Will an unemployment rate with a 3 in front it, ensure that we also get wage growth with a 3 in front of it? Don’t count on it.
Prime Minister Scott Morrison set tongues wagging this week with a confident pledge that Australia’s unemployment rate could have “a 3 in front of it” this year. It’s a theme that will loom large in his campaign for reelection later this year.
In this commentary, Centre for Future Work Director Jim Stanford considers whether a low unemployment rate is an accurate indicator of the state of the labour market -- and whether, even if achieved, it would reignite wage growth and solve other problems holding back Australia's labour market.
The unemployment rate was 4.2% in December, so Mr Morrison's prediction may not be as brave as might seem: it would only take a .3-point drop to achieve that magical ‘3’. The official unemployment rate often bounces by more than that (in either direction) in any given month, purely due to measurement errors or shifts in recorded labour force participation. So his prediction will likely come true. But is it the economic triumph that he and his political allies will claim?
A lower unemployment rate is obviously better than a higher unemployment rate. But the unemployment rate itself has lost much of its value as an indicator of the state of the labour market. There are large pools of unutilised and underutilised labour in our economy that are not captured by the official unemployment measure.
Equally important, assumptions that a historically low unemployment rate will automatically correct many of the labour market problems that Australia has experienced in recent years are misplaced. Problems like wage stagnation, falling real wages, income inequality and poverty (even among employed people), and the economic exclusion of sectors of society (such as indigenous and immigrant communities, and people with disability) all require more concerted and targeted actions to fix.
Please see Jim's full commentary: Of 3’s, and Other Important Labour Market Numbers.