latest jobless figures on Thursday.
It seems to be a peculiarly Australian issue. In the US, the unemployment rate is 4.3 per cent, in the UK it is 4.5 per cent, in Japan it is 2.8 per cent while in Germany, the unemployment rate is 3.9 per cent. And none of these countries is experiencing a wage/inflation problem. Indeed, even with the very low unemployment rate in Japan, wages are actually falling.