The change in the ABS definition of full employment in the 1970s to a level that kept a lid on inflation (i.e. on wages and prices), had major ramifications on how we measure unemployment today. This great story is from Gareth Hitchens at the ABC
Once upon a time, full employment was an objective of Australia’s Government, and it meant what it sounded like.
From 1946 until 1975, successive federal governments — Labor and Liberal — kept the national unemployment rate below 2 per cent on average. The “full employment” policy began with Labor prime minister John Curtin as part of his post-war reconstruction plans.
He had been advised that 1 million men and women, who were part of the armed forces and war industries, would want a peace-time occupation after World War II, and he desperately wanted the economy to absorb them. He feared a return of high unemployment from the pre-war years.
Crucially, Australia’s war effort had opened the eyes of policymakers in Canberra. After they put the economy on a war-footing, they saw how government policies eradicated unemployment. The implication was obvious. Unemployment was not inevitable — it was a policy choice. A White Paper said:
“In the worst period of the depression well over 25 per cent were left in unproductive idleness. By contrast, during the war no financial or other obstacles have been allowed to prevent the need for extra production being satisfied to the limit of our resources.
“It has shown up the wastes of unemployment in pre-war years, and it has taught us valuable lessons which we can apply to the problems of peace-time, when full employment must be achieved in ways consistent with a free society.”
The national unemployment rate was just 1.2 per cent by 1947 and 0.9 per cent by 1948.
Full employment was here to stay and in to the 1960s. But then things started to go wrong and how we measured unemployed failed to give true readings.
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