Full employment is a fiction that doesn’t help policy

Opinion piece by ACOSS CEO Cassandra Goldie, first published in the Australian Financial Review, Wednesday November 14, 2018

If you told the average person trying to get a job in Australia that we are close to full employment, they would probably wonder what planet you came from.

For every job vacancy, there are eight people looking for a job or more work and twice that if we include people changing jobs. There’s a disconnect between people affected by unemployment and the “ideal worker”. Recruiters screen for current training, recent experience, “cultural fit” and maximum flexibility. Of people on Newstart, 30 per cent have a disability, almost 50 per cent are over 45, and about one in five have children in their care.

Yet government policy has been designed as if getting a job is easy, and if you can’t get one, it’s essentially your fault. People on unemployment payments are forced to apply for 20 jobs a month regardless of whether there are enough jobs advertised, or whether those jobs are remotely suitable.

We spend less than half of the OECD average on the Jobactive employment services to help people get work. Jobactive is now designed, not to improve the skills and employability of the two-thirds of Newstart recipients out of paid work for a year or more, but to make people pedal faster on the job-search treadmill.

The government’s answer to long-term unemployment is six months of unpaid Work for the Dole, cutting grass or sorting donated clothing. All this for a benefit of $39 a day – barely enough to keep people fed and housed, let alone to cover the cost of job searching.

Those who manage to get some paid work are most likely to find part-time casual or temporary jobs, with insufficient hours to escape poverty. Over half of entry-level jobs in retail and hospitality are casual. And for those who have a job, real wages have effectively been frozen for five years.

Held the line

Meanwhile, in a parallel universe, there was a flurry of media comment when the official unemployment rate dipped to 5 per cent, the RBA’s current estimate of full employment. Would the RBA lift interest rates to stave off wage inflation, despite no signs of wages actually lifting, or would they stay the course of holding rates flat? Fortunately, the RBA held the line.

We need a new debate about what we mean by full employment, putting aside the artificiality of the 5 per cent official unemployment rate, which includes people working one hour a week as employed. It is significant that the bank hasn’t taken its own 5 per cent benchmark too literally. To hold three-quarters of a million unemployed people hostage to a fixed unemployment target, even if more meaningfully measured, would be unconscionable.

At ACOSS we understand the risks of high inflation, and the need for the RBA to set interest rates with an eye to the future. The bank has done an excellent job using monetary policy to help keep prices stable and unemployment falling, since over-zealous interest rate hikes tipped the economy into the “recession we had to have” in the early 1990s.

Yet there’s a sense now that policy makers are fighting yesterday’s war against wage inflation. As the economies of wealthy nations recovered from the GFC, the labour market hasn’t functioned as it once did. Whether due to technological change, the balance of power shifting from unions to employers, the growing inadequacy of our social-security safety net, collective fear of job losses, the dominance of a few large firms in product markets, or high levels of long-term unemployment; wages are stagnating.

Tax distortions

There’s a second reason for the bank’s reluctance to hold interest rates low for extended periods. The greatest threat to price stability now comes from financial markets. From 2002 to 2016, home prices rose by two-thirds. If we are to keep interest rates low, we have to find other ways to curb the household sector’s appetite for debt-fuelled property speculation and the financial sector’s appetite for debt-fuelled speculation generally.

It’s time we took full employment seriously. In the 1960s, it meant that anyone who sought a job had a good chance of landing one quickly. Unemployment hovered around 2 per cent. We can do better than a miserable 5 per cent benchmark.

To get unemployment well below 5 per cent, and reduce under-employment, fiscal policy must carry more of the weight. Governments should not only stimulate the economy in downturns, as the Rudd government did successfully. They should intervene in financial markets to calm them down in economic booms, and remove distortions in the tax system that encourage property speculation (negative gearing and capital gains tax discounts) and other unproductive investment strategies. Robust financial regulation would help.

Public policy should give priority to lifting the incomes of people who really need it, those in the lowest 40 per cent who will spend the extra dollars and put a floor underneath demand for goods and services.

Until we commit to action to achieve genuine full employment, we are seriously failing people who are doing all they can to get a job and enough hours of work to escape poverty.