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19,000 jobs gone: Australia's labour market is sick

Australia's labour market is not well, writes independent economist Stephen Koukoulas. (Source: AAP)

From a low starting point, things are getting worse, not better, for Australian workers and those looking for work.

The labour market data this week were, unfortunately, more of the same.

Breaking down the figures

Annual wages growth has dropped back to 2.2 per cent, well under what might be considered decent wages growth between 3.5 and 4 per cent.

It is fractionally above the lowest rate ever recorded with the ‘gentle turn in the economy’ needing to pick up soon if there is to be a tightening of labour market conditions.

At the same time, the news on unemployment was glum. The unemployment rate rose to 5.3 per cent, with the underemployment rate at a disconcerting 8.5 per cent. Employment fell by 19,000 jobs in October rounding out an ugly picture of the labour market.

The government may bang on about the 1.5 million jobs created since 2013, but this merely reflects population growth and a rise in workforce participation for older Australians as they postpone retirement because of their mortgage debt, low superannuation balances and piddling investment returns on the money they have in savings or in their superannuation.

Sick labour market is no mystery

What you won’t hear the government talk about is the increase of almost 250,000 people in underemployment and over 30,000 in unemployment since the 2013 election.

There are no secrets why the labour market is so slack – it’s the absence of solid, sustained economic growth.

With GDP stuck in the mud well below 3 per cent for many years (it was actually a pitiful 1.4 per cent in the most recent data), firms are not strong enough to hire more workers or to give them a decent pay rise.

If business were making money, expanding and meeting new orders in a strong economy, they would be hiring strongly, adding to worker’s hours and having to pay decent pay increases to attract and retain talent.

And they would do so happily knowing the buoyant economy would carry them along a little longer.

Governments obsessed with budget surpluses are giving their public servants miserly pay increases is also spilling over to the private sector labour market funk.

Fingers crossed the economy fixes itself

The hope is for the economy to pick up

To its credit, the RBA has belated recognised its errors of mid-2017 to mid-2019 and has slashed interest rates. Two cheers for the RBA.

It knows monetary policy works, and that the interest rate sensitive part of the economy are already responding to the recent interest rate reductions.

But it will take some time to flow through to the economy.

The Morrison government, on the other hand, has its head in the clouds.

The budget numbers confirm that the government continues to pursue an anti-growth fiscal austerity approach aimed solely at the budget bottom line.

A budget surplus versus higher unemployment, if you like.

Government spending is undershooting the conservative estimates made at budget time. At the same time, the Morrison government has emerged as the second highest taxing government Australia has ever had.

Each dollar sucked out of the economy through this booming tax take and via the underspending on government programs is a dollar that is not circulating in the economy driving extra consumption, investment and hiring.

The signs are worrying

With Treasurer Josh Frydenberg’s Mid Year Economic and Fiscal Outlook about a month away, the policy signs are worrying. 

The government has been signalling there is no need for fiscal stimulus to support the economy and the labour market.

It’s not a good policy option to deliberately achieve the budget surplus by vacuuming money out to the economy and in the process, keeping unemployment and underemployment higher than they need be.

While the economy does look to be finding its feet and that 2020 will be a somewhat better year for bottom line GDP growth, the recovery is by no means guaranteed.

Things can and do go wrong in an economy and if Australia’s luck turns sour for reasons like the iron ore price falling, weaker activity in housing and economic growth in our major trading partners stalling, by the end of next year the labour market will be weaker than it is today.

Let’s hope the shocks to the economy are positive and not the negative ones outlined above. 

But hope alone is a risky strategy – a bit of extra policy stimulus now would help lock in better times this time next year.

A 4 per cent unemployment rate should be a policy goal, but like many good policy aims, you need pro-active policy makers to help obtain them.

And at the moment Australia, policymakers are looking elsewhere for enlightenment and doing precious little to reverse the recent ugly run of labour market data.

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