21 June 2016
by Stephen Koukoulas
Australia’s unemployment rate is higher today than when the Liberals won the September 2013 election.
This is in stark contrast to unemployment trends in every other major industrialised period.
When Labor lost the 2013 election, Australia’s 5.6% unemployment rate was higher in only two countries â€“ Germany and Japan. Now, despite the government’s superficially appealing slogan of “jobs and growth” joblessness in both the US and the UK has tumbled below that of Australia. In New Zealand, the unemployment rate has fallen by a decent 0.5% to equal Australia’.
Some context on this is needed. Australia did remarkably well to avoid the deep recession during the global financial crisis and this ensured that unemployment remained at an average of 5.1% under Labor, while recession gripped the rest of the world. Fiscal stimulus, interest rate cuts and the lower Australian dollar all contributed to this economic out-performance during the crisis.
Prior to the global financial crisis, unemployment had reached a low of just 4%. That should be a minimum target for economic policy – generating the productivity enhancing, job-creating growth that not only provides enough employment opportunities to meet the growth in population, but eats away at the 725,000 people who are currently unemployed and the additional 500,000 or so who are underemployed.
Even in the economically troubled eurozone countries, progress has been made. The rate across the region is 1.8% down in less than three years, with even France and Italy making progress to lower their jobless rates.
Canada, which faces similar headwinds to Australia from falling commodity prices, has been able to reduce its unemployment rate marginally, despite the recession in oil and other commodities-based sectors. It has also had the additional problem, not evident in Australia, where its central bank, the Bank of Canada, has been unable to cut interest rates because they are already close to zero. As recently as May this year, the RBA cut interest rates as it did its best to support growth and employment.
Unemployment figures show both Britain and the United States have lower rates than Australia in 2016.
The recent budget papers painted an unimpressive picture for unemployment over the next few years. The government is forecasting the unemployment rate to remain at 5.5% right through to the middle of 2017, in part because of the subdued rate of economic growth, and because of substandard productivity.
The UK, US, Japan and Germany have unemployment rates at 5% or less and it is not breakneck economic growth that is delivering these impressive results.
In Australia, as the 2 July election looms, the hard-edged policies to specifically tackle unemployment are very much on the Labor side of the agenda. To be sure, the company tax cuts proposed by the Liberal Party, like any cash give away, will find some place in spending and therefore jobs once the full effect is felt in about a decade. But that is about it.
For Labor, with an objective to improve the quality of human capital – that’s economic jargon for having a more highly skilled and educated workforce – the benefits are larger and last longer. Indeed, educational attainment lasts through the whole career of each person who takes full advantage of the educational opportunities that will be offered under Labor.
In terms of progress to address the unemployment problems, Australia is merely treading water. Policy is dogged with quibbles over what are trivial changes in the budget balance and government debt. The electorate is being subjected to glib slogans of “plans” for “obs and growth” even though there is no substance to support those slogans.
The rest of the world is making progress with unemployment falling, even as they are dealing with a range of problematic domestic economic conditions.
Australia needs to catch up from the last few years of policy lethargy and make sure that the framework is in place so that when economic conditions do improve, as they will, the unemployment rate can again drop towards 4% or even lower.