According to the Grattan Institute economic policy program director Brendan Coates, it’s imperative that Australia keep it that way.
While aiming for full employment is one of the objectives of the Reserve Bank, Coates argued it wasn’t a priority before COVID.
“We need to make sure that we're aiming to push employment down as far as we can because it's something that we weren't doing the years before the pandemic.”
In the decade between the global financial crisis and the pandemic, the employment rate hovered around the 5.5 per cent mark.
“That means hundreds and thousands of people were out of work, particularly vulnerable people,” Coates said.
High unemployment also impacts wages, said Coates. When you have a larger pool of unemployed workers, this reduces the bargaining power of all workers to demand higher pay.
According to the report, high unemployment in the years leading into the COVID crisis was responsible for at least one-third of the slowdown in wage growth in Australia since 2013.
He said several policy factors had held wage growth back since 2013, including imposing pay caps on public servants and failing to act on the gig economy.
Workers miss out on a significant chunk of change from slow wage growth, with a recent report from the McKell Institute finding that the average worker could be earning an additional $307 per week if wage growth continued at pre-2014 levels.
The jobless suffer long after they get back into the labour market
The impact of unemployment has been found to be far worse than not having a job for a period of time.
People earned less once they returned to the workforce, with the average person taking home 11 per cent less five years after a short three-month stint of unemployment.
Plus, people quickly fell behind in terms of skills, even if they were only unemployed for a short period of time.
Spells of long-term unemployment could also cause workers to give up and walk away from the job market, leading to long-term reliance on welfare.
The report also said weak demand for labour drags on the economy because companies have little incentive to expand and make new investments.
So what now?
Coates said it was a “great national achievement” to bring unemployment down to current levels.
With both of the major parties committing to a review of monetary policy, Coates said it would be prudent to keep a long term focus on unemployment once inflation had been wrangled under control.