Is unemployment “high”?

So yesterday the RBA dropped the overnight interest rate to 0.75%. Today the papers are full of analysis and discussion. This observation in the AFR by Christopher Joye is particularly interesting:

Earlier in the year, the RBA arrived at the important conclusion that the fully employed jobless rate is much lower than its previously assumed 5 per cent threshold, presently sitting somewhere between 4.0 and 4.4 per cent. It also appears to be trending downwards over time.

Given our 5.3 per cent unemployment rate, this implies that there are more than 100,000 jobless Australians who should, in fact, be gainfully employed.

It is not clear to me, however, how and why the RBA has formed that view. (The RBA speech talking about estimates of the NAIRU is here).

But let’s do a very quick plausibility check.

The current employment to population ratio is 62.3%. The all-time high for that statistic is 63.4% in December 2007.  An extra 100,000 people working today would imply an employment to population ratio of 62.8.%.

I’m at a loss to understand why anyone would think that there could easily be an additional 100,000 jobs in the economy when, since 2007, we have seen the labour market substantially re-regulated, anti-business sentiment increase, and energy costs soar.

It seems to me that achieving the goal of full(er) employment involves cutting red tape, cutting green tape, lowering taxes, and curbing anti-business sentiment. Not just trying to push on a piece of string by lowering overnight interest rates.

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34 Responses to Is unemployment “high”?

  1. Texas Jack

    And the high-point for that ratio was produced by…….??? Drumrolls…..
    Workchoices!

  2. John Constantine

    “Red Take”

    I am gunna use that somewhere.

  3. Tim Neilson

    The current employment to population ratio is 62.3%. The all-time high for that statistic is 63.4% in December 2007. An extra 100,000 people working today would imply an employment to population ratio of 67.2%.

    Are you sure there’s not an order of magnitude error in there?

    Australia’s population is about 25,000,000. An increase in the ratio of about 4.9% (62.3 to 67.2) would be more like 1.2 million, not 100,000.

    Not disagreeing with your main point though.

    [Yes – sorry. Added 1000,000 not 100,000 when doing the calculation. Sinc]

  4. Chris M

    Well put Sinc, totally agree. Morrison Liberals seem to be a bit clueless Labor-lite’s.

    Given our 5.3 per cent unemployment rate

    The true rate is at least 3% higher and underemployment is massive, could be 20%.

    Meanwhile in public service world everything is just dandy, they must be mystified by all this talk…

  5. Roger

    The true rate is at least 3% higher and underemployment is massive, could be 20%.

    ABS still count those who’ve done 1 hour of paid work in the week before their survey as “employed”.

  6. Peter Greagg

    Agree with Doomlord’s analysis.
    As an aside, I have never thought the concept of the NAIRU was in anyway useful.
    Over the term of Peter Costello as Treasurer, I saw estimates of the NAIRU fall from around 7%, to below 4% in 2007. It appeared to be continuously revised down as evidence that the previous estimates were always too high.
    In other words, it was useless as a concept.

  7. C.L.

    Earlier in the year, the RBA arrived at the important conclusion that the fully employed jobless rate is much lower than its previously assumed 5 per cent threshold.

    The 5 per cent threshold has been an orthodoxy for donkey’s years. It must be frustrating to virtuous, meddlesome pump-primers that we have (definitional) full unemployment. But I doubt there are fifty-thousand proper jobs for the taking right now in Australia, let alone one hundred thousand. That’s total bullshit.

  8. Pyrmonter

    The RBA’s ChartPack is worth a review:

    P 12 has the labour market numbers: if the Employment Ratio isn’t at an all time high, it must be very close. Capacity utilization is also above average (though down a bit on the recent past): see p 9.

    P 12 suggests remarkably persistent measures of underemployment: has there been a change in the way it is measured? Or is it an artifact of the labour market regulation to which Sinc, Tim and others have referred?

  9. Neil

    Hawke/keating never got close to 5.3% unemployment. That would be an ultra ultra low for that govt. It was at 11% when Keating became PM

  10. C.L.

    Meant: full employment, not full unemployment

  11. thefrollickingmole

    While we have a university sector devoted to churning out people with degrees to take government jobs we are rooted.

    There are actually some very clever people wasted on local councils/not for profits etc who have been funneled there by uni pap about “oh if you are in business you are a greedy swine, not for profit/government is so much more virtuous”.

    Its crap and Ive argued with a few NFP gurus about how they are in effect parasites instead of net wealth creators. Almost none of them grasped the concept a well run business employing a dozen people and turning a profit (and paying taxes) was better for society than a charity funded welfare or social enterprise employing 2.

  12. I_am_not_a_robot

    … since 2007, we have seen the labour market substantially re-regulated, anti-business sentiment increase, and energy costs soar

    The unemployment rate, whatever it is, is a lagging indicator.
    Fiddling with timing, new spark plugs, adjusting the mix etc. won’t help when some one has pissed in the fuel tank.

  13. MACK

    There seem to be jobs available in some regional areas:
    https://www.standard.net.au/story/6382801/who-wants-a-job-south-west-labour-shortages-exposed/
    And that underemployment business needs analysis – when people say they would work more if the hours were available, under what exact circumstances (location, shifts, $$)?

  14. Dr Fred Lenin

    We need a large increase in the number of public servants unemployed ,its far cheaper to pay them the dole than the exhorbitant salaries they get now . Most of them would have too many assets to receive Centrelink any way .
    . Start with the academics and climate “scientists”.

  15. iamok

    Try getting a job if you are over 50. Ageism is rife and underemployment is off the charts

  16. Cynic of Ayr

    It is absolute stupidity, or, it is absolute fake, that the Government – any Government – and the RBA, never mention the price of electricity as a significant cause of the problem of Australia’s precarious position.
    I’ve said this many times, and our so-called “economists” just fail to get their head around it.
    “The end user pays for everyone’s electricity!”
    They pay for their own use in their own home;
    They pay for Coles and Woolworths electricity costs in higher prices;
    They pay for the street lighting electricity in their suburb or town, in higher rate costs;
    They pay for the service stations’s electricity yo pump their fuel;
    The list is endless. Every goddamn expenditure for power, is paid for by the end user.
    Yet, not one of the “economists” inhabiting this forum, can even see this fact. Do you fellers really, really thing that Coles, Woolworths, Shire Councils, etc etc, just absorb the cost of electricity out of the goodness of their hearts? If so, you’re idiots.
    The solution is NOT freaking zero interest rates. The solution is reducing power costs by half!

  17. Percy Popinjay

    achieving the goal of full(er) employment involves cutting red tape, cutting green tape, lowering taxes, and curbing anti-business sentiment

    This is a statement of the bleeding obvious to anyone who isn’t a collectivist imbecile (BIRM).

  18. Dr Fred Lenin

    The fatal flaw in zero interest rates is that they have nowhere to go if things go wrong . The money tree is no good when you have picked all the fruit off ,its reduced to being green firewood .
    Economics is simple ,ask any frugal housewife . My Mum would have fixed it up in no time ,ignoring the screams of the priveleged losers ,or giving them the wooden spoon .

  19. mem

    I would like to see figures on those employed directly by government or as contractors via subsidies to industry.The businesses producincing value add or product to our economy are taking a huge hit while being taxed to the hilt to pay for the government initiated jobs which ultimately don’t produce value. When I say government I refer to all levels, local,state and federal plus the grants and subsidies that are given to NGOs.

  20. Neil

    ABS still count those who’ve done 1 hour of paid work in the week before their survey as “employed”.

    The first lie I was told be lefties was that Howard introduced that one hr/week rule to make his unemployment stats look better. Since then I have never believed anything a ALP/Greens supporter tells me. Its an international definition codified in Geneva by the International Labour Organisation

    https://www.bbc.com/news/uk-46264291

    But why does the ONS use one hour as the definition?

    Choosing whether to define someone as being in employment or not can be a bit of a conundrum, says Tony Wilson, director at the Institute for Employment Studies.
    “Why pick one hour? Well, because if you put the bar higher, you might end up classifying people as unemployed even though they’re working.”
    “You have to draw the line somewhere,” he says.
    The ONS definition is also an international one – drawn up by the International Labour Organization (ILO). By choosing to use the ILO’s definition, the UK’s employment data is consistent with other countries, making it easier to draw international comparisons.

  21. Squirrel

    The RBA is in the business of finding reasons to keep lowering the cash rate, because they don’t want the debt bubble to burst and thus expose the fact that our banking oligopoly is not quite as sound as all those reassuring “stress tests” would have us believe.

    The fact that they have started talking about low rates set by the world’s major central banks is another sign of this – there would have been periods in the past when the gap between Australian rates and major economy rates was larger than it is now, but it has (apparently) suddenly become an important thing – i.e. the pushback against the RBA is growing, and they are feeling the pressure to justify their actions.

  22. Nob

    mem
    #3173395, posted on October 2, 2019 at 6:00 pm
    I would like to see figures on those employed directly by government or as contractors via subsidies to industry.

    It’s kinda scary but when I talk to family and friends outside the industry, I can’t identify more than one or two that is in a business creating net value.

    Especially those who hear me trying to explain red tape green tape etc and insist they know better because “oh, I worked in the private sector” and it’s always some government funded non-job or supernumerary bolt-on required by green tape or red tape compliance. I mean who even calls it “the private sector” unless they think government makes the economy happen?

  23. mem

    I mean who even calls it “the private sector” unless they think government makes the economy happen?

    I worked in government at a pretty high level for half of my working life then worked in industry development with private businesses, retailers, farmers and other producers. Those in the public service have no idea what it is to to take risk, to borrow against the family home, to work from 5 am until 6 pm then some more doing paper work and often doing essential work at night again. Yet these are the people paying the taxes that keep the desk jockeys and latte sippers in employment usually at far greater income than those in business could imagine. Public servants have become so remote from the people that actually pay their wages that it has become obscene.

  24. Neil

    Public servants have become so remote from the people that actually pay their wages that it has become obscene.

    You forgot to add they also get 15.4% Super. Much higher than everybody else.

  25. Tezza

    Another way to look at this is to judge the productivity and ’employability’ of the least impressive of the people you have recently encountered in the workforce. The least impressive I’ve encountered were hopeless. If they nonetheless had a job, the even more hopeless guys still unemployed are unlikely to hold down a job in any foreseeable economy, under any imaginable policies.

  26. MPH

    Just don’t mention lower immigration alongside all those other solutions eh Sinclair?

  27. Arky

    [Yes – sorry. Added 1000,000 not 100,000 when doing the calculation. Sinc]

    ..
    Pffffft.
    Economists. No better than numberwang mathematics.

  28. Frank Walker from National Tiles

    Lower immigration won’t “create da jobs”, you plonker.

  29. MPH

    Can’t believe this needs explaining but there are two factors in unemployment – jobs available and number of people looking for a job. Less people looking for jobs, less people unemployed, which is the same as fuller employment – not to mention helping the horrendous underemployment and youth unemployment issues. Does that logic check out, Frank?

    Are people here aware that the population of Australia grows by 1% per year solely due to immigration, most of whom are working age? And yet it isn’t mentioned when discussing unemployment rates?

  30. Frank Walker from National Tiles

    MPH
    #3174409, posted on October 3, 2019 at 7:33 pm

    Can’t believe this needs explaining but there are two factors in unemployment

    You’re making this up as you go along.

  31. Tel

    The real question is how many of the RBA Board are “high”?

    Are Jacqui has the answer… test em all and let the dip-strip sort em out.

  32. Tel

    Pffffft.
    Economists. No better than numberwang mathematics.

    By my calculation about a thousand times better … Sinc says sorry when he’s wrong and goes to fix it up.

  33. 2dogs

    You’re making this up as you go along.

    Supply and demand is too hard a concept for you to understand, Frank?

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