One of the problems with a protracted period of soft economic activity is a deterioration in labour market conditions. Australian workers are experiencing troubling times which is likely to be an important factor in voter dissolution and the collapse in support for the Turnbull government.
There is no doubt that a strong economy is needed to generate employment opportunities that absorbs the growth in population, makes inroads into the 750,000 people unemployed and reduces the level of underemployment in the workforce. Strong real wages growth is also linked to an economy that is doing well.
At the moment, the opposite is happening.
Since the September 2013 election, the average annual growth in real GDP has been just 2.3 per cent which is about 0.5 to 0.75 per cent below the rate needed to see a solid, let alone strong, labour market.
The unemployment rate was 5.6 per cent at the time of the 2013 election – it is 5.8 per cent now. The underemployment rate, which measures the proportion of the workforce that has a job but would like to work more hours, was 8.3 per cent in August 2013 and is 8.9 per cent now. Underemployment is just 0.3 per cent below a record high which was recorded just six months ago in August 2016. At the same time, annual wages growth is floundering at 1.9 per cent; the lowest level ever recorded, and is down from 2.6 per cent in September 2013.
There are no redeeming features in current conditions for workers, and all of the important measures of labour market health have deteriorated over the last three years.
It begs the critical question, if people are hurting under these unfavourable conditions in the workforce, what are policy makers doing to try to reverse this slow rot?
The Reserve Bank deserves two cheers, having cut interest rates to record lows, although it should be noted that the speed and extent of the monetary easing has been sluggish. With inflation and economic growth still low – and this having been obvious for several years – the RBA should have cut interest rates earlier and harder to limit the deterioration in the economy and labour market conditions.
The government, which prides its self on its ‘jobs and growth’ mantra is doing even less than the RBA.
Fiscal policy, which could easily be tilted towards infrastructure investment and other pro-growth and therefore pro-employment policies, is actually neutral or mildly contractionary as the quest for a budget surplus outweighs any employment objectives. The government is framing the May 2017 budget at the moment but is doing so with the priority of returning to surplus rather than striving for improved employment conditions.
The government is also under-spending on education, skills and training. While education is a longer term driver of the labour market strength including employment and wages, the government is currently undermining funding for schools and is making the cost of obtaining a tertiary education more expensive. As the recent University of Melbourne Household Income and Labour Dynamic survey found, job opportunities and wages for people with lower skill attainment are inferior to those with higher skills.
The government seems content with a weak labour market. The latest Treasury forecasts, based on the government’s own economic policies, have the unemployment rate remaining at 5.5 per cent into 2018. Wages growth is forecast to rise from the current record lows, but only to a sluggish 2.5 per cent. The workforce participation rate is also assumed to fall to 64.5 per cent. These are not the measurements of a strong labour market.
While these forecasts are marginally better than the current state of play, if they come to pass the labour market will still be sluggish. Many workers will be under utilised which will crimp confidence and spending. The self-fulfilling cycle of weakness will remain in place and the government is doing little to change this situation.