Friday, April 13, 2007

Unemployment at record low

The 4.5% unemployment figure – the lowest in Australia in 32 years – is fantastic news for working Australians. 276,000 new jobs, mostly full-time jobs were created over the past year. Was it due to the abolition of Unfair Dismissal Laws? Was it due to the mining boom or to the general investment boom sweeping through the economy?

The most reasonable answer is – a 'bit of both' though small business makes it clear they are much more prepared to take on new staff if they know they can easily get rid of them if they are not needed or don’t perform. That sounds plausible. Of course the response of the unions will be that those that do get jobs are worse off in terms of pay and conditions than they were before.

There might be an element of truth in that but the reduction in unemployment is a fantastic outcome for those who have previously been excluded from the workforce. We need real evidence but, as excess supplies of labour dry up, this should force firms to improve rather than degrade pay and conditions. I am amused that, The Age, which is so consistently biased against anything the Government does, cannot even see the possibility of higher wages as a good outcome. The fear is that it will force the RBA to increase interest rates! The Government cannot win - it wouldn’t matter what happened to wages they will be condemned in one way or another.


Anonymous said...

Bob Gregory had a raher measured view of it all.

The New IR laws has an underlying effect and thus should afect all states equally however the strong growth has been in WA and QLD.

hc said...

Of course employers in those states have been among those who gained most from flexible work arrangements such as AWAs.

taust said...

have the numbers of people on pensions started to fall significantly yet?

hc said...

I haven't seen data on this but the government is actively trying to force single parents and diaability pension receivers to seek work if they can work 15 hours a week. Joe Hockey has already acknowledged this will plausibly boost unemployment by a tenth of a percentage point. Taust I hope you are not one of those who foolishly believe the myth that unemployment is falling because those on disability support pensions are increasing. Its just wrong.

The other myth that is often repeated is that the decline in unemploymernt is caused by a decline in the workforce participation rate. This is false - apart from a recent bleep the opposite is true - the workforce partyicipation rate is steadily increasing,

The reduction in unemployment is genuinely good news and people of all political persuasions should acknowledge this.

Anonymous said...

I acknowledge it. Work is good for your self esteem. It defines who you are. Don't muck up the formula.
KRudd reads this blog doesn't he?

derrida derider said...

Of course the reduction in unemployment is great news, and anybody who tries to claim that it is somehow illusory (as some lefties still do) is being dishonest. It's got bugger all to do with unfair dismissal though.

Employment protection legislation (EPL in the labour economists' jargon) has a theoretically ambiguous effect on unemployment. It reduces flows into employment, but also reduces flows out. The OECD has repeatedly looked at the empiric evidence on this and has repeatedly failed to find evidence of any significant effect on the level of unemployment (especially once you account for the correlation between this form of regulation and other labour market regulation). It does have strong effects on the composition of unemployment though - it locks "bad risks" out of work in the same way that landlord-tenant laws lock dodgy tenants out of the housing market. It may also indirectly cut wages. IMO the government could make more of these points.

Apart from the effects of a sustained boom (it's the length as much as the strength that's done the trick), my own opinion is that WorkChoices is indeed boosting labour demand simply by cutting wages; wage growth has been startlingly modest in the face of such a boom. Don't expect the government to trumpet that though.

On the labour supply side, the real falls in unemployment benefit generosity relative to wages have also had an effect - though again that's a two-edged sword for the government.

taust, the number of people on disability pension is still rising (workforce aging is a strong force here), but much more slowly in recent years than formerly. The number of people on the sole parent pension has fallen over the past two years - the first years it has ever done so since it was introduced in the early 1970s. The really interesting thing about this is that it seems to be as much due to fewer marriage breakups as more sole parents working.

Anonymous said...

How does say 4% unemployment now compare to the same rate in say 1980? I'm trying to gets a factual basis to my 'gut'feel that in 1980 there was a much smaller pool of potential workers available for a given unemployment rate than now.
But I must admit there are too many variables (women in workforce, older population, extended schooling,lesser number of war veterans etc etc.) for me to come to an answer that satisfies me.
Anyone care to help me?

derrida derider said...

terence, the authoritative source for labour force data is here.
Admittedly its a bugger to use - its far too detailed for most things. Here's some snippets I pulled out:
No of women working:
Feb 1980: 2.2M (34% part time)
Feb 2007: 4.6M (44% part time)
Total persons working:
Feb 1980: 6.2M
Feb 2007: 10.3M
Total unemployed:
Feb 1980: 449k
Feb 2007: 571k
Total people of working age who are neither working or looking for work:
Feb 1980: 4.2M
Feb 2007: 5.8M

Anonymous said...

Thank you D-D.
Not for the first time I find my Gut feel is more or less at 180 degrees to the facts.