What’s that sound?
It’s one million people on JobKeeper hitting the wall. Expect a massive slowdown in spending in April through to June 30.
The Federal Government wants to get the rate of unemployment down to 4.5 per cent or lower (try 3 per cent) and induce wage growth. They want to actually bump inflation up.
This is a major turn-around as for more than 40 years, the Federal Government has sacrificed the unemployed on the altar of low inflation.
Driving unemployment down will improve individual and family households because they’ll have more money to spend, which in turn, makes the economy grow faster.
Consumer spending accounts for well over half of gross domestic product, and growth in wages is the chief source of growth in household incomes.
It also improves the budget balance. More people paying tax mean fewer people on the dole (in theory).
Here’s the gamble: now that we’ve effectively stopped immigration, the government is anticipating employers may have trouble finding the workers they need and will be forced to pay higher wages.
Without real growth in wages economic recovery isn’t sustainable.
We’re hardly going to see a wages explosion – in fact, I’m not sure if this is going to work – but it’s worth a shot.
Otherwise in real terms, the nation will stagnate with 2 million unemployed, flat productivity and comatose wage growth.
As a side note, the last two weeks have been dire for the Adelaide economy. Adelaide was in serious trouble before Covid-19.
Now that JobKeeper has ended, the CBD and the two city-based universities look like a plague has hit them.