Friday, February 09, 2007

Jobs threatened by JWH’s IR policies?

Unemployment at 4.5% of the workforce has fallen to its lowest level in 32 years. A year ago it was 5.3%. 300,000 new jobs were created in the 12 months to the end of January. Again there is evidence of a two economy split – WA and Queensland had rates of 3% and 4% respectively while NSW and Victoria had rates of 5% and 4.9%.

The dire tragedy of this situation, to some, is that the economy again faces threats of renewed inflation, labour supply shortages and interest rate rises. The Age describes the RBA as ‘jittery’ after news of these developments. Yet wage growth is steady at only around 4% despite a bubbling resources boom and an investment boom that is operating throughout much of the economy. The housing price bubble has been gently pricked and - if anything - house prices are taking off again.

Employment in those sectors affected by the abolition of unfair dismissal laws has grown (Julia Gillard points out by less than 1% but it is still growth) and the more flexible industrial relations system has prevented a breakout of the high wage increases in the mining sector into other sections of the economy.

Will the Australian electorate punish JWH’s government for running the economy at full employment? Indeed, for daring to run the economy with unemployment markedly below its ‘natural rate’ level. Recall that in the late 1990s natural unemployment rates were estimated to be between 5-11% in what I regard as some of the most staggeringly nonsensical economics our country has seen in decades. Some of our macroeconomists should be cooked down into decorticated canine preparations for peddling this junk.

Will voters prefer Wayne Swan to Peter Costello? Should we scrap WorkChoices? Has WorkChoices caused misery and economy damage? Where is it?

My thinking is that interest rates will fall further rather than rise, that inflation will moderate and lie within within the RBA's preferred range of 2-3%. I also think the economy will continue to grow quite strongly as commodity price growth moderates a bit but that the market for our primary exports will remain very strong. Moreover, my guess is that unemployment will fall further – job growth accelerated over the past year from 1.5% to 2.8% and job ads leapt by 11.8% in December.

While skill shortages are a pain, and probably put a clamp on growth, they are (of course) to be unambiguously preferred to layoffs – they can be met in part by increasing the temporary and permanent components of the skilled migration program and, in the longer-term, by families being induced to reproduce more.

The stories about large numbers of discouraged workers seem just that, stories. Even though the labour force participation rate fell a smigeon over the last month it has shown a secular increase for years. And the claim that increasing numbers of unemployed are 'hidden' among rising levels of those receiving disability pensions is not borne out by the facts. The rise in employment dominates all such trends.

This election will be won or lost to the Liberals on non-economic issues (Iraq, climate change, David Hicks). On the basis of the economy alone it is just no contest.

10 comments:

Matt Canavan said...

"On the basis of the economy alone it is no contest."

Well that pretty much decides the election then. Iraq and Hicks sure ain't going to have much an effect.

Joel said...

If you look at The Hun, it looks like Howard is gearing up to make Education an issue:

http://www.news.com.au/heraldsun/story/0,21985,21194912-5006029,00.html

It is a good issue, because it both 1) solidifies support amongst blue ribbon Liberals who send/sent their kids to expensive schools, 2) appeals to aspirational voters who send their kids to cheaper Catholic and Non-denominational schools in the outer suburbs, 3) makes the ALP look beholden to their unions and 4) appeals to the battlers with kids stuck in no-hope schools who see the real costs of the all this pomo rubbish.

hc said...

You didn't mention climate change Matt. I think it is asn issue. Hooward can point to the silly Labor policy on uranium but that he refused to sign Kyoto does not look good for him.

I agree Joel and its a smart move by Howard. I notice his involvement in the Donnelly book launch yesterday and his attempt to plant a seed of doubt about Labor.

The aspirationals you describe do send their kids to expensive private schools. Latham's failure to see this cost him dearly. The fact is a lot of ordinary people don't trust the public education system and the values it sometimes conveys. Often this is a very unfair view but it is a perception.

Its a significant edge with respect to Labor. The weakness is the lack of adequate funding for higher education - Rudd has made fairly empty statements but this difficulty undercuts a Liberal strength.

conrad said...

Acutally Harry,

pretending uranium doesn't exist might be bad policy, but it certainly isn't bad politics -- quite the opposite in fact. Wait until Rudd asks Howard where to put the waste and see who wins political points.

whyisitso said...

"that he refused to sign Kyoto does not look good for him."

So you believe that Australia signing Kyoto would have made a material difference to AGW? I haven't heard about anyone with any cred give any evidence that this was so. Perhaps you might explain this to us, Harry, and how it would justify Australia scuttling its economy by scrapping the coal industry among other things.

hc said...

Conrad, I think Aussies will become hard-headed about nuclear power when they understand the full implications of carbon taxes for their husehold budgets.

Whyisitso, Kyoto apart from demonstration effects won't deaql with global warming issues since it leaves out developing countries. I agree. My point was political - by not signing it the Coaliton can be portrayed as wek on climate change. Kevin Rudd is already trying to do this.

whyisitso said...

The debate over climate change has got hysterical and illiterate. You'd think from listening to most commentators that both the causes and the effects of global warming are local, that is the drought in S-E Australia has been directly caused by Australia's intransigence on climate change. It's nature's retribution for our sins.

Anonymous said...

Hi Harry,

While the IR changes in theory should have the effects observed, I would be wary of claiming too much:
1. Separating them out from the booming economy.
2. A few months is a very short time for these to have such an effect (unless booms (and busts) are when most effects will be felt anyway

cheers

Andrew Elder said...

The official definition of unemployment is so laughable that it cannot be used for any sensible decision-making. It's too early to tell about WorkChoices, and Swan is right about the commodities boom.

You're right about the non-economic aspects of the coming election, though. It's amazing that Labor could be re-elected in the pits of 1990, yet when things had picked up six years later, it got thrashed.

"skill shortages ... can be met in part by increasing the temporary and permanent components of the skilled migration program and, in the longer-term, by families being induced to reproduce more."
I'd never have believed it if I hadn't read it myself. First, a reference to skilled migration that fails to acknowledge that it comes up short, and that all countries are fishing in the same pond. Second, no reference whatsover to education/training as a solution to skills shortage, or prompting from the labour market for people to take skills training in order to get those higher-paid jobs.

"labour force participation ... has shown a secular increase for years."
I don't understand this - perhaps you mean 'spectacular' rather than worldly or non-religious, but even that would be overstating it.

Ged said...

Howard's response on the Climate Change issue has been simply ridiculous. This NEEDS to be one of the most prominent issues and Howard is STILL more worried about the ECONOMY?! Global warming has the potential to eliminate the human race all together.. "but, but our GDP might go down a bit!" Oh no!

Howard not signing the Kyoto protocol? He fell back on the "India and China didnt sign it so why should we? They make more emissions than us!" Well done JH! They also have several hundred times our population! Oh thats right, per capita, Australia is second only to the mighty USA in its carbon emissions. How about Mr. Howard invites some representatives from India and China over here to show them how WE deal with climate change...
"Now, see you lift the rug up here, at the corner.. put your climate change issue on the floor like this, grab your broom, ok, and start sweeping."

Remember this date ladies and gentlemen. 23/11/2006. The very day on which John Winston Howard FINALLY accepted that climate change IS a reality.