Australia’s unemployment rate lifted to 3.7% in July 2023, with an additional 35,590 people now looking for work. The lift in the unemployment rate of 0.2% was nothing significant, with the rate still at fifty-year lows. By September, the unemployment data was no longer a topic of great note, with the release of the Federal Government’s Employment White Paper overshadowing the day-to-day.
The chart below shows the seasonally adjusted unemployment rate continuing to tick along at extremely low levels.
This tight labour market means the same number of people are required to do more, to meet the demand for labour.
This is reflected in the hours worked across the economy. At a macro level, total hours worked were up 0.2% in July, to 1.9520 billion hours.
Most importantly, this is also reflected in the hours worked per capita which increased to 89.44 hours and is about as high as history indicates the economy can sustain.
This is a particularly important consideration. There must be a point, where the deployment of the same labour to do more work (hours) comes with marginally ever-diminishing returns. The theory would go that as that point arrives, productivity per unit of labour will begin to decline, necessitating either the deployment of extra capital and labour, or some other form of correction. Like higher unemployment and less total economic activity.
For Australia, modern history suggests that tipping point is around 90 hours per person, per month.
Further reflecting the current strength of the labour market, the participation rate was 67% in July, which is a record. As Gareth Hutchens wrote for the ABC, the large rise in the population thanks to migration has fed into the higher participation rate. Hutchens spoke to the Commonwealth Bank’s senior economist Belinda Allen, who said:
“Net overseas migration has been very strong, the latest numbers suggest it is running at 500,000 [people a year], much higher than the forecasts contained in the May Budget. New migrants generally have a higher attachment to the workforce.”
The ‘participation rate’ measures how many people from the entire population of people aged 15 years and over are actively participating in the labour force. It means 67% of everyone aged 15 and over was either working or actively looking for work in August. It is now 1.2% higher than its immediate pre-pandemic level.
We can see this below and it is fair to reflect that when these factors are combined, we can see that Australia is in the midst of a very significant labour shortage. That is, a greater proportion of the population has a job than ever before and the average hours worked are pretty much at record levels.
These are important matters and it is a critical time to be considering them, given the challenges the nation is likely to face over the next few years.
That made the release of the Federal Government’s Employment White Paper in late September the more significant.
Central to the White Paper is the Government’s intention to place full employment at the core of national policy, aiming to push structural unemployment lower, redefining full employment more broadly, to encompass underemployment and labour underutilisation, which includes those seeking more hours.
The White Paper includes an informative discussion on why full employment doesn’t mean no unemployment. It points out that there will be frictional unemployment (people shifting from one job to the next) and structural underutilisation (people with three jobs have more downtime due to travelling for example) but the emphasis is on taking the velocity out of that, so employment is more sustainable.
The White Paper therefore defines full employment in two parts:
Sustained full employment: this refers to using different policies to reduce volatility in economic cycles and keep employment as close as possible to the current maximum sustainable level of employment that is consistent with low and stable inflation.
Inclusive full employment: which is about broadening labour market opportunities, lowering barriers to work, and reducing structural under-utilisation to increase the level of employment that can be sustained in the economy over time.
A variety of commentators chimed into the debate more or less instantly on the White Paper’s release.
Most were critical of the lack of focus on productivity measures and potential improvements, without which the orthodox economic thesis is that full employment becomes inflationary because demand for wage increases outstrips the productivity gains being made.
The laughable technical term for this ever-moving perfect point of equilibrium is the non-accelerating inflation-rate of unemployment or NAIRU for short. Treasury estimates the NAIRU at 4.25%, while the RBA has it at 4.5%.
As the chart shows, the last two decades it has been quite rare for the unemployment rate to operate far from the NAIRU, suggesting that for almost a generation, there has been little inflationary pressure created by employment.
The national population and work debate continues apace, with practical action the most sought after and elusive commodity in this perennial topic.
On that, in releasing the White Paper, Treasurer Jim Chalmers announced a series of measures to advance the new concept of full employment, including as the ABC’s Gareth Hutchens summarised:
- Driving a faster take-up of higher apprenticeships in the priority areas of net zero (renewable energy), the care economy, and digitalisation.
- Permanently extending the Work Bonus measure for older pensioners and eligible veterans, allowing them to earn more income from working without reducing their pension.
- Smoothing the transition to work for many income support recipients by doubling the period they can receive nil rate of payment. This will allow them to retain access to social security benefits such as concession cards for longer when they first get back into work.
- Backing social enterprises to combat persistent labour market disadvantage in specific pockets of the country.
- Progress “scoping work” on a National Skills Passport, in consultation with employers, unions, the tertiary education and governments, to help workers demonstrate and promote their qualifications, and businesses to find more skilled workers.
