tag:theconversation.com,2011:/us/topics/nairu-100907/articlesnairu – The Conversation2023-09-19T20:08:26Ztag:theconversation.com,2011:article/2114872023-09-19T20:08:26Z2023-09-19T20:08:26ZLiving in the 70s: why Australia’s dominant model of unemployment and inflation no longer works<figure><img src="https://images.theconversation.com/files/549016/original/file-20230919-29-7cih0r.png?ixlib=rb-1.1.0&rect=0%2C658%2C3191%2C1586&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>As we approach the release of Monday’s <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/work-commences-employment-white-paper">employment white paper</a> we can expect to hear a lot about something called the NAIRU – the so-called Non-Accelerating Inflation Rate of Unemployment. </p>
<p>This ungainly acronym, which currently dominates the thinking of both the Reserve Bank and the Treasury, derives its power almost entirely from the economic crisis of the 1970s, and is overdue for reconsideration.</p>
<p>The story of the NAIRU begins even further back in time, in the 1940s, and is best illustrated by a curious machine displayed in the entrance of the Melbourne University Business, Economics and Education Library. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=967&fit=crop&dpr=1 600w, https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=967&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=967&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1216&fit=crop&dpr=1 754w, https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1216&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/548945/original/file-20230919-21-9pqp8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1216&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Bill Phillips with MONIAC computer,</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Phillips_and_MONIAC_LSE.jpg">Wikimedia</a></span>
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<p>The <a href="https://museumsandcollections.unimelb.edu.au/__data/assets/pdf_file/0011/1379009/06_Corkhill-MONIAC10.pdf">MONIAC</a> is a hydraulic computer, one of 12 constructed by New Zealand economist Bill Phillips in 1949 to illustrate <a href="https://www.investopedia.com/terms/k/keynesianeconomics.asp">Keynesian economics</a>.</p>
<p>MONIAC stands for MOnetary National Income Analog Computer, and, although the machine is made out of tanks and pipes and valves and coloured water, it is a working (early) computer.</p>
<p>A <a href="https://museumsandcollections.unimelb.edu.au/__data/assets/pdf_file/0011/1379009/06_Corkhill-MONIAC10.pdf">guide</a> to the Melbourne University MONIAC says when in operation, water is “injected into the ‘active balances’ tank, pumped up to the top of the machine as income, and allowed to flow downwards as expenditure, with controlled amounts siphoned off to enter the tanks representing taxes and government spending, savings and investment, and trade”. </p>
<p>While the MONIAC was an amazing innovation, even more important was the thinking behind it, which a decade later led Phillips to discover the <a href="https://www.investopedia.com/terms/p/phillipscurve.asp">Phillips Curve</a>, a graph still used today to show the relationship between unemployment and the rate of wages growth or inflation.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/rAZavOcEnLg?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Reserve Bank of New Zealand.</span></figcaption>
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<p>In the model described by Phillips, strong aggregate demand (a strong desire to spend) both cuts unemployment and pushes up inflation. </p>
<p>Weak aggregate demand boosts unemployment and cuts inflation. </p>
<p>The Phillips curve represents the trade-off.</p>
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<p>At the time, with memories of the Great Depression still fresh, and the United States competing with the Soviet Union to achieve full employment, a slightly higher rate of inflation seemed a small price to pay to get closer to full employment.</p>
<p>It could be obtained by moving along the Phillips curve, using government spending and other measures to increase inflation and bring down unemployment.</p>
<p>Leading Keynesian economists including <a href="https://www.tandfonline.com/doi/abs/10.1080/18386318.2012.11682193">Paul Samuelson</a> recognised at the time that the curve might not hold if people came to expect high inflation. However, given that earlier episodes of inflation in the early 1950s had been short-lived, it was thought that problem could be managed.</p>
<h2>Phillips morphed into NAIRU</h2>
<p>This prevailing view was challenged in 1968 by the great Chicago economist <a href="https://www.aeaweb.org/aer/top20/58.1.1-17.pdf">Milton Friedman</a> who argued in his Presidential Address to the American Economic Association that, if inflation persisted long enough, the expectations of workers and businesses would adjust. </p>
<p>The inflation rate would become “baked in” as workers and suppliers increased their wages and prices by enough to compensate for inflation, whatever the unemployment rate.</p>
<p>Over the long term, there was a “<a href="https://www.investopedia.com/terms/n/naturalunemployment.asp">natural rate of unemployment</a>” – a floor – below which extra wages growth would simply lead to more inflation.</p>
<p>Translated to the graphical representation of the Phillips curve, Friedman implied that in the long run, the “curve” would be simply a vertical line, represented here with the annotation <a href="https://www.rba.gov.au/education/resources/explainers/nairu.html">NAIRU</a> in a graph prepared by Australia’s Reserve Bank.</p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=351&fit=crop&dpr=1 600w, https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=351&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=351&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=441&fit=crop&dpr=1 754w, https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=441&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/548969/original/file-20230919-28-5zgfuv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=441&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://www.rba.gov.au/education/resources/explainers/nairu.html">Reserve Bank of Australia</a></span>
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<p>The combination of high inflation and high unemployment (often referred to as “<a href="https://www.investopedia.com/articles/economics/08/1970-stagflation.asp">stagflation</a>”) which emerged in the early 1970s seemed to vindicate Friedman. High inflation and high unemployment can’t coexist on a standard Phillips curve.</p>
<p>Friedman’s presentation of the problem implied the need for a full-scale model of what moved unemployment and wages, but it was never seriously attempted. </p>
<p>Instead, economists used Friedman’s insight to estimate the rate of unemployment at which inflation remained stable – the so-called “natural rate”. </p>
<p>Unfortunately for proponents of the idea, the “natural rate” turned out to <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/2.html">vary</a> over time, leading to the term being replaced with the clunkier but more descriptive “NAIRU”. </p>
<p>Worse still for proponents of the idea, estimates of NAIRU tended to move in line with the actual rate of unemployment. When unemployment was high, estimates of NAIRU were high. As it fell, estimates of NAIRU <a href="https://treasury.gov.au/sites/default/files/2021-05/p2021-164397_nairu.pdf">fell</a>, suggesting that how far unemployment could fall was determined by how far unemployment had fallen.</p>
<h2>Put to the test, NAIRU failed</h2>
<p>The NAIRU model’s first real test since the 1970s came with the rapid upsurge and then decline in inflation in 2022 and 2023 that followed Russia’s invasion of Ukraine and the end of the COVID lockdowns. </p>
<p>Inflation was initially driven by a combination of supply chain disruptions and demand from savings made during the lockdowns.</p>
<p>Because the unemployment rate didn’t much move (presumably being near NAIRU, albeit an estimate that had progressively been lowered as unemployment fell) the upsurge in inflation could be seen as consistent with the existence of NAIRU, a vertical line on the Phillips graph.</p>
<p>However, the absence of a significant increase in wages growth was inconsistent with NAIRU, which was built around the idea that inflation was driven by growth in wages, passed on as higher prices.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-can-and-should-keep-unemployment-below-4-say-top-economists-211277">We can and should keep unemployment below 4%, say top economists</a>
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<p>More damaging to the idea of a NAIRU was what happened next.</p>
<p>So far in 2023 inflation has dived (using the monthly measure, from 8.4% to <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release">3.9%</a>) but the unemployment rate has barely budged – at 3.7% in August, it’s where it was in <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">January</a>.</p>
<p>This doesn’t fit the standard NAIRU model. However, it makes perfect sense in a world where high inflation can be seen as the simple result of strong demand driven by COVID income support and supply constraints associated first with COVID and then Russia’s invasion of Ukraine.</p>
<h2>Let’s not use NAIRU to limit our ambition</h2>
<p>The central banks that pushed up interest rates have been quick to claim credit for the latest decline in inflation, but this claim doesn’t stand up to scrutiny. </p>
<p>Higher interest rates work with a lag to drive inflation down by reducing investment and consumption, and increasing unemployment. But inflation has fallen without these things happening. </p>
<p>Unemployment may well rise as the economy contracts, but that will be an unnecessary cost, like undergoing a dangerous treatment for a medical condition that is curing itself.</p>
<p>Like a one-hit wonder from the 1970s, the NAIRU model has remained dominant on the strength of its success in predicting the emergence of stagflation in the 1970s. </p>
<p>But as a general model of inflation and unemployment, it is woefully deficient. It is to be hoped it isn’t used to limit the government’s ambition in the white paper.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-unemployment-is-set-to-stay-below-5-for-years-to-come-188705">Why unemployment is set to stay below 5% for years to come</a>
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<p><em>Correction: this article referred in one place to Russia’s invasion of Afghanistan, rather than Ukraine. This has been amended.</em></p><img src="https://counter.theconversation.com/content/211487/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>Put to the test in the past two years, the idea of a “natural” rate of unemployment has failed. There’s no need to push unemployment up to any particular rate to bring down inflation.John Quiggin, Professor, School of Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1765382022-02-08T19:09:41Z2022-02-08T19:09:41ZWhy there’s no magic jobless rate to increase Australians’ wages<figure><img src="https://images.theconversation.com/files/444934/original/file-20220208-25-s4n5th.jpg?ixlib=rb-1.1.0&rect=0%2C535%2C5410%2C2782&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>With the <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">official unemployment rate</a> now 4.2% – the lowest since 2008 – Prime Minister Scott Morrison has <a href="https://www.afr.com/politics/federal/morrison-sets-unemployment-goal-not-seen-for-50-years-20220201-p59ss9">predicted</a> a rate “with a 3 in front of it this year”. The Reserve Bank of Australia <a href="https://www.rba.gov.au/publications/smp/2022/feb/pdf/statement-on-monetary-policy-2022-02.pdf">agrees</a>, forecasting unemployment below 4% in coming months.</p>
<p>Many economists have been surprised at how quickly employment has rebounded from the effects of COVID-19. Now they are scratching their heads for another reason. </p>
<p>With unemployment so low, why aren’t wages growing more quickly?</p>
<h2>Real wages falling</h2>
<p>If something is in short supply, its price is supposed to rise. That’s according to conventional economics, which treats the price of labour (wages) much like any other commodity, from pork bellies to rapid antigen tests. </p>
<p>But there is little sign of that happening. </p>
<p>Since 2013, growth in nominal wages (not accounting for inflation) has been weaker than any time since the 1930s, with the <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release#data-download">average annual rate of 2.1%</a> growth half the typical rate of earlier years. </p>
<p>After grinding to a halt during the lockdowns, wage growth has rebounded – but only to those anaemic pre-pandemic rates (up just 2.2% in the past 12 months). Nominal wages are now lagging well behind consumer prices. Real wages (accounting for inflation) are therefore falling – the opposite of what free-market theory predicts when unemployment is low.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/unemployment-below-3-is-possible-if-australia-budgets-for-it-176025">Unemployment below 3% is possible – if Australia budgets for it</a>
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<p>This outcome puzzles those economists who focus on market forces to explain income distribution. But it’s not surprising to those who consider a broader array of structural, institutional and social determinants of wages. </p>
<p>Unemployment may matter to wage trends, although not necessarily for the same reasons assumed by market-focused theories. But many other factors – including minimum wages, collective bargaining, the award system, and even politics and culture – also explain who gets paid what.</p>
<h2>Market-based ideas driving policy</h2>
<p>A simple market-based understanding of wages has guided the policy stance of the government and the RBA for a generation. </p>
<p>Both still ascribe, for example, to the concept of a “non-accelerating inflation rate of unemployment” (or NAIRU).</p>
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<p><strong>The Non-Accelerating Inflation Rate of Unemployment (NAIRU)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The non-accelerating inflation rate of unemployment (NAIRU)." src="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=483&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=483&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=483&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=607&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=607&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=607&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">RBA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>This refers the lowest unemployment rate achievable without causing wages to grow and inflation to rise. Both keep changing their estimates of its precise level, with the treasury’s <a href="https://treasury.gov.au/sites/default/files/2021-04/p2021-164397_estimatingthenairuinaustralia.pdf">most recent calculations</a> putting it at 4.5% to 5% in the years before the pandemic. </p>
<p>One reason the estimates shift is because the concept is impossible to measure. Many countries have abandoned this <a href="https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/3111/attachments/original/1573673492/Tolerate_Unemployment_but_Blame_the_Unemployed_Formatted.pdf?1573673492">widely criticised</a> concept. Yet it still underpins Australia’s fiscal and monetary policies. </p>
<p>A gentler approach acknowledges wages will accelerate gradually, instead of taking off suddenly, as unemployment approaches the estimated non-accelerating inflation rate of unemployment (NAIRU). </p>
<p>This relationship is expressed graphically in what is called the Phillips Curve. </p>
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<p><strong>The Phillips Curve</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The Phillips Curve" src="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=530&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=530&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=530&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=665&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=665&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=665&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"></span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/education/resources/explainers/nairu.html?utm_source=twitter&utm_medium=social&utm_content=nairu&utm_campaign=explainer">RBA</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>As unemployment falls, wage growth should gradually gain steam. That allows policy makers, especially the RBA, to try to guide the economy to a “sweet spot” on the Phillips Curve: with wage growth consistent with the RBA’s inflation target. </p>
<h2>Nice in theory, not in reality</h2>
<p>Unfortunately for both theories, the expected automatic relationship between unemployment and wages isn’t visible in the real world. Australia’s unemployment rate has fallen through successive estimates of the NAIRU (first 6%, then 5%, now 4%) with no sign of inflationary take-off.</p>
<p>The Phillips Curve is also morphing, changing both its vertical position and its shape. The accompanying figure plots unemployment versus the annual rate of growth in wages. </p>
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<p><strong>Wage growth and unemployment, 2000-2021</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="alt" src="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=433&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=433&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=433&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=544&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=544&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=544&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS wage price index and labour force data.</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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</figure>
<hr>
<p>Before 2013 only a weak relationship was visible between wages and unemployment. Since 2013 the curve has shifted down and flattened, with hardly any discernable connection between unemployment and wages.</p>
<h2>Other factors at play</h2>
<p>The only way to explain this seeming anomaly is to look at the broader, structural determinants of wages. </p>
<p>No economy simply sets the market loose to determine how much people get paid. </p>
<p>Regulations, institutions and processes mediate the distribution of income across classes, occupations and jobs. They can be used to create a more equitable distribution. Or they can be used to reward certain groups and suppress the incomes of others. Either way, it is institutions and policies – shaped fundamentally by politics and power – that determine how the economic pie gets divided.</p>
<p>Circumstances now provide a telling insight into how important those institutions are – and how dramatically they have changed. The accompanying table compares labour market outcomes and institutional parameters today, to those that prevailed the last time unemployment was below 4%. </p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Unemployment and wages indicators, 1972 vs 2022." src="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&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="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>Fifty years ago nominal wages were growing robustly, at more than 10%. Inflation was high (close to 6%) but real wages still rose. Now inflation is half that rate, yet wages are falling behind prices.</p>
<p>This is due to a night-and-day contrast between labour-market institutions then and now. </p>
<p>The minimum wage now is much lower relative to the average. The awards system has been restructured to serve only as a safety net, rather than leading improvements in wages and conditions. Unions and collective bargaining have been decimated, with strikes almost non-existent. Workers’ bargaining power has been further eroded by the spread of part-time work, casual jobs and other non-standard employment, including digital gigs.</p>
<p>Fifty years ago workers had institutional power to win decent wage increases – even when unemployment was relatively high. That power has been steadily and deliberately stripped away through privatisation, suppression of union activity and liberalisation of insecure employment.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/top-economists-expect-rba-to-hold-rates-low-in-2022-as-real-wages-fall-175054">Top economists expect RBA to hold rates low in 2022 as real wages fall</a>
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<p>Higher wages would strengthen household finances, support consumer spending and achieve a fairer distribution of income. But there’s no magic unemployment rate that will deliver that outcome. </p>
<p>If we want higher wages, we must win them through deliberate wage-boosting policies.</p><img src="https://counter.theconversation.com/content/176538/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>If we want higher wages, we must win them through deliberate wage-boosting policies.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1619002021-07-11T20:13:56Z2021-07-11T20:13:56ZOur estimates suggest we can get Australia’s unemployment down to 3.3%<figure><img src="https://images.theconversation.com/files/409437/original/file-20210702-13-1q2p78t.jpg?ixlib=rb-1.1.0&rect=814%2C269%2C3107%2C1628&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">MIA Studio/Shutterstock</span></span></figcaption></figure><p>At last, the government and the Reserve Bank are singing from the same song sheet. Both say they will keep supporting the economy (the government with big deficits, the Reserve Bank with ultra-low interest rates) until the unemployment rate is well below 5%.</p>
<p>Australia’s leading economists back them.</p>
<p>Of the 60 leading economists surveyed by the Economic Society ahead of the budget, more than 60% wanted stimulus until the unemployment rate was below 5%.</p>
<p>One in five economists wanted stimulus until the rate was <a href="https://theconversation.com/exclusive-top-economists-back-unemployment-rate-beginning-with-4-159989">below 4%</a>. Five wanted a rate below 3%.</p>
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<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/397752/original/file-20210429-18-tqjs2j.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/397752/original/file-20210429-18-tqjs2j.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=510&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397752/original/file-20210429-18-tqjs2j.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=510&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397752/original/file-20210429-18-tqjs2j.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=510&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397752/original/file-20210429-18-tqjs2j.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=641&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397752/original/file-20210429-18-tqjs2j.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=641&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397752/original/file-20210429-18-tqjs2j.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=641&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="attribution"><span class="source">The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>The official unemployment rate is currently <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">5.1%</a>. We’ll get an update on Thursday.</p>
<p>How much lower we can push it without creating increasing inflation is in large measure a technical question, one myself and colleague Jenny Lye have attempted to estimate using 50 years of data on variables including union membership and unemployment benefits between 1967 and 2017.</p>
<p>Union power and the level of unemployment benefits help determine how low unemployment can go before employers are forced to increase wage rises. </p>
<h2>Power and benefits</h2>
<p>Union power is important because the greater is union power, the higher is the rate of unemployment required to keep union-driven wage inflation in check. </p>
<p>Unemployment benefits are important because they contribute to the attractiveness of unemployment and thus to the difficulty employers face to prevent employees walking.</p>
<p>The more people are paid in unemployment benefits, the higher the rate of unemployment needs to be to keep employer-driven wage inflation in check.</p>
<p>We call the minimum rate of unemployment consistent with non-increasing wage inflation “umin”. An unemployment rate above “umin” means the rate of wage increases will remain steady. If it’s below “umin”, wage increases will start to climb.</p>
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Read more:
<a href="https://theconversation.com/exclusive-top-economists-back-unemployment-rate-beginning-with-4-159989">Exclusive. Top economists back unemployment rate beginning with '4'</a>
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<p>Our estimates have umin changing from 2% in the late 1960s, to 6% in the mid 1970s and 1990s, to less than 4% after the global financial crisis.</p>
<p>Our most recent estimate, for 2017, is <a href="https://www.elgaronline.com/view/journals/roke/9-1/roke.2021.01.02.xml">3.3%</a>. </p>
<p>That estimate — that Australia could have a 3.3% unemployment rate without increasing wage inflation — is lower than the <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/2.html">4.5%</a> estimate by researchers at the Reserve Bank and the <a href="https://treasury.gov.au/publication/p2021-164397">4.75%</a> estimate adopted by the Treasury. </p>
<p>It is also much lower than the 5% unemployment Australia achieved pre-COVID. </p>
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<p><strong>umin estimates, Australia 1967-2017</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=355&fit=crop&dpr=1 600w, https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=355&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=355&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=447&fit=crop&dpr=1 754w, https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=447&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/409446/original/file-20210702-27-1swenfm.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=447&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">umin is the minimum rate of unemployment consistent with non-increasing inflation. Upper and lower estimates = 95% confidence level.</span>
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</figure>
<hr>
<p>Taken together, our series of estimates suggest that since 2012 we could have achieved much lower unemployment than we have without troubling inflation.</p>
<p>Whether umin has edged higher or lower since our most recent estimate in 2017 depends in part on the size of subsequent changes in union power and unemployment benefits.</p>
<p>An advantage of our estimates is that they help explain why umin has varied over time.</p>
<p>By contrast, the Reserve Bank and Treasury estimates shed no light on causes. They derive from statistical relationships between unemployment and wages which have changed over time without an explanation of why tat has happened.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/economy-will-be-weak-and-in-need-of-support-after-pandemic-say-top-economists-in-2021-22-survey-163433">Economy will be weak and in need of support after pandemic, say top economists in 2021-22 survey</a>
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<p>Our estimates quantify the impacts of union power and unemployment benefits. </p>
<p>In 1975, when 51% of the workforce was unionised and unemployment benefits were as high as 28% of male after-tax average earnings, we estimate umin at 5.7%. </p>
<p>Since then union membership has fallen to 17%, and unemployment benefits have fallen to 23% of male after-tax earnings.</p>
<p>One or both of them would need to fall further to get umin down to the 2% we used to have.</p>
<h2>We can reach 3.3% but perhaps not 2%</h2>
<p>When umin was 2% between 1967 and 1971 unemployment benefits were lower than they are today, averaging 14.7% of male after-tax average earnings. </p>
<p>Our estimates suggest that with union membership where it is today, unemployment benefits would need to fall a further 5 percentage points (from 23% to 18% of male after-tax earnings) to get umin back down to 2%.</p>
<p>It is important to realise that cutting umin would not automatically cut the rate of unemployment to umin.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/josh-frydenberg-has-the-opportunity-to-transform-australia-permanently-lowering-unemployment-156175">Josh Frydenberg has the opportunity to transform Australia, permanently lowering unemployment</a>
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<p>The government would need to stimulate the economy in order to get it there, as it now says it is <a href="https://theconversation.com/exclusive-top-economists-back-budget-push-for-an-unemployment-rate-beginning-with-4-159989">willing to do</a>.</p>
<p>The gains to well-being of cutting unemployment to umin are substantial, especially for those at the end of the job queue and new entrants to the labour force, such as young people. Our calculations suggest there is little to be lost from trying to achieve them.</p>
<p>But it would be wise to tread carefully. Jeff Borland of Melbourne University laid out a reasonable approach in his response to the Economic Society <a href="https://theconversation.com/exclusive-top-economists-back-budget-push-for-an-unemployment-rate-beginning-with-4-159989">survey</a>. </p>
<p>He said if we get the unemployment rate down to 4% and find that inflationary pressures are not present, we should “try to push lower”.</p><img src="https://counter.theconversation.com/content/161900/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Martin McDonald has received funding from the Australian Research Council. </span></em></p>Our work suggests we could have achieved much lower unemployment than we have in recent years, without driving up inflation.Ian McDonald, Emeritus Professor, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1561752021-03-02T03:17:02Z2021-03-02T03:17:02ZJosh Frydenberg has the opportunity to transform Australia, permanently lowering unemployment<p>Josh Frydenberg has the opportunity to become a transformational Australian treasurer. He has been bequeathed a set of circumstances that comes along rarely.</p>
<p>He has already shown himself able to shift the debate on important topics in order to achieve the previously unthinkable.</p>
<p>Most recently he did it with Google and Facebook, getting them to pay news providers for content using legislation that led the world in its breadth and force.</p>
<p>It’s actually the second time Frydenberg has taken on big tech. As assistant treasurer in 2015 he championed a “<a href="https://www.ato.gov.au/Business/International-tax-for-business/GST-on-imported-services-and-digital-products/">Netflix tax</a>” on overseas-based suppliers of online services. They would be required to collect and pass on goods and services tax, just like Australian retailers.</p>
<p>It was a tax <a href="https://www.afr.com/policy/tax-and-super/joe-hockeys-tax-integrity-measures-include-tax-for-netflix-20150423-1mrj00">experts</a> told him big tech might never pay.</p>
<h2>Frydenberg has shown boldness before</h2>
<p>Opportunities like the much bigger one in front of him now don’t come along often because Australia isn’t in recession often. Three decades ago in the early 1990s Australia’s then Reserve Bank governor Bernie Fraser seized its mirror side.</p>
<p>In the wake of an appalling recession that had destroyed both jobs and inflation, Fraser opted to finish the job and drive a stake through the heart of inflation.</p>
<p>A <a href="https://scribepublications.com.au/books-authors/books/unfinished-business">biography</a> of then treasurer Paul Keating quotes Fraser as saying “we’ve got the inflation rate down and we are damn-well going to keep it down”.</p>
<p>At the first hint of a resurgence in inflation as the economy got back on its feet Fraser rammed up interest rates an extraordinary 0.75 percentage points in August 1994, then another 1.00 percentage points in October, and a further dizzying 1.00 percentage points in December. </p>
<p>Job finished, inflation has remained tamed ever since, never again returning to the 8% and 10% common in the 1980s.</p>
<h2>Recessions create opportunities</h2>
<p>Frydenberg’s opportunity is to drive a stake through the heart of unemployment.</p>
<p>From the end of the second world war right through to the mid 1970s Australia’s unemployment rate averaged just <a href="https://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp1997n24.pdf">2%</a>. From then onwards until today it has averaged <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release#data-downloads">6.8%</a>, an embarrassment in a country capable of much, much better.</p>
<p>How much better?</p>
<p>The Reserve Bank’s pre-COVID estimate of Australia’s so-called non-accelerating inflation rate of unemployment (NAIRU) was <a href="https://www.rba.gov.au/speeches/2019/sp-ag-2019-06-12-2.html">4.5%</a>. NAIRU is the rate below which it is thought inflation and wage growth might start to climb. </p>
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<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>
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<p>If correct, the estimate means there is no danger whatsoever in pushing Australia’s unemployment rate down from its present 6.4% to 4.5%, or lower. We won’t know how much lower until we try. Pre-COVID, US unemployment got to 3.5%.</p>
<p>Far from danger, there would be a huge payoff in permanently lowering the rate of unemployment Australia regarded as acceptable.</p>
<p>At an unemployment rate of 4.5%, an extra 255,800 Australians would be in work and earning money, providing services and paying tax. The government could save $4 billion per year in JobSeeker payments.</p>
<h2>We could go for broke</h2>
<p>Frydenberg should actually aim for a much-lower unemployment rate than 4.5%.</p>
<p>Reserve Bank Governor Philip Lowe does not say 4.5% would accelerate inflation, he says he <a href="https://theconversation.com/reserve-bank-governor-not-for-turning-no-rate-hike-until-unemployment-near-4-5-154560">doubts whether anything above 4.5% would accelerate inflation</a>.</p>
<p>And Lowe says this notwithstanding the view of the <a href="https://www.aph.gov.au/Parliamentary_Business/Hansard/Hansard_Display?bid=committees/estimate/b25544f7-b923-401b-8be1-c78f424e58ef/&sid=0001">secretary to the treasury</a> that the recession has pushed up NAIRU to around 4.75% to 5% as people who have lost their jobs have become less employable.</p>
<p>But here’s the thing. NAIRU is the <a href="https://www.investopedia.com/terms/n/non-accelerating-rate-unemployment.asp"><em>non-accelerating</em></a> inflation rate of unemployment — the rate that keeps inflation and wage growth constant.</p>
<p>Wage growth, at <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">1.4%</a> and inflation, at <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release">0.9%</a> are too low. We need them to accelerate. Frydenberg and the Reserve Bank have <a href="https://cdn.theconversation.com/static_files/files/1495/Media_Release_-_Treasurer_-_Statement_on_the_Conduct_of_Monetary_Policy.pdf">agreed</a> to target inflation of 2-3%. It’s a target that would normally mean wage growth of 3-4%, where wage growth hasn’t been for the best part of a decade.</p>
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<p><strong>Wage growth below par for years</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/387355/original/file-20210302-13-1icbt6r.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Wage price index, total hourly rates of pay excluding bonuses, private and public, annual.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">ABS</a></span>
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<p>To get inflation and wage growth back up to where we want them we are going to need an unemployment rate well below the oddly-named NAIRU — well below 4.5% — for quite some time.</p>
<p>In his new book <a href="https://www.blackincbooks.com.au/books/reset">Reset</a>, economist Ross Garnaut says we should be aiming for an unemployment rate of <a href="https://theconversation.com/the-reset-to-lift-us-out-of-the-covid-recession-has-to-be-bold-returning-to-where-we-were-is-nowhere-near-good-enough-155565">3.5%</a>.</p>
<p>He says on the way down there would be time to adjust the target “up when high and accelerating inflation becomes a matter of concern, or down (further) if we approach 3.5% without inflation accelerating dangerously”.</p>
<p>As in the US, we don’t yet know how low we can safely push unemployment, but it might turn out to be very low indeed.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-reset-to-lift-us-out-of-the-covid-recession-has-to-be-bold-returning-to-where-we-were-is-nowhere-near-good-enough-155565">The reset to lift us out of the COVID recession has to be bold: returning to where we were is nowhere near good enough</a>
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<p>To get there Australia’s government will have to keep spending, and learn to live with big budget deficits and big debt.</p>
<p>Garnaut says to not do so would be a false economy, condemning us to “endless increases in our public debt-to-GDP ratio because we wouldn’t be producing the GDP we were capable of”.</p>
<p>The government would fund the crushing of unemployment by selling bonds to the Reserve Bank directly, bypassing financial markets in order to avoid putting further upward pressure on the dollar.</p>
<h2>Low risk, long payoff</h2>
<p>To the extent that the continuing flood of bonds further eased mortgage interest rates (which it mightn’t much, because the bonds would be long-term) the Prudential Regulation Authority would have to crack down on investor and interest-only loans as it did <a href="https://www.smh.com.au/business/banking-and-finance/banks-face-tighter-capital-rules-for-investor-and-interest-only-loans-20190612-p51wt5.html">successfully before the COVID crisis</a> in order to restrain house prices.</p>
<p>Garnaut believes there will also be a need for less-pleasant reforms to restore the prosperity Australia is capable of, but he says they will only gain widespread acceptance if it is known that anyone who wants a job can get a job — whether that’s at an unemployment rate of 3.5%, the 2% Australia once had or the 1% New Zealand had.</p>
<p>The COVID recession and rapid recovery from it have handed Frydenberg an opportunity to relentlessly drive down and crush unemployment — to finish the job.</p>
<p>If he grabs it he will be remembered as the treasurer who changed Australia, perhaps forever.</p>
<p><audio preload="metadata" controls="controls" data-duration="2814" data-image="" data-title="Reducing unemployment for good with Peter Martin" data-size="112566856" data-source="Democracy Sausage with Mark Kenny, March 4, 2021" data-source-url="https://podcasts.google.com/feed/aHR0cHM6Ly9yc3Muc2ltcGxlY2FzdC5jb20vcG9kY2FzdHMvMTA4NDIvcnNz/episode/ODIxMmY4OTEtNGFkNS00ZGIzLWIwOWQtZDcyN2RhODlhNjVl?hl=en-AU&ved=2ahUKEwiTurSRsZbvAhVW9nMBHVZFAiEQjrkEegQIBhAI&ep=6" data-license="" data-license-url="">
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<div class="audio-player-caption">
Reducing unemployment for good with Peter Martin.
<span class="attribution"><a class="source" rel="nofollow" href="https://podcasts.google.com/feed/aHR0cHM6Ly9yc3Muc2ltcGxlY2FzdC5jb20vcG9kY2FzdHMvMTA4NDIvcnNz/episode/ODIxMmY4OTEtNGFkNS00ZGIzLWIwOWQtZDcyN2RhODlhNjVl?hl=en-AU&ved=2ahUKEwiTurSRsZbvAhVW9nMBHVZFAiEQjrkEegQIBhAI&ep=6">Democracy Sausage with Mark Kenny, March 4, 2021</a><span class="download"><span>107 MB</span> <a target="_blank" href="https://cdn.theconversation.com/audio/2131/democracy-sausage-peter-martin-going-for-broke-on-unemployment.mp3">(download)</a></span></span>
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<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>Now that we are recovering from recession, there’s no telling how low we could push the unemployment rate. One estimate is 3.5%.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.