tag:theconversation.com,2011:/us/topics/full-employment-9287/articlesFull employment – The Conversation2023-09-29T05:43:05Ztag:theconversation.com,2011:article/2146432023-09-29T05:43:05Z2023-09-29T05:43:05ZPolitics with Michelle Grattan: Treasurer Jim Chalmers on jobs and work<p>Treasurer Jim Chalmers released his White Paper on employment this week. </p>
<p>Its aim is for everyone who wants a job to be able to get one without having to search for too long. </p>
<p>The paper says that a surprisingly large number of people are looking for work or for more hours of work, some three million, and that’s when unemployment is at a low 3.7% and we have labour shortages in multiple sectors. </p>
<p>Chalmers recognises that Australia’s labour market is “really resilient” and the government started in a position of “genuine strength” but the unemployment figures don’t paint the full picture: </p>
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<p>There are other indications around under utilisation and other data that we talk about in the white paper, but also a lot of people confront barriers to working or to working more. And that’s why really a big feature, a key focus of the white paper is how do we make it easier for people to grab the opportunities of a changing economy, which is creating jobs. </p>
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<p>In this podcast, Chalmers also canvasses inflation, migration, the cost of living pressures on households and concerns about China’s economy.</p>
<hr>
<p>OFFICIAL</p>
<p>The Hon Jim Chalmers MP</p>
<p>Treasurer</p>
<p>TRANSCRIPT</p>
<p>E&OE TRANSCRIPT
PODCAST
THE CONVERSATION
FRIDAY, 29 SEPTEMBER 2023</p>
<p>SUBJECTS: Employment White Paper, full employment, employment services, Indigenous employment, industrial relations, migration, housing, China economy, budget, inflation, cost-of-living relief, interest rates.</p>
<p>MICHELLE GRATTAN, HOST: Jim Chalmers has released his white paper on employment this week. Its aim is for everyone who wants a job to be able to get one without having to search for too long - that’s full employment. The paper says that a surprisingly large number of people are looking for work or for more hours of work - up to some three million - and that’s when unemployment is at a low 3.7 per cent and we have labour shortages all around the place. Today, we have Jim Chalmers to talk with us about some of the issues in the white paper.</p>
<p>Jim Chalmers, how is it that all these people are looking for work or for more hours when we have this low unemployment rate and labour market shortages? What’s the story here?</p>
<p>JIM CHALMERS, TREASURER: First of all, Michelle, I think it is good to recognise that the labour market has been really resilient. I think the most stunning indication of that is since we started measuring unemployment month to month in 1978, 45 years ago, there’s only been 18 times where unemployment had a three in front of it, and 15 of those times have been under this Prime Minister Albanese so we start from a position of genuine strength but as you rightly say in your question, there are still people looking for more work or for more hours. A couple of ways to understand that - first of all, the unemployment rate is not the whole story. There are other indicators around underutilisation and other data that we talk about in the White Paper on jobs and opportunities but also a lot of people confront barriers to working or to working more and that’s why really a big feature, a key focus of the white paper is how do we make it easier for people to grab the opportunities of a changing economy which is creating jobs but we need to get better at hooking people up to them.</p>
<p>GRATTAN: And obviously, this is going to extend across a number of areas. For example, we’ve got the Royal Commission on Disability tabled today, a lot of people in the disabled sector will need help to get more work.</p>
<p>CHALMERS: Absolutely, and I pay tribute to Bill Shorten and Amanda Rishworth for the work that they’re doing alongside this Royal Commission. And again, if your listeners read the Employment White Paper, there is a big focus on how do we make it easier for people to overcome barriers to work and those barriers might be disability, they might be caring responsibilities. Frequently, it’s about communities where there is entrenched and often intergenerational disadvantage - and that’s a bit personal for me because I represent communities like that and in lots of ways one of the reasons I’m here and certainly one of the motivations for the white paper is because we need to bust up this cycle of intergenerational disadvantage and long-term unemployment. There are barriers to people being beneficiaries of the big changes underway in our economy and our society and we want to make it easier for people to grab those opportunities.</p>
<p>GRATTAN: One particular area of disadvantage is Indigenous communities, especially those away from the major population centres, from towns and so on out in the outback. Have you any particular strategy to try to deal with that challenge?</p>
<p>CHALMERS: I think two things are really important here, Michelle. One of the specific announcements we made when we released the white paper was about a genuine partnership between the Government and the Coalition of Peaks, an economic partnership which is all about working out the specific challenges in First Nations communities, but particularly, as you rightfully say, in remote communities. The whole white paper tries to say when we’ve got unemployment low in aggregate across the country, when we’ve got all these opportunities in aggregate, how do we get much better about thinking about specific communities and First Nations communities are obviously a big part of that, so there’s the economic partnership with the Coalition of Peaks, there’s also the way that we are reforming the CDP, Linda Burney is leading that work but the Voice is important here as well because whether it’s jobs policy or other kinds of policies, we need to move away from making policy for First Nations people and move towards making policy with First Nations people and that applies to the labour market, just as it applies to all of the other ways that we want to close the gap in health, incarceration, education and the like.</p>
<p>GRATTAN: I just should explain for our listeners, the Coalition of Peaks is a representative body that covers a very large number of Indigenous organisations. Now just returning to the general on employment, do you think that our employment agencies need a shake up? The system was privatised decades ago. Has that worked? Is it working?</p>
<p>CHALMERS: I don’t think it’s working as it should, or as well as it can. I pay tribute here to my colleagues, Julian Hill, who’s doing an important piece of committee work on this but also Tony Burke, the responsible minister. We recognise that employment services aren’t doing as good a job as we want them to and so what we’ve done in the Employment White Paper is to say, here are eight principles - I won’t read them all out for your listeners - but eight principles that we will rely on to reform the system. Julian, Tony, myself and other ministers are working to reform employment services along the lines of these eight principles but our objective here is really to think about it in terms of how do we invest in people’s opportunities and their capacity, their capability to grasp the opportunities of a labour market which has been relatively strong and for lots of reasons, too many to go into here, the system has been falling short and that’s why we want to change it but we’re doing it in a really methodical, really considered way and we thought the best way to give people a sense of where that’s headed is to outline the eight principles that we’ll build the new system on.</p>
<p>GRATTAN: In the paper, you define full employment as everybody who wants to get a job being able to do so in a reasonable time, without too much delay. Did you consider putting a number on the unemployment rate that represents full employment? Why did you decide not to publish such a number? The Keating white paper on employment in 1994, for example, had a target of cutting unemployment from then 10 per cent to five per cent by the year 2000.</p>
<p>CHALMERS: Now I understand that people have raised this in the week or so since we released the white paper. There’s a few things I’d say about that. First of all, there is a technical assumption about full employment called the non-accelerating inflation rate of unemployment, the NAIRU and that’s an important assumption. It’s a necessary number that feeds forecasts in budgets and the work of the Reserve Bank but that is distinct, but complementary to how we talk about full employment in the white paper and the reason why we’ve tried to broaden it out and talked about sustained and inclusive full employment, a new definition of full employment, is because as I said earlier, this isn’t just about the unemployment rate, it’s about underutilisation, it’s about underemployment, it’s about concentrated areas of long-term unemployment and so we’ve tried to broaden out these considerations rather than say the be all and end all is one number. The other important thing here, the other reason why we haven’t gone down the path that you describe in your question is because we want to drive down full employment over time. There’s a near-term consideration but in the medium term and in the longer term, a lot of the investment we talk about in the white paper is about trying to get unemployment lower, as low as we can, but consistent with all of the other pressures in our economy, so one static number wouldn’t really do the job - it’s a range of measures and it’s an aspiration over time to create sufficient opportunities so that everyone who wants a job can find one without looking for too long.</p>
<p>GRATTAN: Business representatives have said that the initiatives in the White Paper will be overwhelmed by the Government’s proposed changes to industrial relations. How do you respond to this? And why was relatively little said about industrial relations issues in the paper?</p>
<p>CHALMERS: First of all, I don’t accept that we went ‘light on’ describing our changes to industrial relations. I think in a number of places in the White Paper, you can see where we’ve talked about job security or getting wages moving again, or the gig economy, these are all important parts of our industrial relations strategy so I’m not sure that that critique - obviously I’ve heard it – obviously, I listen respectfully when people have got views about the work that we’ve done here but I don’t accept or agree that industrial relations is absent, it’s in lots of ways kind of central but I think just as importantly, if you look at the feedback from the major business groups, which has been caricatured as focused almost exclusively on industrial relations - that’s not been the experience. The head of ACCI said “this is an important strategy, no doubt about it”, and backed in our approach to full employment, talked about our approach to productivity - quite positive about it. The BCA said that the White Paper’s areas are “well targeted to deliver sustained employment growth, job security and productivity.” They talked about the synergies between their work and my work and this paper. The AIG said, “it’s an important blueprint designed to equip ourselves for the future.” And I could go on, but I won’t. My point is here, Michelle, the business community - which I work closely with and I appreciate, and I’m grateful for all the ways that we do that, collaborate very closely - they’ve been quite positive overall about the Employment White Paper. They haven’t been focused exclusively on the areas where there’s not unanimity in industrial relations, and I really welcome the quite positive feedback that we’ve had from them.</p>
<p>GRATTAN: We’re getting a detailed policy on migration soon but there are a couple of questions I’d like to explore with you on this. The net migration intake is running well ahead of the forecast, is this a problem, especially given the acute housing shortage we confront?</p>
<p>CHALMERS: Well, the net overseas migration figure is historically high and that’s largely a consequence of two things. First of all, the international students are coming back much faster than was anticipated after COVID and secondly, we are an incredibly attractive destination for people on tourist visas. So the students and the tourists are driving that higher than usual number and both of those things are good for our economy in the sense that they feed our services, exports and so that’s important. I think one of the things that people don’t understand about the net overseas migration numbers is that it’s demand driven - it’s not a government target, it’s not a government policy to hit a certain number, it is a consequence of those students and the tourists and it’s a net figure and so what we need to do is to make sure that we can manage pressure on our population and that’s what we’re doing. That’s one of the big reasons why housing has become one of the top handful of priorities for the Government - billions of dollars flowing into investing in affordable housing and that’s because if we want all of the benefits of migration, being an attractive place for people to live, then we’ve got to make sure that we manage those pressures wisely and that’s what we’re doing, that’s what our housing policies are about, the Employment White Paper goes to it, and Clare O'Neil’s migration strategy will go to that as well.</p>
<p>GRATTAN: The Government’s emphasis is on attracting high skilled migrants yet a lot of our labour shortages are in semi-skilled or even unskilled work - for example, in aged care, even in the building industry. So, how do you deal with this problem?</p>
<p>CHALMERS: Well, the migration strategy that Clare O'Neil is putting together does go to some of these issues - and aged care, in fact, has been already - even before the release of that overarching strategy has been a big priority for us, and in building as well. I think what people will see, and I don’t want to kind of front run or pre-empt Clare’s really great work on this, but the migration strategy is largely an economic strategy. It’s about making sure that the migration system works for us, in our interests and part of that is making sure that we’re filling the needs of workers in areas where they are genuinely needed, but also not treating that as a substitute for training. The Employment White Paper has a big focus on training and education, lifelong learning, retraining, reskilling, and that’s our highest priority. But the migration system’s got a role to play here, not as a substitute for training but as a way to make it complementary and that’s the approach that Clare’s taking.</p>
<p>GRATTAN: One of your goals is to reignite productivity, and of course, you’re overhauling the Productivity Commission, but is this getting harder to do in an increasingly service-dominated economy? There’s much less scope for productivity improvement in areas like hairdressing or aged care than in manufacturing.</p>
<p>CHALMERS: I think it’s harder to measure productivity in some of these industries, the services sector, and we know from the Intergenerational Report and the Employment White Paper that we expect workers, for example in the care and support economy, the need for those workers is going to absolutely explode as our population ages and it is harder to measure productivity in those areas but that doesn’t make it any less important. And so, so much of our training agenda, so much of what we’re investing in in terms of participation, all of that is to try and make sure that our whole economy but particularly sectors where we’re going to get lots of growth, that they are as productive and innovative and as competitive as possible. How we adapt and adopt technology is crucial to that, how we manage the energy transformation is crucial to that but I think most of all, how we invest in people, how we invest in the stocks of human capital in this country will go a long way to determining whether we can make these growing sectors of the economy, including in the services sector, more productive so that people can get higher wages and lift living standards overall in our economy.</p>
<p>GRATTAN: What happens to the economy also depends on what happens elsewhere outside Australia. You’ve been worried about developments in China over recent months, the slowing of the Chinese economy. What’s your latest thinking and information on this?</p>
<p>CHALMERS: Well, I’m still quite concerned about China. I think you would expect me to sort of maintain a hierarchy of concerns about our global economy in our domestic economy and I think in the global economy, China’s really number one for me at the moment. There are challenges in their property sector in particular, we’ve seen really quite a substantial slowing across a range of indicators in the Chinese economy and that has big consequences for us, of course, in a world where China plays such a big role in our prospects and so I’m still concerned about it. I monitor the Chinese economy very closely, as does the Treasury, as do all the private sector players that we talk to and it remains an ongoing concern. I’m confident that the authorities there know that they’ve got a problem and you hear in dispatches the different sorts of considerations that that might bring the Chinese Government but overall, China’s still a big concern, it’s something that we monitor incredibly closely.</p>
<p>GRATTAN: You’ve just announced a $22 billion surplus for last financial year, the Budget projects deficits for this financial year and continuing on. But surely now, realistically, there’s a good chance of a surplus this financial year isn’t there?</p>
<p>CHALMERS: It genuinely remains to be seen, Michelle, and revenue in the budget is really unpredictable at the moment for a couple of reasons. First of all, we’ve seen a bit of a recovery in some of our commodity prices, but they have actually been underneath forecast trajectory, for a little while, earlier in the year and so how that all kind of nets out remains to be seen - revenue is a bit unpredictable and also, there are good reasons to be conservative about all of this. Our economy is slowing considerably as a consequence of China and the impact of the rate rises which began before the election and that has implications for revenue and for the budget as well, so I would prefer to be careful and cautious and conservative about revenue really all of the time, that’s the approach I take but especially when the global and domestic economy is so unpredictable and that has consequences for the prices the world pays for our goods and services.</p>
<p>GRATTAN: There is increasing pressure at the moment, of course, given higher petrol prices and people’s grocery bills going up and so on to spend more money. We’re hearing calls all over the place for extra help for households. You’re resisting this. How do you justify that?</p>
<p>CHALMERS: Well, the point I’m making is that we are right now rolling out billions of dollars in cost-of-living help and that’s because we recognise that people are under extreme pressure right now and that’s why we’ve been able to get the budget in better nick but that hasn’t come at the expense of rolling out relief - whether it’s help with energy bills or taking the edge off out-of-pocket health costs, the biggest increase in Commonwealth Rent Assistance in 30 years, really so many different ways we’re trying to roll out this cost-of-living help to take some of the edge off inflation without adding to it and so that’s our focus, that’s still rolling out right now and that’s an important part of helping people to deal with it. We’ve also got to ensure that we can afford whatever assistance we’re providing and last year we were able to get the budget in better nick and provide that assistance but the pressures on the budget are actually intensifying rather than easing - whether it’s aged care or Medicare, defence, the NDIS, the interest bill on our debt, we need to make sure that we’re managing the economy in the most responsible way. We’ve struck a good balance to here on cost-of-living help as well as improving the budget position and that’s our focus right now - rolling that help out. In future budgets, if there’s room to do more or if there’s a case to do more, obviously we consider that then but for now, our focus is on the cost-of-living relief that we’ve already budgeted for.</p>
<p>GRATTAN: This week we saw the monthly inflation numbers tick up. Do you think that people should be worried about another interest rate rise now or later?</p>
<p>CHALMERS: As you know Michelle, I try not to predict or pre-empt the decisions that the Reserve Bank takes independently but what they would typically do is they would look at the overall direction of travel when it comes to inflation and yes, there was a tick up in that monthly number but those monthly numbers are notoriously volatile, they can get lumpy and so what they would do is they would see that quarterly inflation peaked before the election last year, it peaked in annual terms around Christmas time, the overall direction of travel has been that inflation is moderating and I would anticipate that they would factor all of that in, including really quite a weak retail figure that we got this week as well. They will factor all of that in but the other thing which is really important here - and none of your listeners who’ve got a mortgage need reminding of this - but the interest rate rises that are already in the system are biting quite hard in our economy, you see that in the consumption figures, you see it in retail, you see it in household saving and so the Reserve Bank, when they look at this and take their decision independently, they will weigh all of those things up and not just one monthly inflation figure which was driven largely by petrol prices as a consequence of some of the global suppliers pulling back on production.</p>
<p>GRATTAN: Jim Chalmers, I just want to finish up by going back to the Employment White Paper and putting to you a somewhat contrarian point of view when we’re thinking about encouraging more employment, people to work longer. Do you think there’s a case to be made that people are actually working too much? In other words, they need jobs, obviously, but when we talk about more and more hours, more and more participation, this is good for economic growth but beyond a certain point, are there social and other costs from everyone working so much?</p>
<p>CHALMERS: Of course there are and what we’re really trying to do here is to give people choices. People are best placed to work out what is the best combination of their work responsibilities and family responsibilities and how do they work enough and earn enough to provide for their loved ones and what we’re talking about here, whether it’s our changes to early childhood education or the way that we think about investing in skills or really right across the board including making it easier for older people to work a little bit more if they want to, not forcing them but giving them that choice - all of these things really are about helping people make the best choice that they can for their own situation. Obviously it’s concerning when so many people have to work so many jobs in order to provide for their loved ones and so we want to make sure that jobs are not just secure but that people are fairly paid so that they get decent reward for their effort and that all comes back to giving people the choices and the capability and the skills to do the best thing for themselves and for their loved ones and that’s a pretty good summary of what we’re trying to do in the White Paper.</p>
<p>GRATTAN: Jim Chalmers, thanks very much for making time to catch up with us today. It’s been a big week for you because you’ve been travelling around Queensland, selling the message and getting in touch with people’s feedback, no doubt. That’s all for today’s politics podcast. Thank you to my producer Mikey Burnet. We’ll be back with another interview soon but goodbye for now.</p>
<p>ENDS</p><img src="https://counter.theconversation.com/content/214643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In this podcast, Treasurer Jim Chalmers canvasses inflation, migration, the cost of living pressures on households and concerns about China’s economyMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2143572023-09-26T06:09:08Z2023-09-26T06:09:08ZThe Albanese government blew its shot at setting a historic new unemployment target<figure><img src="https://images.theconversation.com/files/550177/original/file-20230926-15-aybg8t.png?ixlib=rb-1.1.0&rect=838%2C362%2C3477%2C1920&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Treasurer Jim Chalmers says the federal government’s employment white paper is “<a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/working-future-white-paper-jobs-and-opportunities">ambitious</a>”. I’m not convinced.</p>
<p>A clearly ambitious statement would have specified a target for unemployment, ideally one that was a bit of a stretch.</p>
<p>The Keating Labor government’s <a href="https://theconversation.com/1-in-5-australian-workers-are-either-underemployed-or-out-of-work-white-paper-210967">Working Nation</a> statement did that in 1994. Released at a time when unemployment was almost 10%, it specified a target unemployment rate of <a href="https://images.theconversation.com/files/550136/original/file-20230925-26-rz0hz2.PNG">5%</a> – an ambition that served as a beacon for decades.</p>
<p>That target certainly needs to be updated. Unemployment is now well below 5%, meaning “full employment” is now much less than 5%. Yet the Albanese government has passed up a historic opportunity to say how much less, which it could have done by setting its own target.</p>
<h2>Setting our sights below 5%</h2>
<p>The <a href="https://treasury.gov.au/employment-whitepaper/final-report">white paper</a> released <a href="https://theconversation.com/1-in-5-australian-workers-is-either-underemployed-or-out-of-work-white-paper-210967">on Monday</a> defines full employment as a state in which “everyone who wants a job should be able to find one without searching for too long”. That means our unemployment target ought to be somewhere between zero and 5%. </p>
<p>Of course, the unemployment rate can never be zero. </p>
<p>There will always be people out of work while they are moving between jobs, what the white paper calls “frictional” unemployment. That will also be true when Australia’s mix of employers changes – what the paper calls “structural” unemployment, as new industries requiring one sort of training replace old industries that required another.</p>
<p>The white paper says what matters in addition to unemployment (539,700 Australians) is “underemployment” in which people work fewer hours than they want (1 million) and “potential workers” who would like work but aren’t actively looking and so aren’t counted as unemployed (1.3 million). </p>
<p>I get that these things matter. I get that we need, in the words of the white paper, “a higher level of ambition than is implied by statistical measures”. </p>
<h2>What gets measured gets done</h2>
<p>But that higher level of ambition ought not replace targets.</p>
<p>If a target isn’t specific, it isn’t a target at all (or at best it’s a fuzzy target). That means it’s less likely to be aimed at and less likely to be hit.</p>
<p>That’s how it’s been with full employment itself. In 1996 Treasurer Peter Costello and the man he appointed Reserve Bank governor, Ian Macfarlane, signed what became the first <a href="https://www.rba.gov.au/publications/bulletin/1996/sep/pdf/bu-0996-1.pdf">Statement on the Conduct of Monetary Policy</a>, an agreement that’s been updated <a href="https://www.rba.gov.au/monetary-policy/framework/">six times</a>.</p>
<p>As with all of the agreements since, that first statement set out an inflation target (“between 2% and 3%, on average, over the cycle”) but <em>not</em> an employment target – even though both are meant to be objectives under the <a href="https://www.rba.gov.au/about-rba/our-role.html">Reserve Bank Act</a>.</p>
<p>As a result, Governor Macfarlane was able to step down ten years later, secure in the knowledge that on average he had hit the middle of the target band: 2.5% inflation. His successor Glenn Stevens stepped down ten years further on, <a href="https://www.rba.gov.au/speeches/2016/sp-gov-2016-08-10.html">quietly boasting</a> the same thing.</p>
<p>But neither could make any boast about hitting the employment target – because there wasn’t one. </p>
<h2>How failing to set a target costs jobs</h2>
<p>The governor who has just retired, Philip Lowe, looks like he’ll hit an inflation average of 2.8%, which is pretty low given how high inflation has been lately.</p>
<p>But an estimate by former Reserve Bank staffer Isaac Gross, prepared using the Reserve Bank’s own economic model, suggests that in doing so he kept unemployment a good deal higher than it needed to be between 2016 and 2019 – the equivalent of <a href="https://theconversation.com/the-rbas-failure-to-cut-rates-faster-may-have-cost-270-000-jobs-185381">270,000</a> people being out of work for one year.</p>
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Read more:
<a href="https://theconversation.com/the-rbas-failure-to-cut-rates-faster-may-have-cost-270-000-jobs-185381">The RBA's failure to cut rates faster may have cost 270,000 jobs</a>
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<p>Lowe wasn’t held to account for the extra unemployed in the same way as he is being <a href="https://www.afr.com/policy/economy/don-t-judge-phil-lowe-s-inflation-fighting-legacy-yet-20230912-p5e3x6">held to account</a> for his performance on inflation. Why? Because he was never actually given an unemployment target.</p>
<p>I am quite prepared to acknowledge that other measures of employment matter, underemployment among them. But here’s the thing: they move in line with unemployment. </p>
<p>When Australia’s unemployment rate falls, Australia’s underemployment rate falls, almost in tandem. </p>
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<p>It’s easy to see why. As employers find it hard to hire new workers, they get existing workers to put in more hours. And retirees and others who haven’t been looking for work begin putting themselves out there. </p>
<p>Australia’s <a href="https://www.investopedia.com/terms/p/participationrate.asp">participation rate</a> measures the proportion of the population making itself available for work. As unemployment has fallen, it has climbed to an <a href="https://tradingeconomics.com/australia/labor-force-participation-rate">all-time high</a>. </p>
<h2>Our unemployment rate is a proxy for what matters</h2>
<p>This makes the unemployment rate just about the perfect proxy for everything else about the labour market that matters, and just about the perfect number to target.</p>
<p>The Albanese government could have recognised that this week – setting a stretch target of 3% (or even 4%) as an aspiration. Even that would have been less “ambitious” than Keating choosing 5%, when the rate was twice as high.</p>
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<a href="https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=966&fit=crop&dpr=1 600w, https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=966&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=966&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1215&fit=crop&dpr=1 754w, https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1215&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/521977/original/file-20230419-24-2xae0m.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1215&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://rbareview.gov.au/">2023 RBA Review</a></span>
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<p>Treasurer Chalmers says the government didn’t set a target because apparently the unemployment rate <a href="https://treasury.gov.au/sites/default/files/2023-09/p2023-447996-04-ch2.pdf">doesn’t capture</a> “the full extent of spare capacity in our economy or the full potential of our workforce”.</p>
<p>The saving grace is this government has a second chance at this. Chalmers is about to update the Reserve Bank’s statement of expectations, the one that until now hasn’t included a target for unemployment.</p>
<p>It would be open to him to put a specific target in there – making the RBA as accountable as it is now on inflation.</p>
<p>At the moment, it looks more likely Chalmers will adopt a recommendation of the <a href="https://theconversation.com/no-the-rba-review-wont-mean-handing-the-banks-decisions-to-part-time-outsiders-214030">independent review</a> of the bank, which reported in March.</p>
<p>That review recommended the bank be <a href="https://rbareview.gov.au/sites/rbareview.gov.au/files/2023-06/rbareview-report-at_0.pdf">required</a> to produce its own “best assessment of full employment at any point time”, including its estimate of the lowest rate of unemployment that can be sustained without accelerating inflation.</p>
<p>It would be a small step forward. That full employment estimate would become a number to watch, in the same way as the bank’s performance on inflation is at the moment. </p>
<p>But it still won’t be an official government target. The Albanese government had an opportunity to live up to its ambitious rhetoric – and it passed.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/1-in-5-australian-workers-is-either-underemployed-or-out-of-work-white-paper-210967">1 in 5 Australian workers is either underemployed or out of work: white paper</a>
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</p>
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<img src="https://counter.theconversation.com/content/214357/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>30 years ago, Labor Prime Minister Paul Keating adopted an ambitious official target for Australian unemployment. The Albanese government just passed up a historic opportunity to go even further.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2142562023-09-25T02:00:18Z2023-09-25T02:00:18ZGovernment’s employment white paper commits to jobs for all who want them – and help to get them<p>The employment white paper, released on Monday, has outlined multiple measures the Albanese government will implement to assist the about three million people who want jobs or more hours of work. </p>
<p>They include making permanent a temporary measure allowing pensioners to earn more, smoothing the transition to work for people on welfare, and alleviating the disadvantage many of the unemployed face. </p>
<p>In the white paper, prepared by Treasury, the government commits to full employment, which it defines as “everyone who wants a job [being] able to find one without having to search for too long”. </p>
<p>It does not put a number on the unemployment rate this represents.</p>
<p>The government will make permanent the current work bonus measure for older pensioners and eligible veterans so they can work more without reducing their pension.</p>
<p>It will double the period during which many income support recipients can receive no payment, thus allowing them to keep access to social security benefits such as concession cards for longer when they first get back into work.</p>
<p>Social enterprises will be backed to address persistent labour market disadvantage. TAFE will be boosted, and the take up of “higher apprenticeships” in the priority areas of net zero, the care and digitisation will be accelerated. </p>
<p>In addition to nine immediate measures the paper looks to longer term policies to enhance people’s access to the labour market. </p>
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<p>“The government’s vision is for a dynamic and inclusive labour market in which everyone has the opportunity for secure, fairly paid work and people, businesses and communities can be beneficiaries of change and thrive. We are working to create more opportunities for more people in more places,” the paper says.</p>
<p>The paper comes as the unemployment rate is at 3.7%, which is expected to tick up as the economy slows. This is very low for modern times but the white paper highlights constraints to higher employment. </p>
<p>“Inclusive full employment is about broadening opportunities, lowering barriers to work including discrimination, and reducing structural underutilisation over time to increase the level of employment in our economy.” </p>
<hr>
<hr>
<p>Structural underutilisation is a mismatch between potential workers and available work. Reasons include workers’ skills not matching what the jobs need, workers and jobs being geographically apart, and barriers presented by disadvantage or discrimination.</p>
<p>“The government will take a broad approach to achieving sustained and inclusive full employment. This includes sound macroeconomic management to help keep employment as close as possible to its current maximum sustainable level in the short term. We are also committed to addressing the structural sources of underutilisation to increase the level of full employment that can be sustained over time without adding to inflationary pressures,” the paper says.</p>
<p>“We are taking comprehensive action, including improved education, migration and regional planning systems, and setting out reform directions to improve key enablers such as employment services, affordable and accessible child care, and housing. We are equipping the workforce with the skills needed for the jobs of the future, and enhancing the ability of individuals and businesses to adapt to the modern labour market”.</p>
<p>The report says increasing participation in work promotes social inclusion as well as boosting the country’s economic potential. </p>
<p>It notes the five regions with the highest long term unemployment make up 12% of all the country’s long term unemployed, although they have only 5% of the working age population. </p>
<p>Disadvantage can led to “intergenerational cycles of joblessness”, the paper says. Complex personal circumstances and discrimination compound local factors.</p>
<p>“Many people face multiple, interconnected barriers to employment such as a lack of access to services or secure and affordable housing.” </p>
<p>Unemployment particularly affects certain cohorts, including Indigenous people, people with disabilities and the young. </p>
<p>The paper points to the major forces that will shape the economy over coming decades. They are the ageing population, a rising demand for care and support services, the growing use of digital and advanced technologies, the global net zero transformation, and increasing geopolitical risk and fragmentation disrupting supply chains and making resilience more important. </p>
<p>“These forces are changing the composition of our industries, workforce needs, and the nature of work itself.”</p>
<p>The paper looks to renewable energy and digital technologies to improve productivity and says boosting productivity in industries such as care and support services will be increasingly important. “Rather than repeating previous waves of reforms, Australia’s productivity agenda needs to respond to current economic circumstances and identify modern strategies to advance enduring policy goals.”</p><img src="https://counter.theconversation.com/content/214256/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the white paper, prepared by Treasury, the government commits to full employment, which it defines as “everyone who wants a job being able to find one without searching for too long”Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2142292023-09-24T12:31:05Z2023-09-24T12:31:05ZEmployment white paper to deliver more highly qualified workers in net zero, care and digitisation<p>The government will commit $41 million for technical and further education and “higher apprenticeships” when it releases its <a href="https://treasury.gov.au/review/employment-whitepaper">white paper on employment</a> on Monday. </p>
<p>Of this, $31 million will be for new TAFE “centres of excellence” and $10 million will be to develop higher and degree apprenticeships in the priority areas of care, net zero emissions, and digitisation. </p>
<p>Treasurer Jim Chalmers said on Sunday the white paper will sketch out 31 future reform directions and contain nine new policies. Its emphasis would be on action. </p>
<p>The extra funding will fast track up to six new centres of excellence under the five-year national skills agreement presently being negotiated. The new centres will be upgrades of existing TAFEs and will establish a co-ordinated national network of institutions that help address the economic challenges facing Australia in the transformation to cleaner energy, the care economy and digitisation. </p>
<p>“The intention is to create new degree apprenticeship qualifications and enable TAFEs to deliver new bachelor equivalent higher apprenticeships independent of universities, giving them capacity to provide students with opportunities to gain the advanced skills needed by industries,” Chalmers and education and skills ministers Jason Clare and Brendan O'Connor said in a statement.</p>
<p>“The government is aiming to double higher apprenticeship commencements in the priority areas identified in the white paper over five years.</p>
<p>"These reforms will mean that apprentices can get degree-level qualifications and university students can more easily get practical training and skills.”</p>
<p>Chalmers said the expansion of TAFE offerings would produce</p>
<blockquote>
<p>more graduates with more of the skills they’ll need to make the most of the big shifts that are shaping our economy into the future – whether it’s the net zero transformation, growth in the care economy or adapting and adopting new technology.</p>
</blockquote>
<p>The white paper, prepared by Treasury, will set out five objectives: </p>
<ul>
<li><p>delivering sustained and inclusive full employment</p></li>
<li><p>promoting job security and strong, sustainable wage growth</p></li>
<li><p>reigniting productivity growth</p></li>
<li><p>filling skills needs and building the future workforce</p></li>
<li><p>overcoming barriers to employment and broadening opportunities.</p></li>
</ul>
<p>Its initiatives will cover ten areas: strengthening economic foundations; modernising industry and regional policy; planning for the future workforce; broadening access to foundation skills; investing in skills, tertiary education and lifelong learning; reforming the migration system; building capabilities through employment services; reducing barriers to work; partnering with communities; and promoting inclusive, dynamic workplaces. </p>
<p>Centrally, the paper will outline the government’s definition of full employment. It has avoided putting a number on it, instead saying it will be achieved when “everyone who wants a job should be able to find one without searching for too long”. </p>
<p>The paper will say discussions of full employment have often too narrowly centred around statistical estimates of the non-accelerating inflation rate of unemployment or NAIRU </p>
<blockquote>
<p>which do not capture the full extent of spare capacity in our economy or the full potential of our workforce. The NAIRU should not be confused with, nor constrain, longer-term policy objectives.</p>
</blockquote>
<p>The government has “broader and bolder aspirations for full employment, aimed at increasing the maximum level of employment we can sustain over time, by reducing structural underutilisation”.</p>
<p>Chalmers on Sunday played down suggested differences between the white paper’s definition of full employment and the Reserve Bank’s calculation of NAIRU, saying it was important not to try to find differences where they did not exist. </p>
<p>The targets in the white paper should be seen as complementary to, but “not in conflict with” the Reserve Bank’s targets. </p>
<p>The paper will say there are at present 2.8 million people wanting work they don’t have or hours they don’t have – equivalent to one fifth of the current workforce.</p><img src="https://counter.theconversation.com/content/214229/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Monday’s white paper will define fuill employment more broadly than in the past as when “everyone who wants a job should be able to find one without searching for too long”.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2107832023-08-01T04:55:48Z2023-08-01T04:55:48ZAustralia is about to set its first full employment target – and it will define people’s lives for decades<figure><img src="https://images.theconversation.com/files/540349/original/file-20230801-17-jlmyej.png?ixlib=rb-1.1.0&rect=86%2C160%2C1773%2C974&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Stand by for one of the most important decisions Treasurer Jim Chalmers and the Albanese government will make. </p>
<p>That decision is to commit future governments and the Reserve Bank to full employment, and, more importantly, spell out what that means.</p>
<p>The Australian government hasn’t wholeheartedly and publicly committed itself to full employment since the 1945 <a href="https://trove.nla.gov.au/newspaper/article/1092124">Full Employment White Paper</a>, released as the second world war was drawing to a close and Australia was gearing up for peace.</p>
<p>The definition Chalmers chooses – whether it specifies an unemployment rate of 3.5%, 4.5%, or the more ambitious target of 3% I would most like – could reverberate for as many decades as the white paper did in 1945.</p>
<p>Tuesday’s Reserve Bank <a href="https://www.rba.gov.au/media-releases/2023/mr-23-19.html">decision</a> not to increase interest rates further makes it more likely we could end up with a more ambitious target.</p>
<h2>Australia’s daunting post-war challenge</h2>
<p>The 1945 white paper was prepared for Prime Minister John Curtin by a committee led by the head of post-war reconstruction <a href="https://www.science.org.au/fellowship/fellows/biographical-memoirs/herbert-cole-coombs-1906-1997">HC “Nugget” Coombs</a>. </p>
<p>In the 20 years leading up to the war, more than 10% of workforce had been out of work, climbing to 25% during the depression. The committee wanted the all-out mobilisation necessitated by war to be <a href="https://www.billmitchell.org/White_Paper_1945/index.html">continued</a> into the peace. </p>
<p>Their challenge was to find jobs for the 1 million defence staff who would be returning to civilian life.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=965&fit=crop&dpr=1 600w, https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=965&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=965&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1213&fit=crop&dpr=1 754w, https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1213&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/540343/original/file-20230801-17770-oc2ler.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1213&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">HC Coombs in May 1942. He helped set Australia up for full employment.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/publications/bulletin/2022/dec/hc-coombs-governor-of-australias-central-bank-1949-1968.html">RBA</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>Achieving that would require governments to actively stimulate private spending, through their own spending and through monetary and other policies “to the extent necessary to avoid unemployment and the consequent waste of resources”.</p>
<p>That was an idea accepted by both Labor and Coalition governments right through to the 1970s, where unemployment remained as low as 2%. It was also one Coombs himself adopted as the first head of the Reserve Bank of Australia from 1960.</p>
<p>But the employment target Coombs helped write in to the Reserve Bank Act was fuzzy: it simply committed the bank to “<a href="https://www.rba.gov.au/publications/annual-reports/rba/2014/functions.html">the maintenance of full employment in Australia</a>”.</p>
<h2>Finally setting a jobs target</h2>
<p>Fast forward to March 2023, when the treasurer was handed the review of the Reserve Bank, <a href="https://rbareview.gov.au/final-report">An RBA fit for the future</a>. </p>
<p>That final report pointed out the bank’s target for inflation is specific – defined in a written agreement with the treasurer as “<a href="https://www.rba.gov.au/monetary-policy/framework/stmt-conduct-mp-7-2016-09-19.html">2-3% on average, over time</a>”. </p>
<p>In contrast, the bank’s target for employment has no numbers attached – resulting in inflation getting prioritised.</p>
<p>While it is true that putting a number on a target doesn’t guarantee an outcome, the number put on the inflation target does seem to have helped bring it down.</p>
<p>The RBA review recommended the treasurer’s agreement with the bank be updated, requiring it to adopt an explicit target for “full employment”. That would most likely be expressed via a range of indicators, including the unemployment rate, the underemployment rate, and the tenure of employment.</p>
<p>Chalmers says he will update the agreement and issue the direction by the end of the year. Before then, next month he will make public his own target for full employment via his <a href="https://treasury.gov.au/review/employment-whitepaper/tor">employment white paper</a>, now being prepared by the treasury.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-theres-no-magic-jobless-rate-to-increase-australians-wages-176538">Why there's no magic jobless rate to increase Australians' wages</a>
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<h2>Moving unofficial targets of the past</h2>
<p>The numbers that the treasurer and the Reserve Bank adopt will matter enormously. And it’s worth clarifying that the target can’t be an unemployment rate of zero.</p>
<p>There will always be some temporary unemployment as people move between jobs. That’s also the case when people leave industries that are no longer needed – such as thermal coal mining in the years ahead, as our energy mix changes – and go on to retrain for jobs in emerging industries.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/with-unemployment-steady-at-3-5-inflation-fears-shouldnt-stop-australia-embracing-a-full-employment-target-203415">With unemployment steady at 3.5%, inflation fears shouldn't stop Australia embracing a full employment target</a>
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</em>
</p>
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<p>For a while in the 1990s, the Reserve Bank acted as if full employment meant an unemployment rate of <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/2.html">7%</a>. That was its estimate of the “non-accelerating inflation rate of unemployment” (also known as <a href="https://theconversation.com/why-theres-no-magic-jobless-rate-to-increase-australians-wages-176538">NAIRU</a>), the rate needed to stop shortages of useful workers pushing up inflation.</p>
<p>In 2017, the bank cut that estimate to <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/2.html">5%</a> and then <a href="https://www.rba.gov.au/speeches/2019/sp-ag-2019-06-12-2.html">4.5%</a> in 2019. Then, about a year after COVID hit, it appeared to cut it further when Governor Philip Lowe said in 2021 there was a chance Australia could achieve and sustain an unemployment rate in the “<a href="https://www.rba.gov.au/speeches/2021/sp-gov-2021-03-10.html">low fours</a>”, although only time would tell. </p>
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<h2>The lower our target, the more secure we will be</h2>
<p>The unemployment rate is now <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">3.5%</a> – a near five-decade low. </p>
<p>If the government and the bank choose to adopt 3.5% as a target, it would put 150,000 more Australians into work than would a higher unambitious target of 4.5% – in perpetuity. </p>
<p>A lower target of 3% (not too far above the <a href="https://www.rba.gov.au/publications/confs/1998/borland-kennedy.html">2%</a> Australia achieved from 1940 to 1974) would do much more than put people into jobs and better use our resources. </p>
<p>It would also help us adapt to change in the way we are going to need to.</p>
<h2>Creating confidence to face change</h2>
<p>The 1945 white paper was on to this, at another time of massive transition when the wartime industries were dying and the peacetime industries emerging.</p>
<p>It said an assurance of full employment would</p>
<blockquote>
<p>assure workers that the community has need of their services somewhere, and will restore the basic sense of security without which new risks will not readily be undertaken. </p>
</blockquote>
<p>It’s a point echoed by Prime Minister Bob Hawke’s former economic advisor, Ross Garnaut, in an address to the <a href="https://ace2023.org.au/">Australian Conference of Economists</a> last month.</p>
<p>He said unless there was confidence in high employment, every time an industry or employer was threatened with closure, there would be a cry of “jobs, jobs, jobs” as workers fought to protect what they had.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australia-is-on-the-brink-of-ending-interest-rate-hikes-and-an-economic-first-beating-inflation-without-a-recession-209877">Australia is on the brink of ending interest rate hikes and an economic first – beating inflation without a recession</a>
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<p>Garnaut told me it was a lesson he learned from Hawke when he signed on with the prime minister in 1983. Hawke agreed with him that the economy would have to change and some industries would have to die. But Hawke told him he wasn’t going to bring on those changes until unemployment was clearly coming down.</p>
<p>When people knew they could get another job, they would accept change.</p>
<p>Now, as in the 1940s and 1980s, we need that confidence. If Chalmers and the Reserve Bank adopt an ambitious target, they’ll create it and set us up for the challenges ahead.</p><img src="https://counter.theconversation.com/content/210783/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia has never clearly defined what “full employment” means. That’s about to change – and a more ambitious definition could help keep 150,000 or more Australians in work.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2048062023-05-03T06:10:27Z2023-05-03T06:10:27ZJob creation isn’t always a good thing. Hobart’s new stadium can only make Tasmania’s housing crisis worse<p>The Albanese government’s announcement it will provide $240 million for a new stadium in Hobart has not had the favourable reception it might have hoped. </p>
<p>Those concerned with the proper operation of the federal system can point out that this kind of funding is the concern of state and local governments.</p>
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<a href="https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Anthony Albanese's Twitter account spruiks the federal funding for Tasmania." src="https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1027&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1027&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1027&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1291&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1291&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524029/original/file-20230503-16-c6ozsh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1291&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><span class="source">Twitter</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>Concerns about process are reinforced by the sorry history of “<a href="https://theconversation.com/the-sports-rorts-affair-shows-the-need-for-a-proper-federal-icac-with-teeth-122800">sports rorts</a>”. Both Labor and Liberal federal governments have funded sports facilities to curry political favour. </p>
<p>To be fair, it is hard to see this project as targeted at a particular seat, but presumably the aim was to win support in Tasmania as a whole. Even compared with the dubious economics of sporting events such as the Formula 1 Grand Prix and the Olympic Games, stadium developments stand out as boondoggles. </p>
<p>Extensive research in the US is <a href="https://econreview.berkeley.edu/the-economics-of-sports-stadiums-does-public-financing-of-sports-stadiums-create-local-economic-growth-or-just-help-billionaires-improve-their-profit-margin/">summarised by the conclusion</a> that over the past 30 years, building sports stadiums has been a profitable undertaking for large sports teams, at the expense of the general public. </p>
<p>While there are some short-term benefits, the inescapable truth is the economic benefit of these projects for local communities is minimal. Indeed, they can be an obstacle to real development.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/devils-in-the-detail-an-economist-argues-the-case-for-a-tasmanian-afl-team-and-new-stadium-204678">Devils in the detail: an economist argues the case for a Tasmanian AFL team – and new stadium</a>
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<h2>Making the business case</h2>
<p>The economic case for the Hobart Stadium is startlingly thin. The only clear-cut benefit attributable to the project is that the new Tasmanian AFL team will play its home games there, replacing the small number of AFL rounds played at Hobart’s existing stadium, Bellerive Oval. </p>
<p>In 2022, <a href="https://www.afltas.com.au/2021/12/09/2022-afl-fixture-announced-with-eight-games-in-tasmania/">eight AFL men’s games</a> were played in Tasmania – four at Bellerive, four at UTAS Stadium in Launceston. A local AFL team will play 11 home games.</p>
<p>The state government’s business case estimates that 5,000 interstate visitors will attend seven matches a year. It seems safe to assume some will fly in and out on the same day, and that few will stay more than two nights. </p>
<p>If we allow an average of one night per visitor, that’s 35,000 bed nights, or an increase of about 0.3% in current visitor nights for Tasmania (about <a href="https://www.tourismtasmania.com.au/research/visitors/">11 million a year</a> in 2022). </p>
<p>Against that must be offset the Tasmanians who will travel to Melbourne and elsewhere for away games.</p>
<h2>What about housing?</h2>
<p>All of this is par for the course for projects of this kind. The big problem for both state and federal governments is that it comes at a time of a housing crisis.</p>
<p>The federal government’s <a href="https://www.pm.gov.au/media/macquarie-point-be-revitalised-government-co-investments">press release</a> contains some vague references to housing developments associated with the project. But this is little more than the sort of PR spin we’d expect from, for example, the proponents of a new coal mine.</p>
<p>The numbers here are quite startling. The centrepiece of federal Labor’s election platform was a <a href="https://theconversation.com/labors-proposed-10-billion-social-housing-fund-isnt-big-as-it-seems-but-it-could-work-174406">$10 billion fund for housing</a>, providing $500 million year to support social housing. (Labor’s bill is currently held up in the Senate, with the Coalition opposed, and the Greens demanding stronger action.)</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/labors-proposed-10-billion-social-housing-fund-isnt-big-as-it-seems-but-it-could-work-174406">Labor's proposed $10 billion social housing fund isn't big as it seems, but it could work</a>
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<p>If this $500 million were allocated proportionally by population, Tasmania would get about $10 million a year. The Commonwealth’s $240 million contribution to the stadium would cover this expenditure until nearly 2050. The total public outlay on the Hobart stadium (with $375 million from the Tasmanian government) would cover most of this century. </p>
<p>At a time of extreme fiscal stringency, such a massive outlay on a luxury project is very hard to justify.</p>
<h2>What about job creation?</h2>
<p>No serious benefit-cost analysis of this project has been made. Instead, supporters have relied on announcing the number of jobs it will create – <a href="https://theconversation.com/devils-in-the-detail-an-economist-argues-the-case-for-a-tasmanian-afl-team-and-new-stadium-204678">4,200 jobs during construction</a> and 950 jobs when operational.</p>
<p>Such numbers are questionable. To make them bigger, governments typically count on the “multiplier effect” of work created for suppliers of various kinds. This is a long-standing tradition taken to new heights by the Albanese government. The announcement of the AUKUS submarine project, for example, was <a href="https://theconversation.com/18-million-a-job-the-aukus-subs-plan-will-cost-australia-way-more-than-that-202026">all about the jobs</a> it would create. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/18-million-a-job-the-aukus-subs-plan-will-cost-australia-way-more-than-that-202026">$18 million a job? The AUKUS subs plan will cost Australia way more than that</a>
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<p>But wait a moment. At the same time as trumpeting the creation of jobs for construction workers, the government is seeking to solve Australia’s “skills shortage” arising from historically low unemployment.</p>
<p>Tasmania’s unemployment rate is 3.8%, marginally above the average for Australia, but lower than at any time since the economic crisis of the 1970s. This low rate represents a situation of full employment, where numbers of unemployed workers and job vacancies are roughly equal.</p>
<p>In such circumstances, creating a job means luring a worker away from another. If the new job is on a major construction project, that means one less worker available to build housing. </p>
<p>As I argue in my book, <a href="https://press.princeton.edu/books/hardcover/9780691154947/economics-in-two-lessons">Economics in Two Lessons</a> (Princeton University Press, 2019), the true costs of wasteful public expenditure are opportunity costs – the alternatives that are foregone. </p>
<p>Multiplier effects make opportunity costs even larger. The project diverts the workers employed directly, and takes all kinds of resources that could otherwise be used for socially useful purposes. This diversion of necessary resources is the truly pernicious aspect of publicly subsidising projects like the AFL stadium. </p>
<p>Tasmania, like the rest of Australia, does not need government action to create any more jobs, particularly in construction. It needs to ensure skilled workers are employed where they can be most valuable.</p><img src="https://counter.theconversation.com/content/204806/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Quiggin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most publicly funded stadium projects are boondoggles. The Hobart AFL stadium is worse than that.John Quiggin, Professor, School of Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2034152023-04-13T05:40:21Z2023-04-13T05:40:21ZWith unemployment steady at 3.5%, inflation fears shouldn’t stop Australia embracing a full employment target<p>Despite warnings of a global economic downturn, Australia has again defied the odds with its official unemployment rate remaining <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/mar-2023">steady at 3.5%</a> in March. </p>
<p>Behind that number though, plenty happened. The total number of people in jobs grew by 53,000. The increase of 116,600 in employment in the past two months surpasses anything seen since the middle of 2022, when the unemployment rate first hit 3.5%. It seems there is still plenty of strength in labour demand. </p>
<p>The only reason Australia doesn’t have an even lower unemployment rate is that labour-force participation rose by about the same amount as employment – 51,500. In fact, the similar size of increases in employment and labour-force participation in the past two months, together with continued high vacancy rates, suggests employment growth now depends on new entrants to the workforce.</p>
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<p>Another month with low unemployment is another month of the benefits that brings. Low unemployment means higher GDP, with more of the nation’s available labour supply being used to produce output. </p>
<p>It also means greater equity. Groups that have the most difficulty getting into work see the <a href="https://theconversation.com/unemployment-rate-back-down-to-3-5-its-anyones-guess-when-things-will-turn-201859">biggest boost in employment</a> when unemployment is low.</p>
<p>With these benefits in mind, you might expect that making unemployment as low as possible would be a constant policy objective for government. Yet I don’t believe that has been the case in recent times.</p>
<p>Instead, the focus has been on achieving the target rate of inflation. Since that target was adopted, in the early 1990s, attention to unemployment has progressively declined.</p>
<h2>Too much fear of inflation</h2>
<p>Certainly, there has been concern when the rate of unemployment has threatened to rise above 5% or 6%, as it did with the Global Financial Crisis of 2007-2008, and with the onset of COVID-19 in 2020.</p>
<p>But apart from those times, we haven’t seriously attended to how low the rate of unemployment should be, or designed policy to seek that objective. By not thinking more seriously about the rate of unemployment, Australia missed the opportunity to push the rate lower in the 2010s.</p>
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<p><iframe id="NTjZT" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/NTjZT/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>In economics, it’s standard to regard full employment as the lowest unemployment rate possible without labour demand causing excessive wage growth and inflation. </p>
<p>This number – known as the non-accelerating inflation rate of unemployment, or NAIRU – is a matter of debate. Prior to the pandemic it was generally thought the unemployment rate couldn’t get <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/2.html">lower than about 5%</a> without being likely to cause wage inflation. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-australias-5-jobless-rate-is-not-full-employment-pushing-up-interest-rates-would-be-wrong-105523">Vital Signs: Australia's 5% jobless rate is not full employment; pushing up interest rates would be wrong</a>
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</em>
</p>
<hr>
<p>But during 2021-22, with the stimulus from fiscal policy to deal with COVID-19, the rate of unemployment fell to its current level, 3.5%, without accelerating wage inflation.</p>
<h2>We need a new unemployment target</h2>
<p>What is needed now, therefore, is a rebalancing of macroeconomic policy objectives. We need a full employment target, expressed as a level or acceptable range of unemployment or <a href="https://www.abs.gov.au/statistics/detailed-methodology-information/concepts-sources-methods/labour-statistics-concepts-sources-and-methods/2021/concepts-and-sources/underutilised-labour">labour underutilisation</a>, to accompany the existing inflation target. </p>
<p>A full employment target will force governments to engage with what is the minimum rate of unemployment possible to sustain; and increase accountability for taking action to achieve that goal. </p>
<p>Choosing the target needs to balance the benefits of a lower rate of unemployment for national output and equity, against the potential inflationary consequences of trying to push unemployment too low. </p>
<p>It needs to draw on a wide variety of indicators of labour market outcomes; beyond just the NAIRU, which ignores the output and distributional benefits of low unemployment.</p>
<h2>Underemployment counts too</h2>
<p>Ideally, the target should also be constructed recognising that the policy problem is broader than unemployment. What should motivate policy is people not being able to work the hours they want or are willing to work. </p>
<p>Unemployment is part of this. But increasingly so is underemployment. By 2022, about 45% of extra hours that could have been worked in the Australian labour market were due to workers being underemployed. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/technically-unemployment-now-begins-with-a-3-how-to-keep-it-there-181242">Technically unemployment now begins with a '3'. How to keep it there?</a>
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</em>
</p>
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<p>Hence, whatever way the full employment target is expressed, it needs to take account of the variety of types of labour underutilisation.</p>
<p>Finally, along with aggregate full employment target, we also need specific policy action for groups who require extra assistance. Even with the current low rate of unemployment, some groups are still missing out on employment opportunities to an unacceptable level – such as First Nations people, those with a disability, and people living in disadvantaged regions.</p><img src="https://counter.theconversation.com/content/203415/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeff Borland receives funding from the Australian Research Council.</span></em></p>The pandemic has changed economic thinking on how low the unemployment rate can go. We now need a new full employment target.Jeff Borland, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1867172022-07-12T19:23:57Z2022-07-12T19:23:57ZNZ has reached ‘full employment’ – but not all workers will benefit from a tighter labour market<figure><img src="https://images.theconversation.com/files/473485/original/file-20220711-9214-l1f8dt.jpg?ixlib=rb-1.1.0&rect=77%2C33%2C7227%2C4825&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>New Zealand’s unemployment rate hit a low of 3.2% in the fourth quarter of 2021 and again in the first quarter of this year. That’s the lowest the rate has been since at least 1986, both overall and separately for men (3.1% in both quarters) and women (3.3% in both quarters). </p>
<p>However, that low unemployment rate still represents over 90,000 people without jobs who are actively seeking work. So, why are some commentators starting to talk about <a href="https://www.interest.co.nz/public-policy/116102/rbnz-governor-takes-heart-nzs-full-employment-levels-country-braces-itself">“full employment”</a> when it is clear that not everyone who wants a job has one? </p>
<p>Also, if businesses are struggling to fill positions, does this mean all workers will be able to flex their muscles in negotiations on pay and work conditions?</p>
<p>To understand New Zealand’s current labour market, we first need to understand the concept of full employment.</p>
<h2>So what is full employment?</h2>
<p>Economists define full employment as the absence of any “cyclical unemployment”, which is unemployment related to the rise and fall of the economy – also known as the business cycle. </p>
<p>As the economy reaches a peak in the cycle, employers increase production, requiring a high number of workers. The availability of these extra jobs reduces the number of unemployed, eventually reaching full employment. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing decline in unemployment rate" src="https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/473530/original/file-20220712-18-2hry3b.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The unemployment rate is the lowest it has been since 1986.</span>
<span class="attribution"><span class="source">Stats NZ</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>But that doesn’t mean that when there is full employment there is no unemployment at all. There will still be some employment that is “frictional” (because it takes time for unemployed workers to be matched to jobs) and “structural” (because some unemployed workers don’t have the right skills for the available jobs).</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-income-inequality-is-the-policy-issue-to-make-or-break-governments-56351">Why income inequality is the policy issue to make or break governments</a>
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</em>
</p>
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<p>Rather than “full employment”, the Reserve Bank of New Zealand (RBNZ) prefers to use the term <a href="https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/inflation-and-maximum-sustainable-employment">“maximum sustainable employment”</a>, which they define as “the highest amount of employment the economy can maintain without creating more inflation”. </p>
<p>Maximum sustainable employment reflects the RBNZ’s “<a href="https://www.rbnz.govt.nz/hub/news/2018/03/new-pta-requires-reserve-bank-to-consider-employment-alongside-price-stability-mandate">dual mandate</a>” to maintain low and stable inflation (between 1% and 3%) while “supporting maximum levels of sustainable employment within the economy”.</p>
<p>Clearly, in imposing the dual mandate on the RBNZ, the government believes full employment is an important goal. “Work, care and volunteering” is one of the domains of individual and collective well-being in Treasury’s <a href="https://lsfdashboard.treasury.govt.nz/wellbeing/">Living Standards Framework</a>, because these “are three of the major ways in which people use their <a href="https://www.treasury.govt.nz/sites/default/files/2022-04/bp-trends-wellbeing-aotearoa-new-zealand-2000-2020.pdf">capabilities to contribute to society</a>”. Full employment means more people are contributing to their own and society’s well-being. </p>
<figure class="align-center ">
<img alt="Woman circling job advertisements in the newspaper" src="https://images.theconversation.com/files/473344/original/file-20220711-12-zt3px7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/473344/original/file-20220711-12-zt3px7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=428&fit=crop&dpr=1 600w, https://images.theconversation.com/files/473344/original/file-20220711-12-zt3px7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=428&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/473344/original/file-20220711-12-zt3px7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=428&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/473344/original/file-20220711-12-zt3px7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=538&fit=crop&dpr=1 754w, https://images.theconversation.com/files/473344/original/file-20220711-12-zt3px7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=538&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/473344/original/file-20220711-12-zt3px7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=538&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">New Zealand’s unemployment rate is the lowest it has been in decades, leading some commentators to say we are at full employment.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/photo/job-searching-royalty-free-image/170618633?adppopup=true">Getty Images</a></span>
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<h2>A worker’s job market?</h2>
<p>So, what does full employment mean for low-income workers?</p>
<p>When there is full employment, it starts to become more difficult for employers to find workers to fill their vacancies. We are seeing this already, with job listings <a href="https://www.stuff.co.nz/manawatu-standard/news/300613241/tight-labour-market-means-a-struggle-to-find-staff">hitting record levels</a>. </p>
<p>A tight labour market, where there are relatively more jobs than available workers, increases the bargaining power of workers. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/job-guarantees-basic-income-can-save-us-from-covid-19-depression-133997">Job guarantees, basic income can save us from COVID-19 depression</a>
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<p>But that doesn’t mean workers have all of the power and <a href="https://theconversation.com/despite-record-vacancies-australians-shouldnt-expect-big-pay-rises-soon-180416">can demand substantially higher wages</a>, only that workers can push for somewhat better pay and conditions, and employers are more likely to agree. </p>
<p>This shift in bargaining power is why some employers are now willing to offer significant <a href="https://www.rnz.co.nz/news/business/468678/tight-labour-market-leads-to-10-000-finder-s-fees-large-sign-on-bonuses">signing bonuses</a> or better <a href="https://www.timescolonist.com/business/employers-getting-creative-in-tight-labour-market-5552035">work conditions and benefits</a>, including flexible hours or free insurance.</p>
<h2>Low-wage workers will still feel the pinch</h2>
<p>If you look closer at the types of jobs where signing bonuses and more generous benefits packages are being offered, however, you will quickly realise those are not features of jobs at the bottom end of the wage spectrum. </p>
<p>Many low-income workers are in jobs that are part-time, fixed-term or precarious. Low-wage workers are not benefiting from the tight labour market to the same extent as more highly qualified workers. </p>
<p>Nevertheless, a period of full employment may allow some low-wage workers to move into higher paying jobs, or jobs that are less precarious and/or offer better work conditions. That relies on the workers having the appropriate skills and experience for higher-paying jobs, or for increasingly desperate employers to adjust their employment standards to meet those of the available job applicants.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/not-just-a-number-defining-full-employment-15248">Not just a number: Defining full employment</a>
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<hr>
<p>Overall it is clear that not all low-wage workers benefit from full employment. Those who remain in low-wage jobs may even be worse off in a full-employment economy. If wage demands from other workers feed through into higher prices of goods and services it will exacerbate cost-of-living increases. </p>
<p>The RBNZ is already implementing tighter monetary policies to <a href="https://www.rbnz.govt.nz/hub/news/2022/05/monetary-conditions-tighten-by-more-and-sooner">address high inflation</a>, leading to higher mortgage interest payments for home owners. Renters will likely face higher rents as landlords pass on the increased interest rates. These higher housing and living costs will hit low-wage workers particularly hard.</p>
<p>Although a full employment economy seems like a net positive, not everyone benefits equally, and we shouldn’t ignore that some low-wage workers remain vulnerable.</p><img src="https://counter.theconversation.com/content/186717/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael P. Cameron receives funding from Te Hiringa Hauora/Health Promotion Agency. </span></em></p>New Zealand has reached the lowest unemployment rate in decades but low wage workers may still struggle to negotiate an increase in wages.Michael P. Cameron, Associate Professor in Economics, University of WaikatoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1197542019-07-02T19:49:48Z2019-07-02T19:49:48ZUltra-low unemployment is in our grasp. How Philip Lowe became the governor who lifted our ambition<p>Rarely does a Reserve Bank governor get to remake Australia.</p>
<p>HC “Nugget” Coombs, the first Reserve Bank governor, did.</p>
<p>As director general of the Department of Post-War Reconstruction from 1943, he was instrumental in creating the <a href="https://openresearch-repository.anu.edu.au/bitstream/1885/47102/3/FromCurtintoKeating2.pdf">White Paper on Full Employment in Australia</a> that was adopted as a guide by prime ministers from Chifley to Menzies to Whitlam. </p>
<p>He ensured the objective of full employment became part of the charter of the Reserve Bank when he became its <a href="https://museum.rba.gov.au/exhibitions/make-your-money-fight/role-of-hc-coombs/">first governor</a> in 1960, moving over from the then government-owned Commonwealth Bank, which had performed the Reserve Bank’s functions up to then.</p>
<p>After once again cutting interest rates to a new record low at a special Reserve Bank board meeting in Darwin on Tuesday, his latest successor Philip Lowe will travel to Yirrkala in Arnhem Land to visit the site where some of the Coombs ashes were buried.</p>
<h2>HC Coombs gave us full employment</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=928&fit=crop&dpr=1 600w, https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=928&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=928&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1167&fit=crop&dpr=1 754w, https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1167&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/282375/original/file-20190702-126369-16qvlv3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1167&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">HC Coombs, Reserve Bank governor 1960-68.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:H._C._Coombs.jpg">Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>On Tuesday night in Darwin, he <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-07-02.html">paid tribute</a> to Coombs. He said that in his dual roles as governor of the Reserve Bank and chair of the Council for Aboriginal Affairs, he was a strong advocate for land rights and the preservation of cultural values and traditions.</p>
<p>Another governor who remade Australia was Bernie Fraser, head of the treasury when Prime Minister Paul Keating made him governor of the Reserve Bank in 1989 – shortly before Australia plunged into recession.</p>
<p>He cut rates dramatically from early 1990, as might have been expected in order to bring about a recovery. But then, well before the recovery was complete (and the unemployment rate was still about 10%), he stopped cutting and started pushing rates back up – much to Keating’s displeasure.</p>
<h2>Bernie Fraser gave us low inflation</h2>
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<a href="https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/282374/original/file-20190702-126376-2qkk8n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Bernie Fraser, Reserve Bank governor 1989-96.</span>
<span class="attribution"><span class="source">Lukas Coch/AAP</span></span>
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</figure>
<p>His rationale appears to have been to salvage something out of the unusual circumstances in which Australia found itself. With inflation on the ropes because of the recession, he decided to keep it there – to squeeze out high inflation forever. With one temporary exception during the introduction of the goods and services tax in 2000 it never again returned to the rates of 5% or more that had been common.</p>
<p>He did it not because of an unusual opportunity, and changed Australia forever.</p>
<p>And so to Philip Lowe, who on Tuesday night in Darwin indicated that he too was taking advantage of an unusual opportunity and would probably change Australia forever.</p>
<p>Until a few years ago, it was thought that Australia’s rate of “full unemployment” – the rate below which unemployment couldn’t stay without stoking inflation – was touch over 5%. As it has fallen to 5% in the past year without stoking either inflation or much-wanted wage growth, the bank has come to revise its view. </p>
<p>It now thinks something has changed and the “full employment” is <a href="https://www.rba.gov.au/speeches/2019/sp-ag-2019-06-12-2.html">probably 4.5% or lower</a>, a low that was reached during the peak of the mining boom but hasn’t been sustained since the early 1970s. Aiming for an unemployment rate of 4.5% instead of 5% would get 69,000 more people into work.</p>
<h2>Lowe wants unemployment lower</h2>
<p>Lowe could have ignored the opportunity to push unemployment down that far, to a low that hasn’t been sustained since the 1970s. Instead, in Darwin on Tuesday night, he embraced the opportunity, saying his board was: </p>
<blockquote>
<p>prepared to adjust interest rates again if needed to get us closer to full employment and achieve the inflation target in a way that supports the collective welfare of all Australians</p>
</blockquote>
<p>Governor Lowe plans to usher in the lowest unemployment target in half a century. He believes the economy can sustain it. He said several times on Tuesday that he would prefer the government to help out <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-07-02.html">with infrastructure projects and the like</a>, but if it won’t, he is “prepared to adjust interest rates again if needed to get us closer to full employment”.</p>
<p>He is doing it because the opportunity is there, as did Coombs and Fraser before him. </p>
<p>There’s no telling (yet) how far rates will have to fall to achieve it. Without setting out to, Lowe is remaking Australia.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/buckle-up-2019-20-survey-finds-the-economy-weak-and-heading-down-and-thats-ahead-of-surprises-119455">Buckle up. 2019-20 survey finds the economy weak and heading down, and that's ahead of surprises</a>
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</em>
</p>
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<img src="https://counter.theconversation.com/content/119754/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Philip Lowe is on the cusp of permanently changing Australia. He stands a good chance of being one of the best governors since the first, who ushered in the goal of full employment.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1055232018-10-25T19:19:23Z2018-10-25T19:19:23ZVital Signs: Australia’s 5% jobless rate is not full employment; pushing up interest rates would be wrong<figure><img src="https://images.theconversation.com/files/242275/original/file-20181025-71014-i3uzd9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australia's unemployment rate is at what would once been regarded as full employment. But that doesn't mean it can't fall further.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>According to <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0">ABS figures released last week</a>, the unemployment rate in Australia has fallen to 5%. This isn’t as low as the 3.7% level in the United States, but by historical standards it is low for us.</p>
<p>We need to go back a decade, to just before the financial crisis of 2008, to see levels much lower than this, when the unemployment rate briefly touched 4%.</p>
<hr>
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<hr>
<p>This raises the important question of what level of unemployment constitutes “full employment”? </p>
<p>Economists often used to say it was 5%. That’s because even if the jobs market was so tight that employers couldn’t get workers, there would always be some unemployment. Some completely unsuitable people wouldn’t get jobs and some people would be counted as unemployed even when they were moving from one job to another. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-problem-with-official-statistics-and-three-ways-to-make-them-better-103448">The problem with official statistics – and three ways to make them better</a>
</strong>
</em>
</p>
<hr>
<p>Attempts to stimulate the economy or cut interest rates to get the unemployment rate below 5% was therefore seen as pointless, because it would merely stoke inflation. Which is why the 5% rate has been referred to by the ungainly acronym of NAIRU - the non-accelerating inflation rate of unemployment.</p>
<p>How low can our unemployment rate fall before it genuinely reaches NAIRU and can fall no further, and what are the barriers to getting there?</p>
<p>The short answer is we have no idea, but we should find out by setting policy levers to push unemployment as low as we can.</p>
<h2>Do we measure unemployment correctly?</h2>
<p>First to the question of whether we measure the unemployment rate correctly. The Australian Bureau of Statistics <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/6102.0.55.001%7EFeb%202018%7EMain%20Features%7EUnemployment%7E6">defines unemployment</a> this way:</p>
<blockquote>
<p>Unemployed persons are defined as all persons aged 15 years and over who were not employed during the reference week, and
(i) had actively looked for full-time or part-time work at any time in the four weeks up to the end of the reference week, and were available for work in the reference week, or
(ii) were waiting to start a new job within four weeks from the end of the reference week, and could have started in the reference week if the job had been available then.“</p>
</blockquote>
<p>Critics often point out that this does not capture "underemployment” – where people do work but not as much as they want to – very well at all.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-the-unemployed-disappear-and-why-it-matters-35850">How the unemployed 'disappear' and why it matters</a>
</strong>
</em>
</p>
<hr>
<p>They are almost surely correct, but there’s nothing new in that, meaning we can be confident comparing the unemployment statistics now to those five years or a decade ago.</p>
<h2>Unemployment can’t be zero</h2>
<p>The 2010 Nobel Prize for <a href="https://www.nobelprize.org/prizes/economic-sciences/2010/summary/">Economic Sciences</a> was won by Peter Diamond, Dale Mortensen and Christopher Passarides for their analysis of how “search frictions” can affect markets. Chief among these frictions is looking for a job. Employers need to advertise. Employees need to find these ads. A good match must be made. These things take time.</p>
<p>Indeed, Peter Diamond’s <a href="https://www.nobelprize.org/prizes/economic-sciences/2010/diamond/lecture/">seminal contribution</a> was to show that even small frictions can have a very large effect on things like the level of unemployment. LinkedIn and online job ads are great, but they make neither search frictions nor unemployment go away.</p>
<h2>How low can unemployment go?</h2>
<p>The idea of NAIRU is still routinely <a href="https://www.smh.com.au/business/the-economy/interest-rate-rises-only-a-matter-of-time-despite-property-gloom-20181019-p50an0.html">spouted in generic commentary</a> about why a drop in unemployment means we should immediately brace for an interest-rate rise.</p>
<p>But there are a couple of problems with it – which is why modern economics has largely eschewed it.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-the-unemployment-rate-will-never-get-to-zero-percent-but-it-could-still-go-a-lot-lower-103665">Why the unemployment rate will never get to zero percent – but it could still go a lot lower</a>
</strong>
</em>
</p>
<hr>
<p>First, NAIRU may not even exist. It is premised on the notion of a “Phillips Curve” – a stable negative relationship between the the rate of unemployment and wage rise that hasn’t been found in the data for at least 25 years.</p>
<p>Second, even if the NAIRU does exists, <a href="https://www.nber.org/chapters/c8885.pdf">we have known</a> for more than 20 years that its level is super-hard to estimate. Is it 5%, or 4% or 3.5%? Hard to say.</p>
<p>Even an architect of the theory, Nobel-prize winning Ned Phelps, has argued that structural change <a href="https://economia.icaew.com/en/opinion/november-2017/nothing-natural-about-the-natural-rate-of-unemployment">might change it over time.</a>.</p>
<h2>Testing the waters</h2>
<p>All this means that for the Reserve Bank to raise interest rates because unemployment has fallen to 5% would be a missed opportunity at best, and dangerously silly at worst. </p>
<p>With inflation still subdued, room to move downward on interest rates, and wages growth stagnant, we should test what full employment really means in Australia in 2018.</p>
<p>Having fully 5% of Australians looking for work who can’t find it – plus potentially many more underemployed – is a huge waste of economic, and much more importantly, human resources.</p>
<p>We shouldn’t let out-of-date acronyms and failed theories suggest otherwise.</p><img src="https://counter.theconversation.com/content/105523/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We should ignore out-of-date and failed theories and test what full employment really means in 2018.Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/970552018-06-04T10:42:10Z2018-06-04T10:42:10Z22 percent of men without college don’t have jobs. Here’s why they’re being left behind<figure><img src="https://images.theconversation.com/files/221467/original/file-20180603-142102-oew7s4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The job market is still tough for many Americans.</span> <span class="attribution"><span class="source">AP Photo/Lynne Sladky</span></span></figcaption></figure><p>The unemployment rate <a href="https://fred.stlouisfed.org/series/UNRATE">has plunged</a> to about the lowest level in half a century. Yet at least one group of Americans is being left behind: men who didn’t go to college. </p>
<p>Just 78 percent of men aged 25-54 who never went to college were employed in 2016, the latest year for which data are available in the <a href="https://www.census.gov/programs-surveys/acs/">American Community Survey</a>. That contrasts with about 90 percent for those who have at least one year of college and is a big change from the 1950s, when employment rates for college and non-college men were the same. </p>
<p>What’s driving the employment gap, which has been with us for decades? </p>
<p>Economists have traditionally pointed the finger at what are known as demand-side factors, such as <a href="http://faculty.som.yale.edu/peterschott/files/research/papers/pierce_schott_pntr_2016.pdf">jobs moving out of the U.S.</a> or <a href="http://www.nber.org/papers/w23285">robots</a>. More recently, economists have been blaming the supply side, such as <a href="http://www.nber.org/papers/w21252">growing welfare payments</a> and <a href="http://faculty.chicagobooth.edu/erik.hurst/research/leisure-luxuries-feb-21-2018_updated.pdf">better video games</a> that glue more men to their couches. </p>
<p>Supply side just means that the explanation has to do with the individual – the supplier of labor — as opposed to something related to a company – the demand.</p>
<p><a href="https://sites.google.com/site/erinwolcott/research">My research</a> attempts to get to the bottom of why non-college men aren’t working in hopes that it can suggest the right solutions to turn this around. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/221460/original/file-20180603-142093-wrxdgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/221460/original/file-20180603-142093-wrxdgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/221460/original/file-20180603-142093-wrxdgf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/221460/original/file-20180603-142093-wrxdgf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/221460/original/file-20180603-142093-wrxdgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/221460/original/file-20180603-142093-wrxdgf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/221460/original/file-20180603-142093-wrxdgf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A recent study suggests video games are why some young men aren’t working.</span>
<span class="attribution"><span class="source">AP Photo/Kamil Zihnioglu</span></span>
</figcaption>
</figure>
<h2>Employment vs. unemployment</h2>
<p>One of the most important measures of an economy is the number of jobs it’s creating, typically measured by the unemployment rate. The <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">latest jobs report</a>, which came out on June 1, showed that the rate dipped to 3.8 percent in May, the lowest since 2000. If it falls any more, it’ll be the lowest since 1969.</p>
<p>But the unemployment rate doesn’t tell the full story because it only includes people actively looking for work. People who report not having looked for work in the previous four weeks are completely left out of this number. The employment rate, which is the share who are actually employed, captures the full picture.</p>
<p>And the numbers are stark. Back in the 1950s, there was no education-based gap in employment. About 90 percent of men aged 25-54 – regardless of whether they went to college – were employed. That began to change in the 70s and 80s as non-college men left the workforce. </p>
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<p>The Great Recession was particularly painful for men without any college. By 2010, only 74 percent had a job, compared with 87 percent of those with a year or more of college.</p>
<p>In other words, employment rates diverged over 10 percentage points in just half a century. </p>
<p>The gap extends to the wages of those who actually had jobs as well. As recently as 1980, real hourly wages for the two groups differed by a mere US$7. In 2014, men with at least a little college saw their wages bump up 14 percent to $35 an hour. Meanwhile, pay for those who never attended plunged nearly 20 percent to $20.</p>
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<h2>Modeling the economy</h2>
<p>In fact, wages reveal the answer to this puzzle.</p>
<p>In my analysis, which I’m planning to publish, I wanted to determine whether the widening employment rate gap was caused by factors related to the supply of workers — video games and welfare — or demand — trade and robots.</p>
<p>So I built and calibrated an economic model aimed at finding the answer. Just as an architect builds a model city to test out ideas, economists build model economies out of math. Models allow architects and economists alike to push aside the gory details of reality and cut to the gist of things.</p>
<p>They also allow us to run experiments on what would otherwise be untestable hypotheses. An architect might ask: If I build a balcony, will that compromise the building’s structural integrity? I asked: If the only things that changed since the 1970s were supply-side factors, what would have happened to employment rates?</p>
<p>To answer this question, I plugged employment, wage and other relevant data into my model so that it replicates the real world. I then ran different analyses on the model to try to learn things, such as the underlying causes of the fall in employment for non-college men.</p>
<p>The intuition is like this: If a significant part of the reason non-college men dropped out of the workforce was because of supply-side factors that allowed them to remain home yet still afford their lifestyles, companies would have had to pay them more to entice them to join the labor market. On the other hand, demand-side factors would have put downward pressure on wages. </p>
<p>That’s exactly what my model helped me identify, suggesting that most of the blame goes to demand-side factors like trade and automation, not video games. </p>
<p>An important caveat with my analysis — and economic research in general — is that our models are not reality. Economists have to make tough judgment calls in hopes of approximating reality and teasing out underlying truths that are otherwise difficult to ascertain. </p>
<h2>Work wanted</h2>
<p>All the same, I think my work reveals some important truths. </p>
<p>While it is true that many non-college men are home <a href="http://faculty.chicagobooth.edu/erik.hurst/research/leisure-luxuries-feb-21-2018_updated.pdf">playing video games</a>, <a href="https://www.ssa.gov/oact/STATS/dibStat.html#f1">collecting welfare payments</a> and, unfortunately, <a href="http://www.princeton.edu/%7Eaccase/downloads/Mortality_and_Morbidity_in_21st_Century_Case-Deaton-BPEA-published.pdf">addicted to opioids</a>, it’s by and large not because they are choosing these over a job. Rather, sadly, it’s because they couldn’t find a job in the first place. </p>
<p>The takeaway is if the government wants to get more of these men back into the workforce, it should focus on stimulating demand or helping people learn new skills. </p>
<p>Even though we know what the problem is, we still have a lot of work ahead to solve it and get these men back into the workforce.</p>
<p><em>This article has been updated to correct the data showing a widening gap between college-educated men and those with no college education. The revised data still show a growing discrepancy but one that isn’t as large.</em></p><img src="https://counter.theconversation.com/content/97055/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erin Wolcott received funding from the National Science Foundation Graduate Research Fellowship Program, Grant No. DGE-1144086</span></em></p>The May jobs report showed that US unemployment is at about a 50-year low. That’s not how it feels to many men who’ve never been to college.Erin Wolcott, Assistant Professor of Economics, MiddleburyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/959082018-05-04T14:11:26Z2018-05-04T14:11:26ZWhat is full employment? An economist explains the latest jobs data<figure><img src="https://images.theconversation.com/files/217610/original/file-20180503-153878-14bfk05.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Jobs a-plenty.</span> <span class="attribution"><span class="source">AP Photo/Danny Johnston</span></span></figcaption></figure><p>The latest jobs report has gotten a lot of <a href="https://www.washingtonpost.com/business/why-even-a-39percent-unemployment-rate-might-not-be-full-quicktake/2018/05/04/8e2c1ea4-4f99-11e8-85c1-9326c4511033_story.html?noredirect=on">analysts</a>, policymakers and talking heads once again asking whether the U.S. is at full employment. </p>
<p>The Bureau of Labor Statistics reported on May 4 that the <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">U.S. unemployment rate</a> fell to 3.9 percent, which is the <a href="https://data.bls.gov/timeseries/LNS14000000">lowest level</a> since December 2000. The unemployment rate includes anyone 16 or older who is actively searching for work in its calculation, which means students, retirees and others not in the labor force are excluded.</p>
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<p>Does this mean the economy is at full employment? What is full employment anyway? </p>
<p>To the typical person on Main Street, the idea of full employment usually means everyone in the country is working, which would imply a jobless rate of essentially zero. This has never happened. The lowest unemployment rate the U.S. ever achieved was <a href="http://www2.census.gov/library/publications/1975/compendia/hist_stats_colonial-1970/hist_stats_colonial-1970p1-chD.pdf">1.2 percent in 1944</a>. That was during the middle of World War II, when millions of men were drafted to fight and their jobs were filled by women. </p>
<p>This popular concept sounds nice, but, to economists like me, it misses the mark. Even in a fully employed, robust economy, there will always be a certain number of people who have given up looking for work, who are between jobs or whose skills are temporarily not needed.</p>
<p>Essentially, the idea of full employment is that so few workers are available that companies need to begin raising wages to attract help.</p>
<p>Economists technically define full employment as any time a country has a jobless rate equal or below what is known as the “<a href="https://fred.stlouisfed.org/series/NROUST">non-accelerating inflation rate of unemployment</a>,” which goes by the soporific acronym <a href="https://www.vox.com/2014/11/14/7027823/nairu-natural-rate-unemployment">NAIRU</a>. </p>
<p>Estimates of the measure are based on the historical relationship between the unemployment rate and changes in the pace of inflation. If the unemployment rate is below this number, the economy is at full employment, businesses cannot easily find workers, and inflation and wages typically rise. If not, then there are too many workers in need of a job, and inflation remains low.</p>
<p>At the moment, the <a href="https://www.cbo.gov/sites/default/files/recurringdata/51135-2018-04-economicprojections_1.xlsx">Congressional Budget Office puts NAIRU</a> at 4.6 percent, a little above the 3.9 percent unemployment rate. That means the U.S. is at full employment – and that wages should be going up. But until recently, <a href="https://www.epi.org/nominal-wage-tracker/">they haven’t gained much</a>, which <a href="https://hbr.org/2017/10/why-wages-arent-growing-in-america">has puzzled</a> many economists. </p>
<p>Besides the impact on wages, another reason it’s useful to understand the definition of full employment is because maintaining it is one of the <a href="https://www.federalreserve.gov/faqs/money_12848.htm">Federal Reserve’s key mandates</a> when setting interest rates. The central bank tends to lower rates when unemployment is relatively high and raise them when it believes the economy is at full employment and wages are beginning to go up.</p>
<p>In other words, full employment isn’t when everyone has a job. Instead, it is when <a href="http://businessmacroeconomics.com/">inflation</a> starts to rise because businesses cannot find enough workers. </p>
<p>While the U.S. may be technically at full employment, according to the definition, I won’t be convinced until paychecks start increasing.</p><img src="https://counter.theconversation.com/content/95908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The unemployment rate is now at its lowest level in 17 years and is very close to a 50-year low. Does that mean we’re at full employment?Jay L. Zagorsky, Economist and Research Scientist, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/888452017-12-18T01:22:07Z2017-12-18T01:22:07ZWhy the Republican tax plan can help put American youths back to work<figure><img src="https://images.theconversation.com/files/199530/original/file-20171216-17854-1y0hwye.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">House Speaker Paul Ryan talks about the GOP tax plan.</span> <span class="attribution"><span class="source">AP Photo/Jacquelyn Martin</span></span></figcaption></figure><p>Republican lawmakers <a href="https://www.nytimes.com/2017/12/15/us/politics/republican-tax-bill.html?_r=0">are set to vote</a> this week on their tax plan after reconciling differences between the Senate and House versions and appear likely to meet their Christmas deadline of turning it into law.</p>
<p>During the ongoing debate over its merits, <a href="http://www.cnn.com/2017/12/13/politics/calculate-americans-taxes-senate-reform-bill/index.html">many have focused</a> on the <a href="http://thehill.com/business-a-lobbying/business-a-lobbying/358542-winners-and-losers-in-the-gop-tax-bill">“winners” and “losers”</a> in terms of who will have to pay more or less in taxes. I believe that is the wrong question. </p>
<p>The one that Americans should be asking is whether the bill will improve labor market opportunities for workers, especially the nation’s youth, whose careers have suffered since the turn of the century. </p>
<p>Here’s why I believe it will.</p>
<h2>A tough recovery for U.S. youth</h2>
<p>For several decades, I <a href="https://www.bls.gov/cps/data.htm">have helped collect data</a> for the Bureau of Labor Statistics’ <a href="https://stats.bls.gov/nls/home.htm">National Longitudinal Surveys</a> on the careers of tens of thousands of workers as well as examining programs aimed at improving the school-to-work transition, especially for disadvantaged youths. </p>
<p>The Great Recession hit young people particularly hard. And they haven’t quite recovered. The share of youth aged 16 to 24 who were working dropped from 59 percent in 2006 to under 43 percent in 2010, the lowest level since at least 1949. Unfortunately, seven years later, this age group’s employment rate is still only about 50 percent. While that number may not seem low given young workers don’t have the same responsibilities as older ones, it’s still well below the norm for much of the 20th century. </p>
<p>Other age groups didn’t suffer nearly as much during the recession and have since recovered most of their losses. The employment rate for “prime-age” adults 25 to 54 years old didn’t decline as much, slipping from about 81 percent in 2006 to a low of under 75 percent in 2011. Currently it’s about 78 percent, better, yet not fully recovered either.</p>
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<p>This loss of opportunity for U.S. youth and their inability to find a job delays the start of their careers, reduces the <a href="http://www.journals.uchicago.edu/doi/pdfplus/10.1086/209960">strong wage growth young workers typically experience</a> in their early work years and postpones family formation. </p>
<p>The returns on <a href="https://www.ssa.gov/retirementpolicy/research/education-earnings.html">every year of work experience</a> increase workers’ wages for their entire careers – at <a href="https://eml.berkeley.edu/%7Ecle/wp/wp62.pdf">about the same rate</a> as a year of additional education – so young people who miss out on employment opportunities will feel these effects for the rest of their lives. </p>
<p>To my mind, solving this challenge of getting these young people back to work is the most important goal of tax policy. And the key to doing that is by encouraging companies to boost investment, thereby spurring more growth and creating more jobs.</p>
<h2>What we can learn from the past</h2>
<p>So back to our main question: Is the tax plan likely to accomplish this?</p>
<p>In my view, its ability to improve the economy lies in one of its most contentious features: the <a href="http://www.cnn.com/2017/12/15/politics/republican-tax-bill/index.html">reduction in the top corporate income tax rate</a>, from 35 percent to 21 percent. </p>
<p>The current rate – <a href="https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52419-internationaltaxratecomp.pdf">among the highest in the world</a> – encourages owners of capital to move, or keep, money overseas to maximize their after-tax income. One example of this is the <a href="https://www.bloomberg.com/graphics/2017-overseas-profits/">hundreds of billions of dollars</a> in profits U.S. companies have left parked offshore in recent years. Another is the recent trend in “<a href="https://www.stlouisfed.org/publications/regional-economist/first_quarter_2017/a-look-at-corporate-inversions-inside-and-out">corporate inversions</a>,” in which U.S. corporations purchase companies overseas to shift their tax liability. The result is less investment in the U.S. and a shift in economic activity overseas.</p>
<p>So what evidence is there that a lower corporate tax rate will actually encourage investment and lead to more jobs? </p>
<p>The support for this proposition comes from two sources: economic theory and the experience in both the U.S. and other countries at different times in history. In classical economic theory, a lower tax rate on capital reduces the cost of capital, making more investments profitable. An <a href="http://www.economicsonline.co.uk/Managing_the_economy/Investment.html">uncontroversial implication</a> of this is higher national income, production and employment.</p>
<p>There are several historical examples that illustrate the impact of raising or lowering corporate taxes on investment and growth. </p>
<p>Starting in 1929, <a href="https://www.irs.gov/pub/irs-soi/02corate.pdf">Congress gradually raised</a> the top corporate rate to 15 percent in 1936 from 11 percent in 1929. <a href="https://minneapolisfed.org/research/wp/wp670.pdf">Some have blamed</a> President Franklin D. Roosevelt’s late 1930s tax increase for <a href="http://dailysignal.com/2010/10/20/hoover-fdr-and-clinton-tax-increases-a-brief-historical-lesson/">stopping the recovery</a> and sending the <a href="https://www.thebalance.com/us-gdp-by-year-3305543">U.S. back into recession</a>.</p>
<p>While there was many factors at work at the time – including the <a href="https://www.britannica.com/topic/Smoot-Hawley-Tariff-Act">Smoot-Hawley Tariff Act</a> that raised duties on hundreds of imports and a <a href="https://press.princeton.edu/titles/746.html">large decline in the money supply</a> – higher taxes and the attendant anti-business climate they created are plausible explanations for <a href="https://fee.org/articles/americas-depression-within-a-depression-193739/">why the Great Depression lasted as long as it did</a>.</p>
<p>A more recent example came in the late ‘80s, when Congress cut the top corporate rate from 46 percent in 1984 to 34 percent in 1992, in two installments. Following these changes investment as a share of GDP <a href="https://fred.stlouisfed.org/series/A006RE1Q156NBEA">grew strongly</a> beginning in the early '90s, as did <a href="https://fred.stlouisfed.org/series/A191RL1Q225SBEA">economic growth</a>. </p>
<h2>What we can learn from other countries</h2>
<p>Ireland, renowned for having a <a href="https://tradingeconomics.com/ireland/corporate-tax-rate">low corporate income tax</a> of just 12.5 percent, also boasts the <a href="https://data.oecd.org/emp/employment-rate.htm">highest level of working-age employment</a> in the developed world, at just shy of 87 percent. The U.S., by contrast, is 16th with 70 percent of its working-age population employed.</p>
<p>Other countries at various points in their history, such as the <a href="https://www.forbes.com/sites/nathanlewis/2017/09/26/britains-path-to-a-19-corporate-tax-rate/#144c3b2f772e">U.K. in the 1970s</a> and <a href="https://taxfoundation.org/economic-growth-corporate-tax-rate/">Canada in the past decade</a>, bolstered their economies at least in part by lowering corporate tax rates. </p>
<p>Another thing to consider is the international reaction to the tax plan. China, for example, <a href="https://www.wsj.com/articles/beijing-develops-plan-to-counter-trump-tax-overhaul-1513012363">is sufficiently concerned</a> that lower U.S. corporate tax rates would be effective in luring business investment that its leaders are considering a range of new policies to prevent a loss of capital. Ireland <a href="https://www.irishtimes.com/business/economy/trump-s-us-tax-reform-a-significant-challenge-for-ireland-1.3310866">also sees the bill</a> as a potential challenge to its strength in luring investment, while Germany is <a href="https://global.handelsblatt.com/finance/joining-the-race-to-the-bottom-835641">contemplating</a> lower business taxes. </p>
<h2>Getting back to work</h2>
<p>While other economists may disagree, lighter taxation and less regulation have arguably generated more growth and prosperity than the opposite, whether we look at the U.S. over time or low-tax countries internationally. And that is what creates enough jobs to ensure young Americans can begin their careers promptly after finishing their education.</p>
<p>A few weeks ago, I was skeptical that the tax bill would pass. That’s because, in my view, all too often the political calculus focuses on whose tax bills will go up or down rather than what the nation needs to secure its long-term prosperity. I figured this would jeopardize the plan’s odds of success. </p>
<p>Our long-term prosperity depends on young people getting educated, finding jobs and accumulating the work experience needed to establish remunerative careers. While we are still some distance from a labor market that offers opportunities for disadvantaged and low-skill workers, I believe the tax bill offers the nation the best chance of restoring opportunity to those who need it most.</p><img src="https://counter.theconversation.com/content/88845/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Randall Olsen receives funding from Bureau of Labor Statistics, Ohio Department of Job and Family Services, Ohio Department of Education and the Organization for Economic Cooperation and Development.</span></em></p>Unlike other age groups, 16- to 24-year-olds haven’t recovered the job losses they suffered during the Great Recession. Spurring investment and growth are key to getting them back to work.Randall Olsen, Director of the Center for Human Resource Research, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/605182016-06-06T01:21:29Z2016-06-06T01:21:29ZWeak jobs report shows we need a president with a plan, but it’s too soon to panic<p><em>Editor’s note: The <a href="http://www.bls.gov/news.release/pdf/empsit.pdf">U.S. economy added</a> a disappointing 38,000 jobs last month, the smallest number in more than five years, according to seasonally adjusted figures from the Bureau of Labor Statistics. The weak numbers suggest a June interest rate hike – which the Federal Reserve had recently hinted is possible – is now off the table. We asked two of our experts to give us their quick takes on the report.</em></p>
<h2>We need a credible plan for the economy</h2>
<p><strong>Thomas Kochan, MIT</strong></p>
<p>The bottom-line takeaway from the May job numbers announced on Friday is we need a clear and credible plan for expanding the economy. It is the uncertainty over the future policies of the next president and Congress that may be the root cause for concern.</p>
<p>The seemingly good news of the headline that the official unemployment rate declined from 5 percent to 4.7 percent evaporated as soon as we read further to see that the reduction came mostly from a 0.2 percent decline in the labor force participation rate and an increase of 468,000 in those working part-time jobs but looking for full-time work.</p>
<p>The news got worse when we read that the economy produced a meager 38,000 new jobs in May and 59,000 jobs were subtracted from the prior two months’ figures. From March to May, the economy averaged only 116,000 new jobs per month. If the economy can’t do better than this, <a href="http://www.hamiltonproject.org/charts/closing_the_jobs_gap">it will be early 2019</a> before we finally reach closure on the effects of the Great Recession by getting back the number of jobs lost plus the number needed to absorb the new entrants to the labor force. </p>
<p>Why do I think uncertainty over the future is a root cause of the problem? <a href="https://www.conference-board.org/data/consumerconfidence.cfm">Consumer confidence also declined in May</a>. That Conference Board survey found the number of people worried that jobs are hard to find also increased. A University of Michigan Consumer Confidence survey also showed a slight decline, and its authors noted the <a href="http://www.sca.isr.umich.edu/">biggest source of concern</a> is uncertainty over the economic policies the next president will follow. </p>
<p>Taken together, these data suggest two actions: one a stop-gap available to the Federal Reserve and the other one only the voters can take. The Fed should hold the course by not raising interest rates in June and hold steady as long as these dismal numbers and uncertainty over the future persist. Voters should hold presidential and congressional candidates’ feet to the fire by judging them against the credibility of their plans for creating and sustaining good jobs with good wages. </p>
<p>Nothing short of that will overcome the uncertainty and lack of confidence that is holding back the economy from reaching its full potential.</p>
<h2>Don’t panic! Look at the raw data</h2>
<p><strong>Jay Zagorsky, The Ohio State University</strong></p>
<p>Headlines following the report’s release emphasized that the U.S. economy created only 38,000 additional jobs in May. This figure promptly caused the <a href="http://www.marketwatch.com/investing/index/djia/charts?symb=DJIA&countrycode=US&time=1&startdate=1%2F4%2F1999&enddate=6%2F4%2F2016&freq=9&compidx=none&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013">stock market to fall</a>. The next day’s Wall Street Journal front page led with a story declaring “<a href="http://www.wsj.com/articles/u-s-added-only-38-000-jobs-in-may-1464957215">Weak Hiring Pushes Back Fed’s Plans</a>” for an interest rate hike. But the true figure was much higher than 38,000 jobs.</p>
<p>The actual number of additional jobs created between April and May was 651,000! This much larger figure is calculated using numbers found in table B1’s top line located on the <a href="http://www.bls.gov/news.release/pdf/empsit.pdf">press release’s</a> 28th page.</p>
<p>Why did the government report indicate that 38,000 and not 651,000 more people were employed in May than in April? The 38,000 figure is <a href="http://www.bls.gov/web/empsit/cesseasadj.htm">seasonally adjusted</a>, while the 651,000 figure is not.</p>
<p>The seasonal adjustment <a href="http://www.bls.gov/web/empsit/cestn.pdf">process</a>, called <a href="http://www.census.gov/srd/www/x13as/">X-13ARIMA-SEATS</a>, is quite complex. However, the general idea is simple. The number of people employed jumps up and down dramatically from month to month. The <a href="http://www.bls.gov/cps/seasfaq.htm">adjustments</a> smooth the data series to show long-term trends in the labor market by accounting for the regular pattern occurring each year because of things like weather, major holidays and school schedules.</p>
<p>To emphasize the long-term trend, the government increases the employment figures in low employment months, such as January, February and March, and reduces them in high employment months, like May and June.</p>
<p>However, highlighting seasonally adjusted data is problematic, because people in businesses like construction, transportation and manufacturing do not look at seasonally adjusted conditions when hiring and firing. Instead, their decisions are based on the current season, weather and business conditions. Seasonally adjusting the data eliminates some of the very patterns that <a href="http://businessmacroeconomics.com/">managers</a> watch when making hiring decisions.</p>
<p>If I just hired 1,000 new people for my factory and then read that only 38,000 people were hired nationwide, I would start wondering if I had made a big mistake. The 651,000 figure would give me a very different impression.</p>
<p>Is the 651,000 figure low for May compared with the past few years? Yes, it is. But it’s too soon to panic and declare the end of the U.S. economic expansion.</p><img src="https://counter.theconversation.com/content/60518/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Kochan has received funding from The Thomas Haas Foundation for his work on building a new social contract for the next generation workforce. He is also on the steering committee for the Employment Policy Research Network.
</span></em></p><p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The economy added fewer jobs than expected in May, suggesting a Fed rate hike this month is off the table. What else did we learn from the report?Thomas Kochan, Professor of Management, MIT Sloan School of ManagementJay L. Zagorsky, Economist and Research Scientist, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/568222016-04-15T10:40:18Z2016-04-15T10:40:18ZStill down and out in Paris and London (and not rising up)<figure><img src="https://images.theconversation.com/files/118591/original/image-20160413-22035-12qwmiz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>After more than <a href="http://www.bbc.co.uk/news/world-europe-35936269">400,000 workers</a> participated in a general strike against efforts by the French president, Francois Hollande, <a href="http://www.theguardian.com/world/2016/mar/09/end-of-term-protests-threaten-francois-hollande-labour-legacy">to reform labour laws</a>, the <a href="https://theconversation.com/are-frances-nuitdebout-protests-the-start-of-a-new-political-movement-57706">“Nuit Debout” protests</a> continue to gather momentum. But the UK’s own employment crisis has excited relatively little interest. This is odd, considering that the scale of the problem is comparable with the Great Depression. </p>
<p>According to the latest figures, there are currently <a href="http://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/march2016">1.68m unemployed people</a> seeking work in the UK. This is far fewer than the <a href="https://books.google.co.uk/books?id=7TIp3oq398IC&printsec=frontcover&dq=British+Unemployment+1919-1939:+A+Study+in+Public+Policy+three+million&hl=en&sa=X&ved=0ahUKEwiz0LOAuf_LAhXBXhoKHY_lBe0Q6AEIHTAA#v=onepage&q=three%20million&f=false">3m people</a> who were reportedly unemployed at the height of the Great Depression. Yet closer inspection reveals that the employment issues facing British people today are of an equal – if not, greater – magnitude.</p>
<p>Recent <a href="http://www.bbc.co.uk/news/business-35819535">statistics suggest</a> that unemployment is falling. But in reality, huge numbers of people are moving into precarious new forms of employment, which offer low pay and little job security: from 2014 to 2015, the number of zero-hour contract jobs <a href="http://https//www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/contractsthatdonotguaranteeaminimumnumberofhours/march2016">rose by 104,000</a> to 1.7m. The Trades Union Congress (TUC) recently reported that only <a href="https://www.tuc.org.uk/economic-issues/labour-market-and-economic-reports/only-one-every-forty-net-jobs-recession-full-time">one in 40</a> of the jobs created since the recession have been full-time positions – meaning that in 2014, full-time jobs accounted for only 62% of employment.</p>
<h2>The odd job</h2>
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<img alt="" src="https://images.theconversation.com/files/118707/original/image-20160414-2657-1vg727a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/118707/original/image-20160414-2657-1vg727a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=858&fit=crop&dpr=1 600w, https://images.theconversation.com/files/118707/original/image-20160414-2657-1vg727a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=858&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/118707/original/image-20160414-2657-1vg727a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=858&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/118707/original/image-20160414-2657-1vg727a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1079&fit=crop&dpr=1 754w, https://images.theconversation.com/files/118707/original/image-20160414-2657-1vg727a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1079&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/118707/original/image-20160414-2657-1vg727a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1079&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Vagrants making tracks.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Hobo#/media/File:Hobos2.jpg">Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>In the 1930s, if you were a part-time or itinerant labourer – flitting between short-term jobs – you were not seen as someone in employment. In fact, you would likely have been considered a vagrant. Writing in 1936, homeless memoirist William Gape defined a vagrant as someone who is “compelled to seek his livelihood day by day”.</p>
<p>The “tramp” memoirs of authors such as <a href="http://www.biography.com/people/jack-london-9385499">Jack London</a>, <a href="http://www.poemhunter.com/william-henry-davies/">W H Davies</a> and <a href="http://oxfordindex.oup.com/view/10.1093/oi/authority.20110803100033511">Bart Kennedy</a> all tell of protagonists jumping from one short-term job to another. Whether they were working as cowherds, dockers, oyster pickers, railroad workers, fruit pickers or as labourers – the early 20th-century equivalents to zero-hour contract jobs – all of these authors regarded themselves as unemployed.</p>
<p><a href="https://books.google.co.uk/books?id=zcUzAAAAMAAJ&q=beales+and+lambert+memoirs+unemployed&dq=beales+and+lambert+memoirs+unemployed&hl=en&sa=X&ved=0ahUKEwiDprHiu4LMAhXH7RQKHRwRCkIQ6AEIHDAA">An extensive survey</a> conducted by the BBC in 1934 offered a series of accounts of the lives of unemployed people. Nearly all of them describe being in and out of short-term jobs: from the unemployed advertising agent who “found odd jobs at sign painting, Christmas card production and so on”; to an unemployed miner who “picked up a knowledge of slating and general house repair work” and the unemployed “youth” who found occasional work “packing soft goods” and “delivering circulars”.</p>
<p>These accounts sound remarkably similar to the experiences of precariously employed people working in service industries today. But while the survey identifies these workers as the long-term unemployed, today such people are statistically considered to be in work.</p>
<p>This is largely because, back then, odd jobs made up a tiny fraction of the employment market – small enough not to count. Even in 1979, after women had entered the workforce en masse, part-time work still only represented <a href="https://books.google.co.uk/books?id=2gFS9woJy7MC&pg=PA224&dq=part-time+1930s+uk&hl=en&sa=X&ved=0ahUKEwjC1aW39YHMAhXLvRoKHdEXDkIQ6AEIITAB#v=onepage&q=uk&f=false">16.4% of employment</a>. But by 2014, this figure had risen to 38%. </p>
<p>So, although there were far more people categorised as unemployed in the time of the Great Depression, the way we define such categories has changed – and many of those in partial employment today would have been considered unemployed by 1930s standards.</p>
<h2>A new age</h2>
<p>These days, many more people rely on government support in order to survive than during the Great Depression. Last year, <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/march2016/pdf">3.79m people</a> claimed out-of-work benefits in the UK. In 1930, the number of people reportedly registered at the Employment Exchange (where unemployed people would apply for relief) was <a href="http://hansard.millbanksystems.com/commons/1930/may/22/statistics#S5CV0239P0_19300522_HOC_64">1,677,473</a>. This represents a significant increase – even when population growth is taken into account. </p>
<p>Of course, dependence on state support may have increased, simply because there is more available. But a recent survey conducted by the Office for National Statistics found that <a href="http://http//webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/household-income/persistent-poverty-in-the-uk-and-eu/2008-2013/persistent-poverty-in-the-uk-and-eu--2008-2013.html">4.6m people</a> in the UK still live in a state of “persistent poverty”, while <a href="http://https//www.gov.uk/government/statistics/housing-benefit-caseload-statistics%20">a similar number</a> depend on housing benefits to make ends meet. And these figures don’t even count many people living in states of precarious employment and extreme poverty in the UK, such as the estimated <a href="http://http//www.lse.ac.uk/geographyAndEnvironment/research/london/pdf/irregular%20migrants%20full%20report.pdf">618,000 “irregular migrants”</a> living in London. </p>
<p>Taken together, it seems that there are a vast number of people either unemployed, unaccounted for or in insecure, badly paid jobs – people who by the standards of the 1930s would have been seen as unemployed. </p>
<h2>Then and now</h2>
<p>The difference between the 1930s and now is that back then the employment crisis provoked unprecedented levels of political activism and unrest. The National Unemployed Workers’ Movement – founded in 1921 by the Communist Party of Great Britain – <a href="https://books.google.co.uk/books?id=TuOqCwAAQBAJ&pg=PA87&dq=50,000+nuwm&hl=en&sa=X&ved=0ahUKEwiYh5vfyv_LAhVEwQ4KHfy9DowQ6AEIHDAA#v=onepage&q=50%2C000%20nuwm&f=false">grew to 100,000 members</a> and organised public demonstrations that made front-page news. </p>
<p>Membership of political parties rocketed over the course of the 1930s: the Communist Party of Great Britain grew <a href="https://books.google.co.uk/books?id=X4_q46RCeJQC&pg=PA11&dq=%22cpgb+membership%22+17,000&hl=en&sa=X&ved=0ahUKEwieooybhYLMAhXFVRQKHaEdCtgQ6AEIHTAA#v=onepage&q=%22cpgb%20membership%22%2017%2C000&f=false">from 3,000 to 17,000 members</a>; while Labour <a href="https://books.google.co.uk/books?id=lBk9AAAAIAAJ&pg=PA114&dq=Pimlott+%22constituency+party+membership%22&hl=en&sa=X&ved=0ahUKEwj3mPWChoLMAhXGChoKHZq-DXcQ6AEIHTAA#v=onepage&q=Pimlott%20%22constituency%20party%20membership%22&f=false">membership soared</a> from 277,211 to 408,844. </p>
<p>So significant was the nationwide response to high unemployment that the prime minister, Ramsay MacDonald, was forced to resign in 1931, after a <a href="https://books.google.co.uk/books?id=E0ubhRtZ13kC&pg=PA68&dq=On+the+Cabinet%27s+failure+to+act+upon+these+he+resigned+from+the+government+four+months+later&hl=en&sa=X&ved=0ahUKEwjUvv7P_4HMAhXKaRQKHZXcBEwQ6AEIHDAA#v=onepage&q=On%20the%20Cabinet's%20failure%20to%20act%20upon%20these%20he%20resigned%20from%20the%20government%20four%20months%20later&f=false">cabinet dispute over the issue</a>.</p>
<p>British culture was also transformed. Publisher Victor Gollancz established the Left Book Club, claiming to have <a href="https://books.google.co.uk/books?id=NVsVCD3sZJUC&pg=PT184&dq=%22By+May+1938+there+were+over+900+groups+operating+in+Britain%22&hl=en&sa=X&ved=0ahUKEwiXprXp_oHMAhVFzRQKHTjvA_kQ6AEIHDAA#v=onepage&q=%22By%20May%201938%20there%20were%20over%20900%20groups%20operating%20in%20Britain%22&f=false">more than 900 reading groups</a> committed to discussing radical literature. Poets such <a href="https://books.google.co.uk/books?id=UlnwITCGcw8C&pg=PA15&dq=%22only+when+the+crisis+spread+to+Great+Britain%22&hl=en&sa=X&ved=0ahUKEwiEsPvRgoLMAhUJPhQKHfdZBpMQ6AEIHTAA#v=onepage&q=%22only%20when%20the%20crisis%20spread%20to%20Great%20Britain%22&f=false">W H Auden and Stephen Spender</a> changed their approaches as writers after they witnessed “the crisis spread to Great Britain”. George Orwell was first “<a href="http://orwell.ru/library/essays/wiw/english/e_wiw">forced into becoming a sort of pamphleteer</a>” after experiencing unemployment and poverty at first hand in Paris, London and a host of Britain’s industrial towns en route to Wigan Pier. </p>
<p>Novels which told the stories of young people struggling to make a living – such as Walter Greenwood’s <a href="http://www.theguardian.com/books/2010/aug/07/rereading-love-dole-walter-greenwood">Love on the Dole</a> and James Hanley’s <a href="http://www.faber.co.uk/blog/an-introduction-to-james-hanley/">Drift</a> – became bestsellers, while popular films such as Charlie Chaplin’s <a href="http://www.charliechaplin.com/en/biography/articles/4-City-Lights">City Lights</a> and Lewis Milestone’s <a href="http://www.nytimes.com/movie/review?res=9406E4DC1E3AE333A2575AC0A9649C946294D6CF">Hallelujah I’m a Bum</a> dramatised and even sensationalised the experience of unemployment.</p>
<p>By comparison, our response has been minimal.</p>
<p>Certainly, there are grassroots radical organisations and networks today, which consider poverty and unemployment in the UK to be a priority issue: the People’s Assembly, Brick Lane Debates and Focus E15 –- to name just a few. And there are politicians and commentators who regularly address the subject: people such as Jeremy Corbyn, Owen Jones and Paul Mason. Many of these <a href="http://www.thepeoplesassembly.org.uk/hhje">march on parliament</a> on April 16, as part of a demonstration demanding health, homes, jobs and education for all. </p>
<p>But our present crisis has failed to produce a mass movement like the one beginning in France. Perhaps we simply haven’t noticed the growth of the grey area between employment and unemployment. Or maybe our imaginations have not yet been captured in the way that inspired inter-war writers and dramatists. But one thing is clear: we shouldn’t let ourselves be fooled into imagining we live in better times.</p><img src="https://counter.theconversation.com/content/56822/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Luke Davies receives funding from the Arts and Humanities Research Council. </span></em></p>Today’s employment crisis is as serious as the Great Depression – so why aren’t we up in arms?Luke Lewin Davies, PhD Candidate, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/458182015-08-07T17:20:31Z2015-08-07T17:20:31ZLackluster jobs growth and stagnant wages show why the Fed shouldn’t raise interest rates just yet<figure><img src="https://images.theconversation.com/files/91193/original/image-20150807-27612-1s8ik9i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Workers are still feeling a little pinched.</span> <span class="attribution"><span class="source">Empty wallet via www.shutterstock.com</span></span></figcaption></figure><p>The Bureau of Labor Statistics <a href="http://www.bls.gov/news.release/pdf/empsit.pdf">reported</a> last week that in July, the economy created 215,000 jobs, the unemployment rate remained unchanged at 5.3% and hourly wages over the past 12 months grew by 2.1%. Meanwhile, consumer prices are up only 0.2% from a year ago. </p>
<p>These figures, when taken in context of trends developing throughout the year, have special significance because the Federal Reserve’s Open Market Committee will be weighing them in the coming months as it decides whether or not to start raising interest rates in September, as many observers <a href="http://www.wsj.com/articles/atlanta-feds-lockhart-fed-is-close-to-being-ready-to-raise-short-term-rates-1438709252">expect</a> they will. </p>
<p>While at first blush the July job gains appear bullish, the underlying trends remain worrying. Those <a href="http://www.wsj.com/articles/hilsenrath-analysis-july-job-numbers-keep-fed-rate-hike-on-track-1438956499">suggesting</a> the data make a September rate cut more likely, and desirable, should think again. </p>
<p>In making its decision, the Fed will be looking at the progress, or lack thereof, on two dimensions of the jobs crisis America has been experiencing: </p>
<ol>
<li><p>progress in closing the jobs gap (that is, the number of jobs lost during the Great Recession of 2007 to 2009, plus the number needed to keep up with labor force growth) and</p></li>
<li><p>progress in reversing 35 years of <a href="http://www.npr.org/sections/money/2015/02/11/384988128/the-fall-and-rise-of-u-s-inequality-in-2-graphs">stagnant wages</a> and rising income inequality. </p></li>
</ol>
<p>Taken together, the Fed’s decision should be easy: stay the course and don’t take any actions that would prematurely slow down the economy and dim hopes for progress in closing the gap and boosting wages. Inflation, another factor the Fed considers, is still barely existent, which means there is very little reason to lift rates just yet. </p>
<p>More importantly, I’m hoping the lack of progress on the second point finally helps jumpstart a national debate on whether the Fed should have an explicit wage growth target, just as it sets optimal rates for employment and inflation. Without significant and steady progress on the pay front, the American dream is in peril. </p>
<p>Let’s take a closer look at the July numbers with both dimensions in mind.</p>
<h2>Progress in closing the jobs gap</h2>
<p>Americans have been patiently waiting since the end of the Great Recession for more robust growth in the number of jobs. </p>
<p>From the end of the recession in January 2010 to mid-2013, <a href="http://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth">jobs growth</a> was anemic, ranging from a low of 88,000, on average, in 2010 to a high of 194,000 in 2013. If that pace had continued, it would have taken until 2020 or later to close the jobs gap. Fortunately, things began picking up in July 2013, with the number of new jobs averaging 245,000 per month from then through December 2014. </p>
<p>But recently the growth has slowed somewhat, averaging 235,000 in the last three months. According to the Brookings Institution’s Hamilton Project, the economy is still <a href="http://www.hamiltonproject.org/jobs_gap/">3.3 million jobs short of closing the job gap</a>. If the recent rate continues, we won’t manage to close the gap until early- to mid-2017 – about a decade after the start of the Great Recession! </p>
<p>The slowdown in jobs growth alone should be enough to give Fed policymakers concern. But there are other reasons to urge caution. Long-term unemployment (those out of work for 26 weeks or longer) remains stuck at about 27% of those without a job. The labor force participation rate refuses to recover, remaining steady at 63%, nearly four percentage points below where it was before the recession. </p>
<p>The number of discouraged workers who have given up looking for a job remains stubbornly high. And underemployment – a measure of whether workers are able to find full-time jobs that take advantage of their education and skills – continues to be a significant problem for young workers trying to start their careers. </p>
<p>Taken together, these data indicate the economy has a long way yet to go before it can provide the number and quality of jobs needed by the American workforce.</p>
<h2>Addressing the persistent wage problem</h2>
<p>The wage side of the employment report deserves equal attention from policymakers, including the Fed. </p>
<p>The 2.1% growth in wages over the past 12 months hardly makes a dent in the stagnant wages and rising inequality that <a href="http://www.epi.org/publication/stagnant-wages-in-2014/">have plagued</a> the US economy and workforce for 35 years, as chronicled by the Economic Policy Institute think tank. </p>
<p>This suggests the growing chorus of voices that “America needs a raise” will continue. Indeed, as others <a href="http://s1.epi.org/files/2015/josh-bivens-cbpp-policy-futures.pdf">have suggested</a>, it is high time that we elevate the policy discussion on wages by setting a target or “norm” for wage growth. </p>
<p>We had such a norm before wages started stagnating in the 1980s. Before that, unions used collective bargaining to create and sustain an implicit social contract: wages should rise in tandem with increases in the cost of living and aggregate productivity growth. </p>
<p>This came out of the so-called “<a href="http://seekingmichigan.org/look/2011/08/23/treaty-of-detroit">Treaty of Detroit</a>” in a deal negotiated between the United Auto Workers and General Motors, which then spread through collective bargaining agreements across other industries. Unfortunately, unions <a href="https://theconversation.com/us/topics/labor-power">no longer</a> have the same influence they once did, one of the reasons wages have stagnated. </p>
<p>If we applied such a norm today, wages should be rising 3.5% to 4% a year. That’s based on the Fed’s <a href="http://www.federalreserve.gov/faqs/economy_14400.htm">optimal</a> inflation rate of 2% and <a href="http://www.bls.gov/news.release/prod2.nr0.htm">recent productivity growth</a> of 1.4% to 2.6% (the latter took a big hit in the first half of 2015, probably reflecting the effects of the tough winter). </p>
<p>With that in mind, the Fed should definitely stay the course and avoid actions such as a premature rate hike that will end up slowing down the economy and the recovery in jobs. </p>
<p>But we should also start a national discussion over what a fair norm for wage growth should be in today’s economy and then figure out what needs to be done to achieve it.</p><img src="https://counter.theconversation.com/content/45818/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Kochan has received funding from The Thomas Haas Foundation for his work on building a new social contract for the next generation workforce..</span></em></p>The July employment report suggests the recent trend of lackluster gains in jobs and wages is continuing, and a rate hike should therefore be off the table for the time being.Thomas Kochan, Professor of Management, MIT Sloan School of ManagementLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/239812014-03-10T19:52:03Z2014-03-10T19:52:03Z‘Crowding out’ and the fallacy of fiscal austerity<figure><img src="https://images.theconversation.com/files/43130/original/38svjnx7-1393985853.jpg?ixlib=rb-1.1.0&rect=11%2C173%2C982%2C811&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The "crowding out" theory underpinning arguments to slash government spending should be viewed with scepticism. </span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>In the lead-up to the federal government’s budget in May, we’ve been told to expect deep cuts in government spending. Such a policy is said to contribute to a short run decline in Australia’s economic activity, but will lead in the longer term to a greater sustained expansion as the private sector grows and blooms like flowers in spring. </p>
<p>This argument is a fallacy - grounded in a false economic theory. I’ll explain why.</p>
<p>The fiscal austerity argument is essentially based on “crowding-out”, which contends that expanding the size of government will in the long run crowd out the private sector. So shrinking government through fiscal consolidation will release resources enabling the private sector to expand. </p>
<p>The fundamental basis for this argument is that competitive market forces push the economy toward a state in which resources, capital and labour, are fully employed - referred to as “full employment”.</p>
<p>In economic theory, this long run tendency to full employment is essentially based on the “substitution principle”; that the demand for labour and capital will each functionally increase as their respective prices decline in relation to each other. </p>
<p>The theory can be illustrated this way. Suppose the economy is in a downturn and there is unemployment. The competition for jobs would then drive down the real wage of workers in general, and because the cost of employing people has fallen, it will be more profitable for firms to employ a more labour-intensive technique of production. So they substitute labour for capital, increasing the demand for labour. </p>
<p>However, if there is unemployment, then it means there is not a sufficient demand for products in the economy. So for the economy to adjust there requires also to be a reduction in interest rates to generate private investment spending and stoke aggregate (or total) demand, to get the full-employment caravan back on the road. </p>
<p>This investment response also relies on the substitution principle. Lower interest rates make borrowing cheaper and make it more profitable for firms to employ a more capital-intensive technique, brought about by higher expenditure on capital equipment.</p>
<p>A significant group of economic writers have objected to this tendency to full employment traditionally on the grounds that even in conditions of unemployment, wages will not decline as is required by the theory. </p>
<p>But there is a much more substantive scientific objection to this theory of a tendency to full employment. </p>
<p>Some 50 years ago, leading theorists in economic science, predominantly from Cambridge University and the Massachusetts Institute of Technology joined in what is called the “<a href="http://cameroneconomics.com/ccc.pdf">capital debates</a>”. These debates were controversial because they demonstrated some serious logical inconsistencies in the traditional theory of production and distribution. They essentially revolved around the problem of measuring the total stock of capital of an economy as a homogeneous quantity when it consists of heterogeneous capital goods (that is, different kinds of machines, equipment).</p>
<p>What the capital debates established is that the substitution principle, which underlies the theory of adjustment to full-employment, is only valid in an economy which produces one type of commodity. So, for an economy - such as Australia - which produces a multitude of different goods (most of which are used as inputs for producing other goods) using a variety of different production methods, the substitution principle is not valid, completely undermining the theory. </p>
<p>What this result means is that in general, if real wages do decline due to unemployment, it is as probable that the demand for labour will decline as it will increase, as firms find more capital-intensive techniques are more profitable than labour-intensive ones. So demand for labour declines, substituted by capital. </p>
<p>Similarly, a reduction in the interest rate can make a more labour-intensive technique more profitable for firms to employ than a more capital-intensive technique, causing a reduction in investment spending rather than an increase as supposed by the theory. </p>
<p>The consequence is that there is no predictable relationship between real wages and the demand for labour and the rate of interest on capital and the volume of investment expenditure. Hence, the economic theory which supposes that competitive forces cause a long run tendency to full-employment output is in general not valid.</p>
<p>Deprived of this theory, crowding-out has little merit - and fiscal consolidation leading to private sector growth, has little theoretical support. As I said at the beginning, it is a fallacy.</p>
<p>It can of course be argued that a fiscal policy which changes the composition of government expenditure and the tax mix could in the long run induce stronger growth - but that would rely on contestable assumptions about how in general the private sector responds in terms of capital spending, consumption and technical innovation to increase productivity. It could not rely on a theory that competition operates as a tendency to a full-employment economy.</p>
<p>In fact, by increasing the rate of labour unemployment and unutilised capital equipment in the short term, fiscal consolidation runs the risk of contributing to slower longer term growth. </p>
<p>Higher unemployment tends to undermine consumer confidence and spending, while firms with greater unused productive capacity are likely to downsize their investment expenditure so that the overall growth in private investment is slowed. </p>
<p>Hence, the most useful thing governments can do to promote stronger trend growth is to use fiscal policy to prevent significant downturns in their economy which undermines the confidence to spend. </p>
<p>Recent historical evidence appears to support our contention. According to the statistical data of the International Monetary Fund, in the years since the UK’s Conservative-Liberal coalition government chose to implement an austerity fiscal policy in 2010, a year in which the economy recovered from the depressing effects of the global financial crisis, the annual growth rate has declined with the average below 1%. </p>
<p>More spectacularly, in the several years since the European sovereign debtor countries of Spain, Portugal, Italy and Greece each implemented fiscal austerity, their economies have contracted with no signs yet of any sustained recovery. </p>
<p>If it is indeed the objective of policymakers to wind back public debt as a proportion of GDP, then the best policy is one which promotes sustained economic growth and a healthy growth in tax revenue, and that will not be achieved by fiscal austerity.</p><img src="https://counter.theconversation.com/content/23981/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Smith does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the lead-up to the federal government’s budget in May, we’ve been told to expect deep cuts in government spending. Such a policy is said to contribute to a short run decline in Australia’s economic…Matthew Smith, Senior Lecturer in Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.