In other circumstances, Treasurer Josh Frydenberg might dance a jig.
But the veil of the Greater Sydney lockdown, which has now spread to Melbourne by declaring its fifth lockdown, meant there was no room to smile yesterday on the latest jobs figures, showing the rate Australia’s unemployment rate in June fell below 5% for the first time in a decade.
the labor force survey Australian Bureau of Statistics data shows 22,000 fewer Australians were unemployed last month compared to May. This pushed the unemployment rate to an eye-catching (if not still striking) level of 4.9%.
Next month’s numbers, of course, are unlikely to be so rosy. But these numbers still allow us to understand the progress of the Australian economy with a number of significant issues pre-COVID crisis.
Picture: CC BY-SA
It is important to note that the decline in the unemployment rate was not due to a reduction in labor market participation – sometimes referred to as the ‘dropout effect’, when people stop looking for work because they do not. not expect to find any. The participation rate remained stable at 66.2%. In fact, the number of people employed increased from 29,100 to 13,154,200.
There was even good news for young Australians, with the youth unemployment rate falling 0.5 percentage points to 10.2%. This reflects a strong recovery from the pandemic, 6.1 percentage points lower than a year ago in June 2020.
Total number of hours worked
The only statistic I always focus on is the total number of hours worked. This is because the overall unemployment rate, as critics always point out, does not tell us how well people are getting enough jobs.
On this measure, there was a little less good news. The total number of hours worked in June was down 1.8%, from 33.4 million hours to 1,781 million hours; and it’s seasonally adjusted, so it’s not just a “winter” thing.
Monthly hours worked in all jobs, seasonally adjusted
Slower wage growth
In 2019, the Australian economy could be better characterized as barely growing in per capita terms. Wage growth was stubbornly weak, while unemployment and underemployment were at unacceptable levels.
Having recognized this – too late, but at least eventually – the Reserve Bank cut interest rates from 1.50% to 0.75% in an attempt to raise wages, unemployment and inflation within the central bank’s 2-3% target. zoned. Inflation has been outside its target range for the duration of Philip Lowe’s tenure as governor, which began in September 2016.
The pandemic prompted the RBA to lower the cash rate to near zero and also buy government bonds to lower long-term interest rates.
By looking at where unemployment, underemployment and wage growth lie relative to 2019 levels, we learn something about Australia’s pandemic recovery.
In doing so, we must not lose sight of the fact that the economy in general – and the labor market in particular – was not in good shape before COVID, and policies to address these issues are long overdue.
Getting closer to where we need to be
So how is it going ? In a sense, pretty good.
June’s 4.9% unemployment rate is the lowest since June 2011. Coming down to something with a “4” in front of it, Australia is closer to reducing the slack in the labor market enough to do so. increase wages.
But the task is certainly not finished.
The aggressive monetary policy used by the RBA and the “Frydenberg Pivot” to pursue aggressive fiscal policy in this year’s federal budget are both aimed at reducing unemployment and therefore raising wages.
However, no one really knows how low unemployment must be in Australia for wages to pick up in earnest. Perhaps the official RBA position is 4.5%. Lowe said he might just be a little lower.
The smart way, arguably, is ‘let’s find out’ – the central bank should continue to use monetary policy and the Treasury should continue to use fiscal policy until we see real wage growth at a sustained level. In my opinion, this means that the unemployment rate must drop to just below 4%.
Relaunching a debate on immigration
The backdrop to these improvements in the labor market is a closed international border. This is likely to become a hot debate – especially as Lowe fired the starter gun last week by suggesting that historically high levels of immigration to Australia had helped keep wages low.
These were rather negligent, or at least misguided, remarks on the part of the governor of the central bank, unlike strong academic evidence pointing the other way.
He could say more about this at a later date, perhaps after discussion and reflection. But, as he likes to say, “only time will tell”.