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.