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‘Jobs and growth’? Both are stalling actually

Record low wages growth and job creation has stalled.

These are the facts on the labour market revealed this week as the election campaign rolls along and economic policy underpins the campaigns of the major parties. For the Coalition, the campaign slogan ‘jobs and growth’ is running a bit thin with this news.

The rate of employment growth has stalled with only 27,500 additional jobs over the last five months.

Over this time, the working age population has increased by 136,800 meaning that 80 per cent of new entrants to the labour market have not found work. In a strong labour market, the take up of new entrants to the labour market is usually 65 to 70 per cent.

Making the news even more problematic is the decline in full-time employment, which has dropped 31,600 in the last five months. This means that the number of hours worked within the labour market is falling, suggesting a softer tone to the rate of economic growth and another constraint on consumer spending as part-time workers take home less pay than full-time workers.

This mediocre news on employment may also explain why wages growth is so dismally weak. Over the past year, wages are up just 2.1 per cent, the lowest rate of increase since the current wage estimates were first compiled in the 1990s and if we look back at other wage measures that go further back in history, it is likely that we are living through the lowest rate of wage increase in close to 50 years.

Little wonder the workforce in nervous about job security and consumer spending is only muddling along. Without income growth or a solid rise in employment, the only way consumer spending can pick up is via more debt or lower savings.

The outlook for employment has soured in recent months. The ANZ job advertisement series has edged lower and the Dun & Bradstreet employment expectations survey also shows a stalling in demand for new labour.

There was a general consensus, including from the government in the recent budget, that the unemployment rate would edge lower to 5.5 per cent. This is looking increasingly shaky with the economy taking a step lower and the hard evidence on demand for labour going into reverse.

The policy question is what to do?

The government can use fiscal policy to underpin growth.

The obvious area of sound long run policy with positive effects on growth and jobs is infrastructure. Spending on roads, inner city public transport, rail, airports, schools and the now fractured NBN are obvious candidates. And with interest rates on government bonds at record lows, 10 year bond yields are currently around 2.25 per cent, the cost of such infrastructure is cheap.

It is to be hoped that the labour market is currently just going through an air pocket of weakness and the recent data is not a trend to sustained weakness. What happens to employment and the next few inflation readings will determine what the RBA will do with official interest rates and whether the winner of the Federal election will ramp up fiscal policy as a driver of jobs and growth.