Something really important to the management of the economy happened this week: the Albanese government released its white paper on employment. If the government achieves the vision it has laid out, it could be a turning point in how our economy works, one that begins a lasting reduction in the rates of unemployment and underemployment.
This is Labor’s decision to put “full employment” back on its throne as a central objective of macroeconomic policy. Or, as the paper puts it, “placing full employment at the heart of our institutions and policy frameworks”.
For the first 30 years after World War II, the achievement of full employment was the overriding objective for the managers of the economy. This era began in 1945, with the Curtin Labor government issuing a white paper on full employment in Australia. Notice a pattern?
It worked well for 30 years, but fell apart with the arrival of high inflation in the mid-1970s. Since then, the primary concern of macroeconomic management has been to keep inflation low, with the goal of achieving full employment usually given not much more than lip service.
What’s changed has been the way the ups and downs of the pandemic have suddenly returned us to the lowest rate of unemployment in almost 50 years, about 3.5 per cent. But also the lowest rate of underemployment – part-timers who can’t get as many hours of work as they want – in several decades.
At present, we have about the highest proportion of the working-age population participating in the labour market – by having a job or actively seeking one.
This unexpected return to something close to full employment has prompted many people to think we should be trying at lot harder than we have been to keep employment high and unemployment low.
And that’s why the Albanese government has decided to put the goal of full employment back on its throne in the halls of macroeconomic management.
“Macro” means focusing on the economy as a whole. “Micro” means looking at particular bits of the economy, or at particular mechanisms within the economy.
Since World War II, governments have sought to use “fiscal policy” (the budget) and “monetary policy” (interest rates) to “manage” the macroeconomy by smoothing out the ups and downs in demand for (spending on) goods and services – and thus employers’ demand for workers.
If the goal of full employment is now back on centre stage, what does full employment actually mean?
The white paper defines it as where “everyone who wants a job is able to find one without having to search for too long”. But it adds a qualification: the jobs we create should be “decent jobs that are secure and fairly paid”, a requirement many employers won’t like the sound of.
The paper says it wants “sustained” full employment, which means “minimising volatility in economic cycles and keeping employment as close as possible to current maximum level consistent with low and stable inflation”.
So restoring the priority of full employment doesn’t mean ceasing to care about inflation, but does mean that getting serious about full employment will affect the day-to-day management of the macroeconomy.
The paper also says full employment must be “inclusive”: broadening the opportunities for people to take up paid work and lowering the barriers to work created by various forms of discrimination.
But how will the government go about achieving this more inclusive view full employment? Well, one way to answer this is to take the economists’ standard list of the types or causes of unemployment.
“Frictional” unemployment occurs because, at any time, there’ll always be some people moving between jobs or seeking their first job. So frictional employment is inevitable and nothing to worry about.
It occurs because it takes time for someone wanting a job to find someone wanting to give them one. You’d think that with so much advertising of job vacancies, and so much looking for jobs, occurring online, frictional unemployment ought to be lower than it used to be.
“Cyclical” unemployment is caused by downturns in the economy, which reduce employers’ demand for workers with little reduction in the people seeking work. As the paper says, it can be lessened through “effective macroeconomic policy settings”.
That is, to get the economy moving quickly out of a recession and, better, managing to stop it getting into recession in the first place. It’s when people lose their jobs during a prolonged recession – and education-leavers take months to find their first job – that you get a build-up in “long-term” unemployment.
These are the people who needed special, personalised help from the government because the longer they go unemployed, the less an employer wants to take them on. This role used to be played (not particularly well) by the Commonwealth Employment Service, which was replaced by what’s now called Workforce Australia, using often for-profit providers of “employment services” to people with problems.
If you’ve heard anything about robo-debt, it won’t surprise you that it’s become a travesty of what it was supposed to be, with providers gaming the system and gaining the impression the government wants them to punish people rather than help them.
The Albanese government has instituted an inquiry into the present system of government-funded employment services. How seriously it reforms this shemozzle will be a key test of how committed the government is to achieving sustained full employment.
The final type of unemployment is “structural”, caused by a mismatch between the skills a worker possesses and the skills employers are seeking. Sometimes the mismatch is geographic; often it’s caused by the ever-changing structure of industry, as some industries decline and others expand.
This is the hardest cause of unemployment to reduce. But it involves reforming every level of education and committing to retraining and lifelong learning. Again, this will be a key test of whether the government is committed to achieving sustained full employment, not just dreaming about it.