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Lower unemployment without immigration

If you’re chasing a job, now is a good time to look but note, not every one believes the unemployment figures are true.

The Treasurer wants to get people into jobs, so he wasn’t going to deliver an “austerity” budget by chasing a budget surplus. This is a radical departure from previous Coalition thinking. The story below is from Gareth Hutchens at the ABC. I’ve made some editing changes for length.

“Frydenberg took the Keynesian argument that if you concentrate on getting as many people as possible working, the budget will “repair” itself over time. It’s curious because the Coalition got into power in 2013 by arguing the exact opposite.

At any rate, once Treasury officials convinced Frydenberg of the benefits of using fiscal policy, in last year’s budget, to drive unemployment down hard, the economy was set on a certain path.

Due to a unique combination of massive fiscal stimulus, historically-loose monetary policy, closed international borders, and a widely-vaccinated population, the unemployment rate was driven down rapidly to 4 per cent.

And that’s where it’s sitting now: at a 13-year low. It’s seen the employment-to-population ratio, and the participation rate, both hit record highs.

Not everyone believes this is the true unemployment rate. Late last year, Economics and Business commentator, Alan Kohler, put out this Youtube clip which shows unemployment is much higher.

Anyway, Treasury is now forecasting the unemployment rate to fall to 3.75 per cent in the September quarter, and to remain there until the end of 2024-25. We’re talking 1970’s levels of unemployment.

Remember how Frydenberg said, before last year’s budget, that he wanted to prioritise employment growth, and that it would drive budget repair over time? Well, last week’s budget provided some evidence of that strategy working.

It showed the labour force has grown to a record size, and the unemployment rate has been driven down hard within that larger labour force, there are more people available to produce goods and services over the medium term. That’s resulted in a higher level of potential GDP by the end of the medium term.

“Higher potential output largely reflects an increase in the size of the productive workforce associated with a permanently lower unemployment rate,” the budget papers said.

So, instead of relying on high population growth to be a major driver of potential growth, which they’ve been doing in recent decades, we’ve been able to recover from the recession, and lift potential output again, by drawing down heavily on the pool of local unemployed people.

It’s seen the number of unemployed people fall to levels last seen over a decade ago, along with higher-than-expected tax receipts and lower welfare payments. It’s another fascinating outcome of the experiment we’ve been running.”

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