We keep people on unemployment to keep inflation low.
Governments have the power to lift hundreds of thousands of households out of poverty if they want to such as during Covid. But it let those families fall back into poverty by taking those special payments away again.
By preventing the unemployment rate from falling below its presumed “natural” level – whatever that is – they’ve been using hundreds of thousands of unemployed Australians as shock absorbers.
All four major banks and the bulk of money market traders believe the Reserve Bank will raise interest rates next week.
Speaking at a Committee for Economic Development of Australia (CEDA) event in Sydney, RBA Top Dog, Ms Bullock said Australia’s jobs market was probably still a bit too tight and putting upwards pressure on wages, business costs and inflation.
“Between 4.5 and 5 [per cent unemployment] will probably take enough heat out of the labour market that eases pressure on inflation,” she said.
Iain Ross, a member of the Reserve Bank’s monetary policy board, rejected the idea that Australia has runaway wage growth in recent years that fed into damaging inflation.
“There is no evidence of the emergence of a wage-price spiral in the present circumstances and recent data suggest such an outcome is unlikely,” he said.
“The current enterprise bargaining arrangements, in particular, effectively operate as a shock absorber by constraining the bargaining capacity of those who are the subject of enterprise agreements.
“Such employees are unable to pursue claims for increased wages until the enterprise agreement to which they are subject has passed its nominal expiry date,” he said.
A couple of years ago, economic Guru Professor Ross Garnaut said there were hundreds of thousands of Australians on unemployment benefits who shouldn’t be there.
He said the Federal Government and the Reserve Bank over the last 40 years, have allowed hundreds of thousands of Australians to languish in unemployment to suppress wages and inflation.
Professor Garnaut said Australia should return to having genuine full employment with unemployment of 3.5 per cent or less.
Between 1946 and 1975, when Australia pursued an official policy of full employment, the national unemployment rate averaged below 2 per cent.
But since the Hawke Government of the 1980s, Australia’s policymakers have accepted higher levels of unemployment, which they say are “natural” for prevailing conditions.
Successive federal governments (both Labor and Coalition) deliberately recorded budget deficits to achieve that full employment.
They developed a new definition of full employment: full employment would mean the level of unemployment that keeps a lid on inflation. That’s called the NAIRU, or non-accelerating inflation rate of unemployment.
Australia’s policymakers have repeatedly miscalculated the NAIRU, meaning they thought the economy was getting close to full employment when it wasn’t
“An average of several hundred thousand fewer people were employed [from 2013 to 2019] than would otherwise have been possible,” he said.
“This is voluntary unemployment — voluntary for the Reserve Bank, because it is unemployment that the Reserve Bank focuses on”
Professor Garnaut said Australia should use as many resources as possible to get the unemployment rate down to 3.5 per cent as a matter of national urgency.
He says the budget deficits needed to achieve full employment should be funded “directly or indirectly” by the Reserve Bank, “at least until full employment is in sight.”
To top it off, in the last two decades they’ve also been importing hundreds of thousands of workers from overseas, which has helped to suppress wages and weaken workers’ bargaining power,