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Who's the bonehead, Hockey or Swan? Who's the bonehead, Hockey or Swan?
(4 months later)
On Monday, in Question Time, Wayne Swan called Joe Hockey a “bonehead” for describing the current employment situation as mediocre.On Monday, in Question Time, Wayne Swan called Joe Hockey a “bonehead” for describing the current employment situation as mediocre.
So is it a bonehead statement, or is Australia’s employment level mediocre? Incidentally, the term "bonehead” was first used in Parliament in 1986 by John Dawkins to Ian Sinclair.So is it a bonehead statement, or is Australia’s employment level mediocre? Incidentally, the term "bonehead” was first used in Parliament in 1986 by John Dawkins to Ian Sinclair.
Since 1978 Australia’s unemployment rate has averaged 7.0%, with a median rate of 6.6% (ie half of the time it has been above that rate and the other half below it). So the current rate of 5.5% seems rather better than mediocre.Since 1978 Australia’s unemployment rate has averaged 7.0%, with a median rate of 6.6% (ie half of the time it has been above that rate and the other half below it). So the current rate of 5.5% seems rather better than mediocre.
However, in the past 10 years the unemployment rate has averaged 5.1%, so perhaps Joe Hockey has a point. But compared to other nations which were on par with us during that period, we are doing OK:However, in the past 10 years the unemployment rate has averaged 5.1%, so perhaps Joe Hockey has a point. But compared to other nations which were on par with us during that period, we are doing OK:
Looking at the unemployment rate isn’t the only way to judge these things, and when trying to decide how much capacity there is in the labour market, it’s better to look a bit deeper – by including people who might be “hidden” by the unemployment rate.Looking at the unemployment rate isn’t the only way to judge these things, and when trying to decide how much capacity there is in the labour market, it’s better to look a bit deeper – by including people who might be “hidden” by the unemployment rate.
Fortunately, if you do want to look deeper, the ABS provide you with another figure – one which they only measure every quarter – that of under-employed workers. This measure counts part-time workers who wish to work more hours, and full-time workers who worked less than 35 hours per week (the standard measure of a full-time job).Fortunately, if you do want to look deeper, the ABS provide you with another figure – one which they only measure every quarter – that of under-employed workers. This measure counts part-time workers who wish to work more hours, and full-time workers who worked less than 35 hours per week (the standard measure of a full-time job).
The latest figure, released last week, has the current underemployment rate at 7.3%. This figure, combined with the unemployment rate, gives us the “underutilized rate” of 12.8% (I should warn you at this point there’s going to be a lot of use of “underemployment”, “unemployment” and “underutilisation”).The latest figure, released last week, has the current underemployment rate at 7.3%. This figure, combined with the unemployment rate, gives us the “underutilized rate” of 12.8% (I should warn you at this point there’s going to be a lot of use of “underemployment”, “unemployment” and “underutilisation”).
So what is the real figure? First, let’s not be tricked into thinking the unemployment rate is a fudge used by politicians because it’s the lowest. It’s a standard measure used across the world. It’s also important to remember that underemployment is only a recent concern. Prior to the 1990s recession, as I noted earlier this week, an overwhelming majority of men worked full-time. During the 1980s the underemployment rate rarely went above 4%, whereas the actual unemployment rate was rarely below 6%.So what is the real figure? First, let’s not be tricked into thinking the unemployment rate is a fudge used by politicians because it’s the lowest. It’s a standard measure used across the world. It’s also important to remember that underemployment is only a recent concern. Prior to the 1990s recession, as I noted earlier this week, an overwhelming majority of men worked full-time. During the 1980s the underemployment rate rarely went above 4%, whereas the actual unemployment rate was rarely below 6%.
The growth of part-time work and a greater percentage of women working has made underemployment an issue. And just in case you think women are content with their employment levels, the underemployment rate for women is 9.3% compared to that of men of 5.6%.The growth of part-time work and a greater percentage of women working has made underemployment an issue. And just in case you think women are content with their employment levels, the underemployment rate for women is 9.3% compared to that of men of 5.6%.
So is this a mediocre amount of underemployment?So is this a mediocre amount of underemployment?
Well the level of underutilisation in the labour market caused by underemployment has actually fallen recently. But this is more because unemployment has risen rather than people suddenly being able to find more hours. Indeed, the underemployment and unemployment rates have moved pretty much in sync for the past 10 years.Well the level of underutilisation in the labour market caused by underemployment has actually fallen recently. But this is more because unemployment has risen rather than people suddenly being able to find more hours. Indeed, the underemployment and unemployment rates have moved pretty much in sync for the past 10 years.
So what about underutilisation? Is 12.8% mediocre, and if so how low should it be?So what about underutilisation? Is 12.8% mediocre, and if so how low should it be?
To determine this we need to think about “full employment”.To determine this we need to think about “full employment”.
When trying to find the rate of “full employment” economists like to use the “non-accelerating inflation rate of unemployment”. That is, they’re looking for the lowest unemployment rate which doesn’t cause inflation to rise.When trying to find the rate of “full employment” economists like to use the “non-accelerating inflation rate of unemployment”. That is, they’re looking for the lowest unemployment rate which doesn’t cause inflation to rise.
Importantly, this figure is not set in stone and can shift up and down. In the 1980s it was thought to be around 6%, and during the past decade we saw pretty clear evidence that it shifted to around 5%.Importantly, this figure is not set in stone and can shift up and down. In the 1980s it was thought to be around 6%, and during the past decade we saw pretty clear evidence that it shifted to around 5%.
But to make sure we don’t miss out on the underemployed workers let’s see if we can find “full utilisation” instead.But to make sure we don’t miss out on the underemployed workers let’s see if we can find “full utilisation” instead.
The way to do this is to chart a version of the “Phillips curve” by comparing the underutilisation rate with inflation:The way to do this is to chart a version of the “Phillips curve” by comparing the underutilisation rate with inflation:
From around May 2002 to May 2007 the underutilisation rate fell without causing inflation to rise. But once the underutilisation rate went below 10.7%, inflation began to increase.From around May 2002 to May 2007 the underutilisation rate fell without causing inflation to rise. But once the underutilisation rate went below 10.7%, inflation began to increase.
Then the GFC hit, inflation fell and underutilisation rose. By the middle of 2009 we were back where we were in 2002 and, rather nicely, we started back on the same path.Then the GFC hit, inflation fell and underutilisation rose. By the middle of 2009 we were back where we were in 2002 and, rather nicely, we started back on the same path.
But since February 2011 things have got a bit jumbled. And we now find ourselves at a lower level of inflation than we would expect given our underutilisation rate.But since February 2011 things have got a bit jumbled. And we now find ourselves at a lower level of inflation than we would expect given our underutilisation rate.
So is our current situation mediocre? Well, it is certainly below the level of full utilisation. Compared to 2007 there’s 2% of the labour force (about 250,000 people) either not working, or not working enough - before a rise in inflation.So is our current situation mediocre? Well, it is certainly below the level of full utilisation. Compared to 2007 there’s 2% of the labour force (about 250,000 people) either not working, or not working enough - before a rise in inflation.
Given the current weak state of the world economy, and given our current level of inflation is expected to rise because of our falling exchange rate, the more important question is whether the level of full utilisation of May 2007 has shifted.Given the current weak state of the world economy, and given our current level of inflation is expected to rise because of our falling exchange rate, the more important question is whether the level of full utilisation of May 2007 has shifted.
After 10 years are we about to move off this nice loop and onto a different path?After 10 years are we about to move off this nice loop and onto a different path?
And is it a path to economic mediocrity or superiority?And is it a path to economic mediocrity or superiority?
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