Conditions now are clearly weak.
With the unemployment rate stuck at 5.5 per cent in concert with the underemployment rate entrenched above 8 per cent, there is no surprise that annual wages growth is mired near record lows around 2 per cent. Despite these concerning aspects of the labour market, the Prime Minister Malcom Turnbull and Treasurer Scott Morrison are going to frame their election campaign on economic management and jobs.
The jobs numbers are talked up at every opportunity by government ministers, with rare references to the unemployment rate and record low wages growth.
This is a risky strategy for many reasons, not least because the labour market is softening and the track record of the Coalition on the labour market as it approaches its 5 year anniversary in office, is at best problematic.
Since the Coalition was swept to office in September 2013, the unemployment rate has never been below 5.4 per cent. In contrast, in the almost 6 years when the previous Labor government was in office, the unemployment rate was below 5.4 per cent for 48 months. Never once was the underemployment rate above 8 per cent when Labor were in power, where is appears entrenched under the Coalition.
In terms of wages, the annual increase labour price index has been at or below 2.5 per cent since the December quarter 2014. Never once during the previous Labor government did annual wages growth fall below 2.5 per cent and in fact, the average annual increase from the end of 2007 to the end of 2013 was a respectable 3.6 per cent. Little wonder the current wage, unemployment and underemployment dynamics are undermining confidence in the economy and the government.
The recent budget assumes the unemployment rate will not fall below 5 per cent. This is a reflection of poor economic policy as can been seen in the contrast of many other industralised countries which have unemployment rates around 4 to 4.5 per cent and even lower.
Even a 5 per cent unemployment rate will do little to encourage wages growth to recover to 3.5 to 4 per cent, where it should be when the workforce is fully employed. The economic case for some targeted and immediate infrastructure spending, in concert with greater funding for education, skills and training, would seem an essential foundation to get unemployment and underemployment lower over the medium term.
Unlike what we saw in the budget, tax changes that skew greater take home pay to low and middle income earners, which can be revenue neutral if carefully framed, would also see a relatively quick boost to national spending and economic activity and this would help skew the unemployment rate lower.
Company and income tax cuts that are phased in over many years will not help much, if at all, to repair the labour market. Unfortunately, the government thinks the labour market is in good shape and the budget did little to deliver a material reduction in unemployment and higher wages. That is likely to be a political problem as the election draws near.