No one's sure what's happening in the economy

Treasury secretary Dr Steven Kennedy let something slip when he addressed a meeting of business economists last week. He said it was too early to say if the economy was back in a more normal period, “perhaps because no one is quite sure what normal is any more”.

This was especially because “unusual economic outcomes are persisting,” he added.

Actually, anyone in his audience could have said the same thing – but they didn’t, perhaps because they lacked the authority of the “secretary to the Treasury”.

No, standard practice among business economists and others in the money market is to make all predictions with an air of great certainty. Forgive my cynicism, but this may be because their certain opinion changes so often.

Often, it changes because something unexpected has happened in the US economy. Many people working in our money market save themselves research and thinking time by assuming our economy is just a delayed echo of whatever’s happening in America.

If Wall Street has decided that America’s return to a low rate of inflation has been delayed by prices becoming “sticky”, rest assured it won’t be long before our prices are judged to have become sticky as well.

But predicting the next move in either economy has become harder than we’re used to. Kennedy noted in his speech that, in recent years, the global economy, including us, had been buffeted by shared shocks, such as a global pandemic, disruptions to the supply of various goods, and war.

One factor I’d add to that list is the increasing incidence of prices being disrupted by the effects of climate change, particularly extreme weather events, but also our belated realisation that building so many houses on the flood plain of rivers wasn’t such a smart idea.

All these many “shocks” to the economy have knocked it from pillar to post, and stopped it behaving as predictably as it used to. But, as we’ll see, not all the shocks have been adverse.

Right now, the change everyone’s trying to predict is the Reserve Bank’s next move in its official interest rate, which most people hope will be downward.

Normally, that would happen just as soon as the Reserve became confident the inflation rate was on its way down into the 2 to 3 per cent target range. And normally, we could be confident the first downward move would be followed by many more.

But since, like Kennedy, the Reserve is not quite sure what normal is, and Reserve governor Michele Bullock says she expects the return to target to be “bumpy”, it may delay cutting rates until inflation is actually in the target zone.

If so, and remembering that monetary policy, that is, interest rates, affects the economy with a “long and variable lag”, the Reserve will be running the risk that it ends up hitting the economy too hard, and causing a “hard landing” aka a recession, in which the rate of unemployment jumps by a lot more than 1 percentage point.

Kennedy was at pains to point out that the rise in the official interest rate of 4.25 percentage points over 18 months is the “sharpest tightening” of the interest-rate screws since inflation targeting was introduced in the early 1990s.

He also reminded us how much help the Reserve’s had from the Albanese government’s fiscal policy, which has been “tightened at a record pace”. Measured as a proportion of gross domestic product, the budget balance has improved by about 7 percentage points since the pandemic trough. Add the states’ budgets and that becomes 7.5 percentage points.

That’s a part of the story those in the money market are inclined to underrate, if not forget entirely. Kennedy reminded them that, since 2021, our combined federal and state budget balance has improved by more than 5 percentage points of GDP. This compares with the advanced economies’ improvement of only about 1.5 percentage points.

So, has our double, fiscal as well as monetary, tightening had much effect in slowing the growth of demand for goods and services and so reducing inflationary pressure?

Well, Kennedy noted that, over the year to December, households’ consumption spending was essentially flat. And consumer spending per person actually fell by more than 2 per cent.

When you remember that consumer spending accounts for more than half total economic activity, this tells us we’ve had huge success in killing off inflationary pressure. And this week, when we see the national accounts for the March quarter, they’re likely to confirm another quarter of very weak demand.

So, everything’s going as we need it to? Well, no, not quite.

Last week we learnt that, according to the new monthly measure of consumer prices, the annual inflation rate has risen a fraction from 3.4 to 3.6 per cent over the four months to April.

“Oh no. What did I tell you? The inflation rate’s stopped falling because prices are “sticky”. It’s not working. Maybe we need to raise interest rates further. Certainly, we must keep them high for months and months yet, just to be certain sure inflation pressure’s abating.”

Well, maybe, but I doubt it. My guess is that a big reason money market-types are so twitchy about the likely success of our efforts to get inflation back under control is the lack of blood on the streets that we’re used to seeing at times like this.

Why isn’t employment falling? Why isn’t unemployment shooting up? Why are we only just now starting to see news of workers being laid off at this place and that?

It’s true. The rate of unemployment got down to 3.5 per cent and, so far, has risen only to 4.1 per cent. Where’s all the blood? Surely, it means we haven’t tightened hard enough and must keep the pain on for much longer?

But get this. What I suspect is secretly worrying the money market-types, is something Kennedy is pleased and proud about.

“One of the achievements of recent years has been sustained low rates of unemployment,” he said last week. “The unemployment rate has averaged 3.7 per cent over the past two years, compared with 5.5 per cent over the five years prior to the pandemic.”

Our employment growth has been stronger than any major advanced economy over the past two years, he said. Employment has grown, even after accounting for population growth.

And we’ve seen significant improvements for those who typically find it harder to find a job. Youth unemployment is 2.6 percentage points lower than it was immediately before the pandemic.

So, what I suspect the money market’s tough guys see as a sign that we haven’t yet experienced enough pain, the boss of Treasury sees as a respect in which all the shocks that have buffeted us in recent times have left us with an economy that now works better than it used to.

And Kennedy has a message for the Reserve Bank and all its urgers in the money market.

“It is important to lock in as many of the labour market gains as we can from recent years. This involves macroeconomic policy aiming to keep employment near its maximum sustainable level consistent with low and stable inflation,” he said.

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Robodebt: Politicians behaving badly to win our approval

Cliches become cliches because so many people see how aptly they capture a situation. My rarely achieved goal is to initiate them rather than reuse them. But at least let me be the first to see how aptly one applies to the robo-debt scandal, by paraphrasing Thomas Jefferson: we get the politicians we deserve.

You may not know it, but there once was a time when the convention – rigorously policed by Yes, Minister-style bureaucrats – was that incoming governments did not inquire into the doings of their predecessors.

But that convention was breached a long time ago, and now it’s conventional for every newly elected government to immediately initiate formal inquiries into the misdeeds – actual or supposed – of the government the voters have just thrown out.

It’s become another of the many advantages of incumbency. You improve your chances of a prolonged period in power by discrediting your traditional opponent in the eyes of the electors.

The first such inquiry I remember was the Costigan royal commission into the notorious activities of the Ship Painters and Dockers Union, called by Malcolm Fraser’s Coalition government in 1980, in the hope of embarrassing Labor.

The Howard government established another anti-union royal commission, into the building construction industry, and the Abbott government set up royal commissions into the Rudd government’s ill-fated “pink batts” home insulation program, and into trade union governance and corruption, hoping to embarrass the then Labor leader, Bill Shorten. So it may not be a simple coincidence that Shorten was the minister who commissioned the robo-debt inquiry.

I was once a supporter of the no-looking-back convention, but now I see that the decline in standards of political behaviour require governments to be held more strictly to account – if only in retrospect. When you think about it, the old gentlemanly convention – that dog doesn’t eat dog – arose from the two political sides colluding to make their lives easier at the expense of the public’s knowledge of what they’ve been up to.

So, it’s a good thing that this royal commission has shone a bright light on robo-debt as “a crude and cruel mechanism, neither fair nor legal” that made many people on the dole and other benefits “feel like criminals”.

“In essence, people were traumatised on the off-chance they might owe money,” the commissioner concluded.

The Liberal ministers who initiated and had oversight of this horrendous scheme should face the music, and those ministers who allowed it to run on for years despite its iniquities being well known (I wrote about them in early 2017) should be ashamed.

But while we’re all pointing accusatory fingers at the former government, I don’t think the rest of us should get too high on our high horse. Most of us don’t come out of this episode with clean hands.

The truth is, most of us knew – or certainly could have known – what was going on, but weren’t too bothered by it. We didn’t inquire further.

When the opportunity arose to disgrace its political opponents, the Albanese government knew where the bodies had been buried but, at the time, the Labor opposition didn’t make a great fuss about robo-debt.

Media outlets love boasting about the royal commissions their investigations have forced on reluctant governments but, with an honourable exception or two, they can claim little credit for this one. This one’s a win for the #notmydebt victims using social media.

People are right to see the former government as being utterly, shockingly lacking in compassion in its treatment of people falsely accused of owing the government money. For such a measure to be initiated by someone proud to proclaim his Christian faith is truly shocking.

But it’s wrong to see these people just as ruthless debt collectors, determined to cut government spending by fair means or foul. Scott Morrison wanted to be seen as the tough welfare cop.

The government wanted to be seen getting rough and tough with dole bludgers because it knew many voters would find it gratifying.

Labor knows it, too. That’s why it wasn’t making much fuss at the time. And why, in the May budget, it rejected expert advice that it greatly increase the rate of the JobSeeker payment to stop it being well below the poverty line.

Both sides of politics know there’s much “downward envy” among Australians. Hard-working, tax-paying people who greatly resent those people – mainly youngsters – who prefer sitting around at home rather than getting out and finding a job, but still have the government giving them money.

There are many reasons I’m proud to be an Australian. But one thing that makes me ashamed is the way our politicians seek popularity by pandering to the worst side of the Australian character: our tendency to scapegoat those less fortunate than ourselves, particularly boat people and the jobless.

Like Joe Hockey, we see ourselves as “lifters”, and greatly despise those we regard as “leaners”.

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Enjoy the wonderful land of full employment - while you can

I hope that while you’re complaining about the cost of living, you’re also wallowing in the joys of living in an economy that’s reached the sacred land of “full employment” – being able to provide a job for almost everyone who wants one. This is the first time we’ve seen it in 50 years.

You have to say we’ve achieved it not by design, but as an unexpected consequence of our bumbling attempts to cope with the vicissitudes of the pandemic.

We used interest rates and, more particularly, the budget, to stimulate demand (encourage business and consumer spending) and ended up doing a lot more than we needed to. To the economy managers’ surprise, the rate of unemployment fell rapidly to 3.5 per cent – a level most of them had never seen before and never expected to see.

The sad truth is that, during the half century that the high priests of economics were wandering in the wilderness of joblessness, they lost their faith, and started worshiping the false god Nairu, who whispered in their ears alluring lies about the location they were seeking.

But now the wanderers have stumbled upon the promised land of Full Employment, a land flowing with milk and honey.

So now’s the time for us all to sing hymns of praise to one true god of mammon, Full Employment, in all its beneficence and beauty. And here to be our worship leader is Michele Bullock, deputy governor of the Reserve Bank, who published some new soul music this week.

Bullock says it’s “hard to overstate the importance of achieving full employment. When someone cannot find work, or the hours of work they want, they suffer financially. However, the costs of unemployment and underemployment extend well beyond financial impacts.

“Work provides people with a sense of dignity and purpose. Unemployment – particularly long-term unemployment – can be detrimental to a person’s mental and physical health,” she says.

“The costs of not achieving full employment tend to be borne disproportionately by some groups in the community – the young, those who are less educated, and people on lower incomes and with less wealth.

“In fact, for these groups, improved employment outcomes and opportunities to work more hours are much more important for their living standards than wage increases.”

Early in the pandemic and the imposition of lockdowns, we thought we were in for a regular recession. And “the sobering experience from previous recessions had taught us that these episodes leave long-lasting marks on individuals [called “scarring” by economists], communities and the economy.

“For example, if people stay unemployed for too long, their skills may deteriorate or become obsolete and their prospects for re-engaging in meaningful work may decline. This can result in more people in long-term unemployment or, alternatively, people withdrawing from the workforce,” Bullock says.

But, thanks to all the up-front stimulus, there was no recession and, hence, no scarring. Instead, outcomes in the labour market over the past three years “have consistently exceeded the expectations of the Reserve Bank and other forecasters”.

In fact, the share of the Australian population in employment has never been higher – higher even than in the decades between the end of World War II and the mid-1970s, when full employment became the norm.

Today, the number of Australians in a job has increased by more than 1.1 million since late 2021, and the level of employment is now almost 8 per cent above its pre-pandemic level. Get that.

Almost all the gains in employment since the start of the pandemic have been full-time jobs. Strong demand for labour has enabled many previously part-time employees to move into full-time work. This has pushed the underemployment rate – the proportion of people with jobs, but seeking more hours – down to its lowest since 2008.

Bullock says the people who’ve benefited most from all this are those on lower incomes and with less education. Unemployment has tended to decline more in local areas that had weaker employment to begin with.

Young people – those aged 15 to 24 years – who usually suffer most when recessions occur, have seen their rate of unemployment decline by more than twice the decline in the overall unemployment rate.

Long-term unemployment is defined as being without work for more than a year. Last year, a record number of the long-term unemployed found a job, and fewer gave up looking for one.

What’s more, the risk of not being able to find a job within a year declined significantly. So the rate of long-term unemployment is close to its lowest in decades.

Wow. Now, Bullock’s not exaggerating when she says it’s hard to overstate the many benefits – economic and social – of achieving full employment.

But she’s harder to believe when she assures us that, just because the Reserve has hardly spoken about anything other than the need to reduce inflation for the past year and more: “it does not mean that the other part of our mandate – maintaining full employment – has become any less important.

“Full employment is, and has always been, one of our two objectives.”

Well, I’d love to believe that was true, but both the Reserve’s present rhetoric and behaviour, and its record, make it hard to believe.

The Reserve has had independent control over the day-to-day management of the economy for more than 35 years. For almost all of that time we’ve had low inflation, but only now have we achieved full employment – and only by happy accident.

For most of that time it, like most macroeconomists the world over, has been listening to the siren call of the false god Nairu – aka the “non-accelerating-inflation rate of unemployment” – telling it that “full employment” really means an unemployment rate of 5 per cent or 6 per cent.

If you dispute that, answer me this: how many times in the past 35 years has a Reserve Bank boss been able to make a similar speech to the one Bullock gave this week?

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Our big risk: fix inflation, but kiss goodbye to full employment

If you think getting inflation down is our one big economic worry, you have a cockeyed view of economic success. Unless we can get it under control without returning to the 5 to 6 per cent unemployment rate we lived with in recent decades, we’ll have lost our one great gain from the travails of pandemic: our return to full employment.

And if we do lose it, it will demonstrate the great price Australia paid for its decision in the 1980s to join the international fashion and hand the management of its economy over to the central bankers.

There has always been a tricky trade-off between the twin objectives of low inflation and low unemployment. If our return to full employment proves transitory, it will show what we should have known: that handing the economy over to the central bankers and their urgers in the financial markets was asking for inflation to be given priority at the expense of unemployment.

In his customary post-budget speech to economists last Thursday, Treasury secretary Dr Steven Kennedy began by explaining to academic economists why their claim that the budget was inflationary lacked understanding of the intricacies of economics in the real world.

But his strongest message was to remind economists why full employment is a prize not to be lost.

Whereas early in the pandemic it was feared the rate of unemployment would shoot up to 15 per cent and be difficult to get back down, the massive fiscal (budgetary) stimulus let loose saw it rise only to half that, and the remarkable economic rebound saw it fall to its lowest level in almost 50 years.

“This experience is altering our views on full employment,” Kennedy says. “One of the stories of this budget – one that risks being lost – is the virtue of full employment.”

For one thing, near-record low unemployment and a near-record rate of participation in the labour force are adding to demand and to our capacity to supply goods and services.

This time last year, Treasury was expecting a budget deficit of $78 billion in the financial year ending next month. Now it’s expecting a surplus of $4 billion. Various factors explain that improvement, but the greatest is the continuing strength of the labour market.

As I explained last week, this revision has significantly reduced the projected further increase in the public debt and, in consequence, our projected annual interest bill on the debt every year forever. It has thereby significantly reduced our projected "structural" budget deficit although, Kennedy insists, has not eliminated it.

And getting a higher proportion of the working-age population into jobs – and having more of the jobs full-time – improves our prospects for economic growth and prosperity.

There’s no source of economic inefficiency greater than having many people who want to work sitting around doing nothing. And adding to the supply of labour is not, of itself, inflationary.

But let’s not confuse means with ends. The most important benefit of full employment goes not to the budget or even The Economy, but to those people who find the jobs, or increased hours of work, they’ve long been seeking.

Kennedy reminds us that the greatest benefit goes to those who find it hardest to get jobs. While the nationwide unemployment rate has fallen by 1.6 percentage point since before the pandemic, it has fallen by 3.2 percentage points for youth, and by 2.3 percentage points for those with no post-school education.

This is where we get to Kennedy’s observation that recent experience is altering Treasury’s views on full employment.

The obvious question this experience raises is: why have we been willing to settle for unemployment rates of 5 to 6 per cent for so long when, as he acknowledges, “the low rate of unemployment and high levels of participation [in the labour force] have been sustained without generating significant wage pressures”?

Short answer: because economists have allowed themselves to be bamboozled by modelling results. Specifically, by their calculations of the “non-accelerating-inflation rate of unemployment” – the NAIRU.

As Kennedy says, the unemployment rate consistent with both full employment and low and stable inflation isn’t something that can be seen and directly measured. So, as with so many other economic concepts, economists run decades of inflation and unemployment data through a mathematical model which estimates a figure.

Economists have redefined full employment to be the 5 or 6 per cent unemployment rate their models of the NAIRU spit out. They think using such modelling results makes decisions about interest rates more rigorous.

But that’s not true if you let using a model tempt you to turn off your brain and stop thinking about whether the many assumptions the model relies on are realistic, and whether more recent changes in the structure of the economy make results based on averaging the past 30 years misleading.

It’s now pretty clear that, at least in recent years, NAIRU models have been setting the rate too high, thus leading the managers of the economy to accept higher unemployment than they should have.

There are at least three things likely to make those modelling results questionable. One is that, as a Reserve Bank official has revealed, the models assume inflation is caused by excessive demand, whereas much of the latest inflation surge has been caused by disruptions to supply.

Professor Jeff Borland, of Melbourne University, points out that the increasing prevalence of under-employment in recent decades makes the models’ focus on unemployment potentially misleading, as does the increasing rate of participation in the labour force.

Third, unduly low unemployment and job shortages are supposed to lead, in the first instance, to wage inflation, not price inflation. But this turns to a great extent on the bargaining power of unionised labour, which many structural factors – globalisation, technological advance, labour market deregulation and the decline in union membership – have weakened.

If the NAIRU models adequately reflect these structural shifts I’d be amazed.

What is clear is that the Reserve Bank’s understanding of contemporary wage-fixing is abysmal. As yet, it has no one on its board with wage-fixing expertise, its extensive consultations with business leaders exclude union leaders, and Reserve Bank governor Dr Philip Lowe says little or nothing about wage-fixing arrangements.

And this is despite Lowe’s unceasing worry about the risk of a price-wage spiral and an upward shift in inflation expectations. So far, there’s little evidence of either.

Some increase in unemployment is inevitable as we use the squeeze on households’ disposable income to slow demand and thus the rate at which prices are rising.

But if the Reserve’s undue anxiety about wages and expectations leads it to hit the brakes so hard we drop into recession, and full employment disappears over the horizon, it will be because we handed our economy over to the institution least likely to worry about making sure everyone who wants to work gets a job.

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Don't miss the good news among the bad: we've hit jobs, jobs, jobs

Here is the news: not everything in the economy is going to hell. Right now, jobs, jobs, jobs are going great, great, great.

The news media (and yours truly) focus on whatever’s going wrong – the cost of living, interest rates, to take two minor examples – because they know that’s what interests their paying customers most.

This bias in our thinking exists because humans have evolved to be continually on the lookout for threats. Those threats used to be wild animals, poisonous berries and the rival tribe over the river, but these days they come more in the form of politicians who aren’t doing their job and business people on the make.

If you’re not careful, however, the preoccupation with bad news can leave you with a jaundiced view of the total picture. Everything’s bad and nothing’s good.

But it’s rare for anything to be all bad or all good. And, particularly where the economy’s concerned, it’s common for good things and bad things to go together.

For instance, when unemployment is high, inflation is usually low. And when inflation is high, unemployment’s usually low. (It’s in the rare event where they’re both high at the same time – “stagflation” – that you know we’re really in trouble.)

So, when our present Public Enemy No. 1 – Reserve Bank governor Dr Philip Lowe – began a speech last week by making this point, I realised I should make sure that you, gentle reader, hadn’t missed the rose among all the thorns.

Lowe said the high inflation we’re experiencing was “one of the legacies of the pandemic and of Russia’s invasion of Ukraine”. But “another remarkable, but less remarked upon, legacy of the pandemic is the significant improvement in Australia’s labour market”.

“Significant improvement” is putting it mildly. Have you heard of “full employment”, where everyone who wants a job has one? It’s the way our economy used to be for about three decades following World War II.

But you have to be as ancient as me to remember what it was like. One reason I quit my job and embarked on a course that eventually led me to this august organ was the knowledge that, should I need to get a job, all I had to do was wait until next Saturday’s classified job ads, and pick the one I wanted.

That’s full employment. And the world hasn’t been like that since Gough Whitlam was prime minister. Until now. We have more people with jobs than ever in our history.

At about 3.5 per cent, the rate of unemployment is lower than at any time since 1974. And before any of the imagined experts let fly on Twitter, this is not because any government, Labor or Liberal, has fiddled the figures.

What’s true is that, in recent decades, more people have been under-employed – they haven’t been able to get as many hours of work as they’ve needed.

But as Lowe says, in recent times, people have found it easier to obtain more hours of work. So the rate of underemployment is at multi-decade lows, and the proportion of jobs that are full-time is higher than it’s been in ages.

We now have 64 per cent of people of working-age actually in a job, the highest ever. The proportion of people either already in a job or actively seeking one – the “participation rate” - is also at its highest.

A lot of this is explained by the record high in women’s participation in the labour force.

Lowe says the rate of participation by young people is “the highest it has been in a long time” and the youth unemployment rate is “the lowest that it has been in many decades”.

If all that’s not worth celebrating, I don’t know what is.

But for all those desperate to find a negative – often for reasons of partisanship – it’s not that you can’t believe the figures. It’s this: can you believe they’ll continue?

With the Reserve raising interest rates so fast and far to slow the economy’s growth and reduce inflation pressure, it’s clear that this is as good as it gets in the present episode.

For the past couple of months, we’ve seen the figures edging back a fraction from their best, and on Thursday we’ll see if that’s yet become a trend.

At present, Lowe is at the controls bringing the economic plane in to land. He’s aiming for a soft landing, but may miscalculate and give us a bumpy landing which, to mangle the metaphor, will send unemployment shooting up.

If so, we may have had just a fleeting glimpse of full-employment nirvana before it disappeared into the mist.

But for the more optimistically inclined, even if the landing is harder than planned, we’ll have started from a much lower unemployment rate than in past recessions, meaning it won’t go as high as it has before, and it should be easier to get back to the low levels we’d now like to become accustomed to.

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It's not jobs we're short of, it's jobs that pay decent wages

When it comes to knowing what’s going on in the jobs market, there’s a bit more to it than being able to remember the present rate of unemployment. It helps to know why the unemployment rate is at the level it is, and what that implies for the family’s future finances.

In case you’ve gone deaf – or just stopped listening – Scott Morrison wants you to know the rate of unemployment has been falling rapidly over the past six months, and is now a fraction under 4 per cent.

That’s the lowest it’s been in about 50 years.

But wait, there’s more. Morrison said last week his priorities are “jobs, jobs, jobs, jobs and jobs”. To which effect he’s promising to create a further 1.3 million over the next five years. This will be on top of the 1.9 million jobs already created since the Coalition returned to power in 2013.

The growth in employment and the fall in unemployment since the economy’s massive contraction during the “coronacession” in the June quarter of 2020 is a truly remarkable achievement, for which the Morrison government deserves much credit. Don’t let any carping Labor critic convince you otherwise.

Don’t let anyone tell you the government has changed the definition of unemployment. It isn’t true. What is true is that the problem of underemployment – people who have jobs, but aren’t able to find as many hours as they’d like – is a bigger problem today than it was 50 years ago.

But the rate of underemployment has fallen to 6.3 per cent, down from 8.8 per cent two years ago, and the lowest it’s been since 2008.

In any case, almost all the 395,000 net extra jobs created since the start of the pandemic two years ago are full-time.

Next, get this. The proportion of the working-age population holding a job now stands at 63.8 per cent – the highest it has ever been.

And the biggest winners in this have been young people. Their rate of employment is 4.6 percentage points higher than it was two years ago. The rate for people aged 25 to 64 is up 1.9 percentage points, while the rate for those aged 65 and over is up 0.4 points.

But all the growth in employment hasn’t been sufficient to meet the demand from employers. The number of job vacancies is at a record level of 423,500. That is, getting on for a half a million job openings are going begging.

Now, let me ask you a question: does it sound to you as though our big problem at present is an acute shortage of jobs, jobs, jobs?

If you’ve heard of generals fighting the last war rather than coming to grips with the present one, now you know that prime ministers are prone to the same mistake.

So, why is Morrison claiming to have made getting us a lot more jobs his priority, when there must surely be more pressing problems he should be focused on? Two reasons.

One is that Australia’s had a problem with insufficient jobs – aka high rates of unemployment – since the late 1970s. This was the case for so long – did I mention 50 years? – the notion that a shortage of jobs is an eternal feature of economic life is now lodged deeply in many people’s minds.

And, as is the practice of modern politicians, Morrison finds it easier to pander to our misconceptions than to straighten them out.

“You think we can never have enough jobs? OK, I promise to create another 1.3 million of ’em.”

But how on earth do we finally seem to have got on top of a 50-year problem? Mainly because our first recession in almost 30 years turned out to be more benign than any we’ve had.

In particular, the government spent unprecedented multi-billions on the JobKeeper wage subsidy scheme, which was designed to preserve the link between employers and their workers, even when they had no work for their workers to do. It worked brilliantly.

The billions federal and state governments spent on this and many other programs to protect the incomes of businesses and workers have given an enormous boost to the demand for workers.

But remember, this surge in demand came at a time when our borders were closed to our usual supply of imported labour: overseas students, backpackers and skilled workers on temporary visas.

Now that our borders have reopened, the demand for workers will increase, but so will their supply. If employment does grow by 1.3 million in the next five years, it will be mainly because of population growth, coming mainly from immigration.

The other reason Morrison wants to talk about jobs, jobs, jobs is to direct our attention towards his economic successes and away from his economic failure: since a year or two before the Coalition’s election in 2013, wages have struggled to keep up with the rising cost of living.

If Anthony Albanese was a sharper politician, he’d be telling us his priorities were wages, wages, wages.

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The young will carry the worst scars from this recession

When Scott Morrison spoke to the first day of the National Youth Commission's virtual "youth futures summit" on Monday, he sought to assure the young people that, difficult as the pandemic and the economy are at the moment, there is another side to it, "where Australia emerges once again, where we actually do go back to the life that we loved".

I'm sure that's true. But if past recessions are any guide, most of us will have recovered from the coronacession and be back enjoying the life we love long before most of the present crop of youngsters leaving education have found themselves a decent job.

If the past is any guide, the government won't do nearly as much as it should to help those youngsters who, "through no fault of their own", as Morrison would say, had the immense misfortune to be born in the wrong year or three.

And, quite apart from the pain so many young people will suffer, the money the taxpayer saves from that neglect is likely to be exceeded by all the subsequent cost to the budget in healthcare, unemployment benefits and workers whose reduced incomes mean they don't pay as much tax as they might have.

The greatest burden of recessions always falls on the young for the simple reason that employers' automatic response to a recession is to cancel their annual intake of school and university leavers. The deeper the recession, and the slower the recovery from it, the more years that entry-level hiring is postponed.

This was the case for many years after the global financial crisis of 2008 even though, for the rest of us, a recession was avoided.

You've heard that, unusually in this recession, the greatest burden has fallen on women rather than men. But this can be true while it remains true that the young are the greatest losers. That's because a disproportionate share of the women is young.

As summarised for the summit by the independent economist Saul Eslake, recent research by Treasury has found that people who enter the jobs market for the first time during a recession are less likely to change jobs – which means they're more likely to miss out on one of the main ways by which people get pay rises during their first 10 years in the workforce (that is, by changing jobs).

This matters because almost 80 per cent of lifetime wage rises occur during the first 10 years of someone's working life. So the "scarring" effect of leaving education in a bad year lasts for 10 years.

Treasury finds that the scarring effect has been bigger since 2000 than it was in earlier recessions, so that the most recent generations of young people have been affected more than previous generations. And it's worse for women than for men.

All this is consistent with the interim findings of a nationwide inquiry into youths' transition from education to employment, which the National Youth Commission published on Monday. It finds that unemployment for 15- to 24-year-olds is consistently higher than for 25- to 64-year-olds. And that traditional pathways to employment for young people have eroded over the past couple of decades.

One thing that's changed over the years is the growth of underemployment. To the present unemployment rate of 7.5 per cent and rising must be added the underemployment rate of 11.2 per cent, representing those who have some paid work but want more.

Just remember it's the young who dominate the underemployed. Many of them have multiple jobs, but still can't make ends meet. Many are in the "gig economy", whom governments have allowed to be defined as "independent contractors", thus permitting those wonderful innovative outfits that run app-based fast-food delivery and all the rest to sidestep the legal obligations of an employer.

Remember, too, that the seeming epidemic of "wage theft" – which, by their neglect, governments have done too much to allow and too little stamp out – would be perpetrated particularly on the young.

Unsurprisingly, the inquiry found the (pre-pandemic) levels of the youth allowance and unemployment benefits – which successive governments have frozen in real terms for 25 years – are inadequate. It's the young who suffer most from this parsimony.

Morrison and his ministers have repeatedly defended the $40 a day by saying people are on the dole only temporarily before they find a job. That was certainly the reasonable expectation in the past. Now, however, it's one of the respects in which the inquiry found the system no longer fit for purpose.

Another respect is, it's no longer true that most jobs for young people are full-time. Only in the past month has the government temporarily changed the means test to encourage the unemployed to look for part-time jobs. Pity so few of them are on offer at the minute.

The youth commission has proposed a detailed "youth futures guarantee" laying out reforms and measures that would better support our young people in meeting the challenges they face. Challenged to respond to the proposal, Morrison was masterfully noncommittal.

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We've been electing governments that damage our kids' future

One of the most dismal ideas for our youth to entertain is that their lives won't be as comfortable as their parents'. Everyone in the older generation knows how much their lives have improved over the decades, and how much better off we are than our parents were.

We've come to regard continuous improvement in living standards and quality of life over the generations as part of the natural order. Our pay-off for living in a capitalist economy.

So how can our kids have become so pessimistic about the future? How can they imagine their parents would allow such an appalling prospect to befall their offspring? Isn't improving their kids' chances in life a big part of the reason parents work so hard?

Isn't it why so many parents pay so much to send their kids to private schools? Isn't preserving their kids' inheritance the reason the well-off retired fought so hard against Labor's plan to take away their dividend franking credits?

How could any government that presided over a significant deterioration in our children's prospects hope to survive?

Trouble is, the kids are right to be so pessimistic. We can't know what the future holds, but we do know that various trends in that direction are well-established.

And the plain truth is that one way governments have got themselves elected and re-elected in recent decades has been to pursue policies that favour the old and don't worry about the young.

Politicians have been tempting us to put our immediate interests ahead of our offspring's future – and it's worked a treat.

This week the Actuaries Institute of Australia published a new index of intergenerational equity, which compares the "wealth and wellbeing" of people aged 65 to 74 with that of people aged 25 to 34 between 2000 and 2018.

Note that this is before any effect of the coronacession. And remember that the faces in these two aged groups keep changing as people age. No one who was between 65 and 74 in 2000 is still in that group now.

Since the Baby Boomers were born between 1946 and 1964, probably more than half of them were in the 65 to 74 age range by 2018. And the Millennials were joining the 25 to 34-year-olds.

The actuaries have divided "wealth and wellbeing" into six "domains": economic and fiscal (allocated a subjective weighting of 30 per cent in the index), health and disability (20 per cent), social (including rates of homelessness, incarceration and being a victim of robbery; 15 per cent), environment (15 per cent), education (10 per cent) and housing (10 per cent).

The scores for people aged 65 to 74 in 2000 were given an index value of 100. In the same year, the scores of people aged 25 to 34 amounted to 70. It's hardly surprising that people 40 years younger have significantly lower scores. They've had much less time to gain promotion, earn, save and pay off a home (or even receive an inheritance).

No, what matters more is how the two groups' scores have changed over time. Over the 18 years, the older group's score has risen to 115, whereas the younger group's score has fallen to 69.

Turning to the size of the young's deficit relative to the old, it improved from minus 30 to minus 11 between 2000 and 2006 – presumably mainly because the young did well in the resources-boom-driven labour market – but then deteriorated to minus 20 by 2012.


That year, 2012, was when the resources boom started winding down. And it was when the Baby Boomers started reaching 65. Over just the six years to 2018, the young's deficit relative to the old worsened dramatically to minus 46.

But why has the position of the young relative to the old deteriorated so badly since 2006? Well, they've benefited from improving health, as life expectancy has increased and rates of disability have decreased.

They've benefited also from increasing levels of educational attainment and, socially, from modest reductions in the gender pay gap and falling rates of robbery (which affect the young more than the old).

But these gains have been more than countered by losses in other domains. In ascending order of loss, young people have suffered economically as, since the global financial crisis, education-leavers have taken much longer to find full-time jobs; government spending has been skewed towards older generations (higher spending on health, pensions and aged care, but less on the rate of unemployment benefits) and public debt has risen.

The young have suffered in housing, as the rate of home ownership for their age group has dropped from 51 per cent to 37 per cent over the past two decades. But their greatest loss (sure to grow in coming years) is from the deterioration in the natural environment: rising carbon emissions and temperatures, the drying Murray-Darling Basin and declining biodiversity.

And all these trends before the likely weak and prolonged recovery from the coronacession scars the careers and lives of another generation of education-leavers, without governments or voters being too worried about it.

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Technology is amazing, but human nature is unchanging

When momentous events such as the coronavirus pandemic occur, it's tempting to conclude they'll change our lives forever. Even if we don't think it, you can be sure there'll be some overexcited journalists saying it. Just as there were after the attack on the Twin Towers on 9/11 in 2001.

Even then I was too old to believe it would "change our lives forever" and – although it did have lasting effects on international relations and our fear of terrorism – it didn't really.

This time people are telling us we'll all be working from home (with city office blocks and streets turning into ghost towns), doing our shopping online, learning online, seeing doctors online, and no longer doing business travel.

Somehow, I doubt it will be that radical. But I don't doubt there'll be change in all those directions. Most of them were already happening as part of the continuing digital revolution, and this will accelerate those trends.

The revolution's usual pattern is to bring modest benefits – greater "functionality" (machines that do more and better tricks) and convenience – to an industry's customers, while turning the industry on its head, with considerable disruption to the lives of many of its workers.

There was a time when watching television meant seeing only what the few available channels happened to be showing at the time. These days, recorders and catch-up apps and a multitude of free-to-air and for-the-small-fee channels and streaming video have given us vastly more choice.

This has meant huge upheaval for the industry, but improved our lives only to a small extent – something we've soon come to take for granted.

Some people (and not just Victorians) are finding it hard to imagine the pandemic will ever be over. But, though we can't be sure when, it will end. And when it does, far more aspects of the way we live and work will go back to the way they were than will change forever.

Truth be told, and unless we do a lot more to correct it, the biggest and baddest continuing effect of the pandemic will be on the careers of young people leaving education during the recession and what looks like being a long and weak recovery.

Staying serious, we can expect more concern about problems in health than in education. More concern about physical health than mental health. More concern about the problems of the old than those of the young.

Nothing new about any of that – except that Scott Morrison's heroic condemnation of those on his own side of politics suggesting that the lives of the elderly should have been "offered up" in the interests of the economy sits oddly with his and all federal politicians' tolerance of decades-long neglect and misregulation of aged care.

(As economists make themselves unpopular by pointing out, every time politicians decide to spare taxpayers the expense of fixing a level-crossing or in some other way saving "just one person" they are implicitly putting a dollar value on human life. They do so on our behalf and we rarely tell them to stop doing it. The term "cognitive dissonance" comes to mind.)

But I'm determined to keep it light this week, so on with happy chat about the pros and cons of new technology.

It's worth remembering that advances in digital technology have made the lockdown and social distancing tolerable – indeed, doable – in a way that wouldn't have been possible 20 years ago. Far more of us work as "symbolic analysts" (people who spend all day making changes on a screen) these days. Get access to all the office's programs on your laptop at home? Easy. Zoom to endless and unending meetings? Feel free.

The virus is likely to hasten technology-driven change because the crisis has broken through our fear of the new and unfamiliar. Both workers and bosses now understand both the pros and the cons of working from home relative to working from work.

We've tried buying groceries online. Doctors, departments of finance and patients have overcome their hang-ups about telemedicine. Online learning suits uni students better than school pupils.

But all these things do have their advantages and disadvantages. And most of the disadvantages are social. For the human animal, social distancing is a deeply unnatural act. We get a lot of our emotional gratification from face-to-face contact.

We communicate more efficiently and we learn things we wouldn't otherwise learn that help us do our job better. Relationships with suppliers, customers and consultants work better when we come to know and like each other.

So I think we'll do more digital remote working, but not turn our working lives over to it. Surveys show most people would like to work from home some days a week, but not all week. Business people may do less travel between capital cities – it could easily become the latest business cost-cutting fad – but it would be amazing if executives stopped wanting to shake hands with the people they deal with.

Technology can change what we do, but it won't change human nature.

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Morrison’s not doing nearly enough to secure our future

It was obvious this time last week, but even more so a week later: Scott Morrison and Treasurer Josh Frydenberg are taking both the continuing threat from the coronavirus and the need to restore the economy far too cheaply. Figuratively and literally.

One thing another week of struggle by Victoria and NSW to contain the virus’s second wave has shown more clearly – plus the realisation of how vulnerable the neglect and misregulation of our aged care sector have left us – is the unreality of the government’s expectations about the effects of the pandemic.

Last week’s economic and budget update assumed Victoria would be back on track in six weeks and NSW’s struggles were too minor to matter. And also that we’ll start opening to international travel in January.

A more realistic assumption would be that the larger, virus-prone half of the economy (NSW and Victoria) will need to stay sealed off from the healthier, smaller half (the other states and the Northern Territory) indefinitely. Half a healthy economy is far from ideal, but it beats none.

Surely we should have realised by now that the pandemic will be a long-haul flight. Speaking of which, our barriers against the rest of the world are likely to stay up long after the 12th day of Christmas.

Economically, we must make the best of it we can – which won’t be anything like as good as we’d like. Forcing the pace on lifting the lockdown and removing the interstate barriers could easily end up setting us back rather than moving us forward.

What economists seem yet to understand is that, psychologically, what we have to do to keep the virus controlled is the opposite to what you’d do to hasten an economic recovery. To ensure people keep mask-wearing, hand-washing, sanitising, social-distancing and filling out a form every time they walk into a cafe for month after month, you keep them in a state of fear, afraid the virus may bite them at any moment.

How will this give them the confidence to get on with spending and investing? It won’t. Quite the opposite. But it’s the first indication Morrison and Frydenberg will need to spend more for longer.

The second thing that’s more obvious now than it was a week ago is that the setback in Victoria and NSW has put a question mark over the signs of an initial bounce-back in the economy as the lockdown has been lifted. The new payroll-based figures for the week to July 11 show jobs falling in all states, not just Victoria and NSW.

All this casts further doubt on the wisdom of the changes to the JobKeeper and JobSeeker programs announced last week. The initial reaction of relief that the government had not gone through with its original plan to end them abruptly in September has given way to the realisation that this threat of dropping the economy off a “fiscal cliff” has been delayed rather than averted.

The new boss of independent think tank the Grattan Institute, Danielle Wood, has estimated that the changes to the two job schemes will reduce the government’s support for the economy by close to $10 billion in the December quarter and thus “leave a substantial hole in the economy”.

In an earlier major report, Grattan argued that the government needed to spend a further $70 billion to $90 billion to secure a recovery. The measures announced last week amount to only about an additional $22 billion.

According to calculations by the ANZ bank’s economics team, the withdrawal of budgetary support amounts to the equivalent of about 10 per cent of quarterly gross domestic product during the December quarter.

In consequence, although the bank agrees with Treasury that real GDP will grow in the present September quarter, it sees the economy returning to contraction in the December quarter. What would that do for business and consumer confidence?

In its earlier report, Grattan said the government should aim to get the unemployment rate back down to 5 per cent or below by mid-2022. Why the hurry? To “reduce the long-term economic pain and avoid scarring people’s lives”.

Particularly young people’s lives – as this week’s report from the Productivity Commission has reminded us.

But the economic update last week forecast the unemployment rate would peak at 9.25 per cent in the December quarter and still be sitting at 8.75 per cent in the middle of next year.

That’s simply not good enough. It puts the interests of the budget deficit ahead of the interests of tens of thousands of Australians thrown out of work through “no fault of their own”, to quote a Mr S. Morrison.

Grattan’s Wood stresses that she has no problem with making the JobKeeper wage subsidy scheme better targeted. But that’s not all the government did. It cut back the size of payments and extended the scheme only for another six months.

After the cutback in income support for the jobless and potentially jobless was announced two days before the presentation of the budget update, she hoped the update would include announcements about the new spending programs that would fill the “substantial hole” the cutback left.

It didn’t. Not a sausage.

“The missing piece of the puzzle,” she now says, “remains a plan to stimulate the economy and jobs growth as the income supports are phased out and social distancing restrictions are eased in many parts of the country.”

So what should the government be spending on? She suggests measures that would both create jobs and meet social needs. “Social housing, mental health services, and tutoring to help disadvantaged students catch up on learning lost during the pandemic would deliver on this double dividend.

“Boosting the childcare subsidy to support family incomes and workforce participation should also be in the mix,” she says.

To that you could add fixing aged care, spending more on research and development and universities, not to mention renewable energy.

There’s no shortage of good things worth spending on.

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Women, part-timers and the young hardest hit by jobs crisis

At a time like this, measuring the rise in joblessness is very important. But it’s a trickier job than many realise. You have to draw boundaries somewhere, and where they should go can always be debated.

But some who don’t like comparing shades of grey think the problem can be reduced to good guys and bad guys. Why do the figures look strange? Because some prime minister a few years back changed the definition of unemployment to make it look smaller. Would you believe that someone who’s worked as little as one hour in a week is counted as employed?

Sorry, this fiddling is an urban myth. The truth isn’t nearly so exciting. But before I deflate the balloon, let me show you the circumstantial evidence.

The most recent figures, for April, show America’s rate of unemployment leaping more than 10 percentage points to 14.7 per cent – in just a month. Canada’s unemployment jumped 5 points to 13 per cent.

What happened to our rate? It crept up from 5.2 per cent to 6.2 per cent. Really? Are you kidding? What’s that if it’s not a fiddle?

Or, consider this. Our figures show that about 900,000 people lost their jobs in the four weeks to mid-April. But they also show that unemployment increased during the period by only about 100,000. How’s that possible? What’s that if it’s not a fiddle?

Actually, it’s support for one of my favourite sayings: the world is a complicated place. There are puzzles everywhere. If you want everything to be black or white – all good or all bad - you should never have left the security of primary school.

So, it may look like a conspiracy, but it ain’t. A sign that we’re dealing with a myth is that the identity of the PM who did the dirty deed changes with the political sympathies of the person who tells you they remember him doing it.

The figures we get each month for how many people are employed, unemployed or neither (“not in the labour force”) come from a huge monthly survey of households conducted by the Australian Bureau of Statistics, which brooks no interference from politicians.

The bureau follows international conventions set by the United Nations' International Labour Organisation, in Geneva. Its definitions haven’t changed in many decades. (I once ran into a union-movement economist who was an Australian representative on the ILO committee reviewing the definitions. To my surprise, he staunchly defended the decision to leave them unchanged, including the bit about one hour’s work meaning you were employed.)

As the bureau explains in its release, the main reason the North Americans’ unemployment rates are so much higher than ours has to do with workers who’ve been “stood down” for some weeks because the boss has no work for them, but hopes to bring them back when things improve.

We class such people a still employed, whereas the North Americans class them as unemployed. The bureau estimates that, if we did it the American way, our unemployment rate would be not 6.2 per cent, but 11.7 per cent.

Although about 900,000 Australians ceased to be employed during the four weeks to mid-April, it may amaze you that, in the same period, about 300,000 people went from not having a job to having one. This surprises people because they don’t realise how much coming and going there is in the labour force, even during recessions.

The bureau estimates that, even in a month where total employment seems hardly to have changed, on average about 300,000 people leave employment and about the same number move into employment.

It’s the net fall in employment of about 600,000 that matters. Why then did unemployment rise by only about 100,000? Because part of the definition of being unemployed is that you must be actively looking for job. Since we were in lockdown, 500,000 of these people didn’t start looking for another job, and so were classed as “not in the labour force”. As soon as they do start looking, they’ll be unemployed.

People make too much of the rule that an hour’s work means you’re not unemployed. Only 2.5 per cent of all those employed in March worked for only one to five hours a week. It’s true, however, that the international definition of unemployment is too narrow, especially in a world where one-third of our jobs are part-time.

This is why the bureau always calculates the rate of under-employment – people who have (mainly) part-time jobs, but would prefer to be working more hours than they’re able to, maybe even full-time hours.

The coronacession has meant many workers are having their hours cut. The number of underemployed people jumped by 100,000 to 800,000, taking the underemployed proportion of the labour force from 8.8 per cent to 13.7 per cent.

Delving into the figures, about 55 per cent of the 600,000 jobs lost in April were held by women, even though women accounted for only 47 per cent of the workforce. Almost two-thirds of the jobs lost were part-time.

Employment of people aged 15 to 24 fell by about 11 per cent, compared with a fall of 3 per cent for prime-aged workers (aged 25 to 54). Unemployment is a much bigger problem for the young, as is underemployment.

While your head’s still spinning, one last puzzle. Being counted as unemployed by the bureau is not the same thing as being eligible to receive unemployment benefits - the “JobSeeker” payment - from Centrelink.

Some people counted as unemployed aren’t eligible for the dole (often because their spouse’s income is too high), whereas some people eligible for the dole aren’t counted as unemployed (because they’re allowed to work a few hours a week before the dole cuts out).

Right now, however (and partly thanks to a temporary increase in how much your spouse may earn), there are 800,000 people counted as unemployed, but twice as many – 1.6 million – getting the JobSeeker payment.

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Hard lessons on how recessions work and why we hate them

Forgive me for boasting about how old I am, but this coronacession – aka the Great Lockdown – will be the fourth severe recession of my career as an economic journalist. That makes recessions my special subject, though I’ve not had much call to talk about them for almost 30 years.

I was too young to remember much of Bob Menzies’ Credit Squeeze, which came within a whisker of tossing him out of office in 1961. But I was established in journalism before I saw the recession of the mid-1970s add the last nail to the coffin of the Whitlam government.

Malcolm Fraser’s prime ministership was cut short by the recession of the early 1980s. Bob Hawke’s successor, Paul Keating, should have been dispensed with at the 1993 election after the recession of the early 1990s, but was saved by our inordinate fear of Dr John Hewson’s proposed goods and services tax. By the next election in 1996, however, voters were on their verandahs with baseball bats waiting for Keating.

So, lesson No. 1: governments that preside over recessions usually get the blame for them. Lesson No. 2: in Australia, recessions happen roughly every seven years – or so I imagined at the time.

When the financial crisis of 2008 failed to sweep us into the world’s Great Recession, I was denied what I fondly assumed would be the biggest recession of my career. Why? Because Kevin Rudd did exactly what his econocrats told him to – and it worked.

In truth, we did have a recession, but one too small to remember. Another truth: more than a decade later, our economy had still not got back fully to normal and was in a weak state when the virus hit us some weeks ago.

In the decades since our last experience of severe recession, silly people in the financial markets and the media have given us the impression that a recession consists of real gross domestic product falling for two quarters in succession.

If you haven’t already, you’ll soon realise what nonsense that is. Lesson No. 3: the defining, terrible characteristic of recessions is soaring unemployment. That’s what makes people fear them so much. “What if I lost my job? How would I pay the mortgage? What about my kids? I’ve got one just finishing uni. Oh, what an appalling stuff-up. Those politicians are hopeless.”

Recessions inflict great harm on those who lose their jobs or their businesses. They make people terribly anxious. They heighten money worries and fights between spouses. They kill off any optimism about the future, leaving the public depressed and surly for month after month. They bark at every economist.

Lesson No. 4: unemployment shoots up, but crawls back down. I remember how much fuss there was when the number on unemployment benefits hit a million under the Hawke government. Last week Scott Morrison announced that, in just a few weeks, the number of people on the JobSeeker allowance (the latest in a long list of bureaucratic euphemisms for the dole) had topped 1.3 million – with a further 300,000 applications to be processed.

After the Hawke-Keating recession (the one we didn’t really have to have), it took almost 14 years for the rate of unemployment to get back down to the 5.9 per cent it was in November 1989.

And research by Professor Bob Gregory, of the Australian National University, suggests that people who’ve been unable to find a job for two years are unlikely to find one again. In recessions past, governments have hidden away some of these people by putting them on the disability pension.

In this recession, the new JobKeeper payment – a worthy measure – is helping to understate the number of workers counted as unemployed.

Lesson No. 5: though economic journalists make much of unemployment statistics, what brings the reality of high unemployment home to the public is TV footage of ashen-faced workers streaming out of factory gates after being laid off.

What did it this time was footage of all those young people queuing up the street and around the corner from Centrelink. Lesson No. 6: this recession, like all of them, will hit the young hardest, particularly those leaving the education system to start working. As part of this, the low-skilled are always hit harder.

What’s different this time – due to the recession’s unique cause: the government hitting the economy on the head with a hammer – is that job losses are so heavily concentrated in a few sectors: tourism and hospitality, arts and entertainment, and universities.

My final lesson is that public attitudes towards the unemployed are cyclical. Between recessions, many people see them as too lazy to work. Come the next recession, however, and we ooze sympathy. We know people who’ve lost their jobs and we’re hoping neither we nor our kids will be joining them.

So, give the jobless a hard time with pettifogging officiousness, robo-debt, payment by card not cash, Work for the Dole, drug testing, reverting to $40 a day? No, wouldn’t dream of it. Not if you’re hoping to be re-elected.

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We've had plenty of new jobs - for the young, not so much

You can be sure Scott Morrison and Josh Frydenberg will be boasting about this week’s job figures, which show the jobs market remaining unusually strong. But their critics know not to believe the numbers.

The Australian Bureau of Statistics’ figures for January show the seasonally adjusted rate of unemployment steady at 5 per cent – the lowest it has been since the start of the decade. The more reliable “trend” (smoothed) estimate is little different at 5.1 per cent.

Sticking with the trend figures, employment has increased by more than 295,000 people over the past year. That’s a rise of 2.4 per cent – a lot bigger than the average annual growth rate over the past 20 years of 2 per cent.

Almost three-quarters of those extra jobs were full-time. Full-time employment has been growing particularly strongly in the past few years.

Another good indicator of how well the economy is going at providing jobs for those who want to work is the employment ratio – the proportion of everyone in the population aged 15 and over who has a job. It’s steady at 62.4 per cent, the highest it’s been.

Just during January, employment increased by 24,900 to reach 12.7 million. That’s an increase of 0.2 per cent, above the monthly average growth rate over the past 20 years of 0.16 per cent.

But don’t get the idea this means all of us stayed in our jobs while another 24,900 joined us. That’s just the net increase. There was a lot more coming and going than that. Indeed, the bureau informs us that, each month, about 300,000 people leave employment and about 300,000 enter it.

Looking at that strong performance over the past couple of years, what’s not to like? With a federal election coming up, why shouldn’t Morrison and Frydenberg boast about the great job they’ve done on jobs?

Well, a lot of their critics would be happy to tell you. They know the official unemployment figures understate the true extent of joblessness.

Did you realise, for instance, that the bureau counts you as employed even if you’ve worked for as little as one hour a week?

This means that, as well as the 680,000 people counted as being unemployed, there are another 1.1 million people who are under-employed – those who have a part-time job, but want to work more hours a week than they are.

Those 1.1 million represent 8.3 per cent of the “labour force” (all those with jobs or looking for jobs). Add that 8.3 per cent to the official unemployment rate and you get a total “labour under-utilisation rate” of 13.3 per cent.

This is down from 14 per cent a year ago, with under-employment accounting for just 0.2 percentage points of the fall and unemployment accounting for the rest.

So the under-employment rate, which rose in the years after the global financial crisis, has fallen since its peak of 8.8 per cent in early 2017, but much more slowly than the fall in unemployment.

That’s the standard critique of the official story: the “true” extent of joblessness is far higher than the official unemployment rate tells us, and when you take account of widespread under-employment you see also that the rate of improvement has been a lot smaller.

What are we to make of this criticism? Well, it’s correct factually, but when you look deeper you see it goes to the other extreme of overstating the extent of the problem.

Take, for instance, the oft-repeated news that people are counted as unemployed if they work for as little as an hour a week. That’s true, but how many people do work as little as an hour?

Answer: almost no one. This week the bureau issued a special note about this matter. It says that only about 14,500 people do, out of total workforce of 12.7 million – that is, 0.1 per cent. (If you think 14,500 people is a lot, you don't realise how big our economy is.)

Make it people working up to three hours a week and you’re still only up to 100,400 people, or 0.8 per cent. In fact, about 97 per cent of workers usually work seven hours or more a week. That’s at least one full shift a week.

The point is that you have to draw the dividing line between unemployed and employed somewhere, and by adhering to the longstanding international convention of drawing it at an hour a week, we are not significantly overstating the position.

Many people assume the only good job is one that’s full-time. Wrong. Many students, parents and semi-retired people are perfectly happy working only part-time.

Further, many people assume that every part-time worker who says they’d like to work more hours is someone who’d rather have a full-time job if only they could find one. That’s wrong, too. Though many would indeed prefer a full-time job, many part-timers want to stay part-time, but wouldn’t mind working a few extra hours.

So when you take the unemployment rate (people with no job) and simply add the under-employment rate of 8.3 per cent on to it, you’re exaggerating the number of people working significantly fewer hours than they want to.

But let’s take a closer look at under-employment. As the bureau has explained, it is concentrated among the young. More than a third of the under-employed are aged 15 to 24. About 18 per cent of all workers in this age group are under-employed.

It seems clear that education-leavers have borne more than their fair share of the pain during the period of below-par growth since the global financial crisis in 2008. Many people leaving university have had to settle for a part-time job and, until quite recently, they’ve taken more months to make it into full-time employment.

The latest figures from the universities show their new graduates are now taking less time to find a decent job than they were.

But, in any case, caring about the troubles of young people is deeply unfashionable. It’s the well-off elderly we should be worrying about.

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Young people bearing the brunt of a weak economy

Without wanting to be branded a class traitor, I have to admit that we Baby Boomers have enjoyed a rails-run in the race of life.

Most of us had little trouble getting ourselves set up in the jobs market and then the housing market. I look at today’s bright and bushy-tailed youngsters, just starting out in both markets, and don’t envy them one bit (except, of course, their instinctive understanding of the right place to click on a webpage).

(Just to protect my back: those Baby Boomers who were conscripted, or ended up in Vietnam, didn’t have it easy. Nor should those who’ve come after us imagine all Baby Boomers are rolling in it, have never been unemployed, never paid uni fees nor suffered bad luck.)

In the decade since the global financial crisis and the recession we supposedly didn’t have, the supply of people wanting to work has been stronger than employers’ demand for work to be done.

That’s true even though the rate of unemployment never got very high and isn’t all that high today. But a study by Zoya Dhillon and Natasha Cassidy, of the Reserve Bank, confirms what I’ve long suspected: the reason the position overall hasn’t looked so bad is the brunt of the weakness in employers’ demand for labour has been borne by young people leaving school and university.

Whatever you’ve heard in the media, not a lot of workers have been laid off since the shock in September 2008. Employer behaviour has changed, the study confirms. Firms have been less inclined to get rid of people and more inclined to reduce the total amount of hours they’re paying for.

This has become easier for them to do because of their greater ability to employ people on a part-time or casual basis.

On balance, and from an economy-wide perspective, this change of behaviour is an improvement, a shift to a lesser evil. It’s a terrible blow to suddenly lose your job. Better to have some paid work than none.

But the price for this marginal improvement has been paid mainly by the young. Established workers have tended to keep their jobs, but employers haven’t recruited as many people at entry-level. And more of the jobs they’ve offered young people have been part-time.

A new twist on last in, first out.

The result is that education-leavers have had greater trouble – and suffered longer delays – in finding a full-time job suited to their education.

“Over the past decade,” the study says, “increases in the unemployment and underemployment rates for younger people have been twice as large as for the overall labour market. The share of 20 to 24 year-olds that have become disengaged from either study or work has also increased.”

“Younger people” means those aged 15 to 24, though remember that those aged 15 to 19 will mainly be still at school, while many of those aged 20 to 24 will be at university or TAFE.

Some younger people have part-time jobs while still at school, and most higher education students in full-time study also work part-time.

Nothing new or worrying about that. But “in recent years there has been a pronounced increase in the share of 20 to 24 year-olds working part-time who are not studying full-time”.

You’ve heard, no doubt, that while the official unemployment rate has been edging down, the rate of underemployment – people working part-time who want to work more hours – has been edging up (until lately, as we’ll see).

What’s less well known is that underemployment is dominated by younger workers, and it’s they who’ve done most to drive the rate up over recent years. A lot of this would be people finishing uni but having trouble finding a full-time job and taking a part-time job while they keep searching.

In the mid-1990s, about 80 per cent of all bachelor-degree graduates found a full-time job within four months of graduating. By last year, that had fallen to just over 70 per cent – about the same as it got down to during our last severe recession in the early 1990s.

Remember, it’s like a traffic jam. It takes a lot longer than it should, but you do get through eventually.

The most worrying thing is the “NEET rate” – the proportion of younger people who are “not in education, employment or training”. The NEET rate has fallen over the decades as we’ve done better at getting more of our young people into education and training.

But the rate for 20 to 24 year-olds has increased in recent years and is back to where it was in 2005.

The study says prolonged spells of disengagement from the labour market are known to have lasting ill-effects. “Poor labour market outcomes early on not only affect an individual’s future employability, but also have persistent negative effects on lifetime earnings.”

All this says the difficulties younger people are encountering in finding decent full-time jobs are better explained by the economy’s prolonged period of below-par growth since the financial crisis than by the sexier and more frightening explanation that it’s caused by the rise of the “gig economy”.

Which brings me to a little good news. The trend rate of underemployment for all ages has fallen a little to 8.4 per cent over the past year. And the rate of unemployment for younger people has fallen from 12.4 per cent to 11.6 per cent in just the past four months.

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In truth there's no apprenticeship 'crisis'

If we're to believe what we're told, Australia's apprenticeship system is in crisis, with plunging numbers following cuts in government support.

In last year's federal election campaign, Bill Shorten claimed the number of people "in training for an apprenticeship" – note that tricky wording – was "now at its lowest level since 2001".

Spending cuts by the Abbott-Turnbull government had "seen apprentice numbers fall by more than 120,000 since the 2013 election".

In May this year, Karen Andrews, Assistant Minister for Vocational Education and Skills in the Turnbull government, said the objective of a new government fund was to "restore the number [of apprenticeships] to 2012 levels, when Labor's withdrawal of employer incentives contributed to a massive decline".

Earlier this year, a joint statement by the three biggest business lobby groups claimed that apprenticeships had declined by 45 per cent since June 2012 and urged the Turnbull government to "take urgent action to avert an imminent crisis in our apprenticeship system".

Not to be outdone, the ACTU claimed in last year's election campaign that the Coalition had "ripped funding out of apprenticeship programs", resulting in a "catastrophic drop in the number of apprentices learning their trade".

When you remember the almighty hash that federal and state governments of both colours have made of their efforts to smarten up TAFE colleges by making vocational education and training "contestable" by for-profit training providers, it's not hard to believe that, between them, the former Labor and present Coalition federal governments have stuffed up apprenticeships.

Fortunately, however, you don't have to believe it. It isn't true. For their own reasons, the people I've quoted – Labor and Liberal, employers and unions – are seeking to mislead us about the state of the apprenticeship system.

This is clear from a report published this week by the highly regarded higher education expert Professor Peter Noonan, and Sarah Pilcher, of the Mitchell Institute at Victoria University.

Let me ask: What do you understand the word "apprenticeship" to mean? Do you take it to mean the system that's existed for decades where young people work in trades such as carpentry, plumbing, electrical, commercial cooking and hairdressing, and undertake about four years of training before becoming qualified tradespeople?

Now try this: Have you heard of the "traineeships" that the Hawke government invented in 1985 to reduce youth unemployment by providing job and training opportunities for young people in service sector occupations not covered by traditional apprenticeships?

They typically last for only a year or less, and are common in retail and hospitality, admin, childcare and aged care.

Get this: when all those people I quoted spoke of the "apprenticeship system", what they were actually referring to was those short-term traineeships.

There's been a huge fall in the number of traineeships since 2012, because the Gillard government decided to crack down on massive rorting by employers and training providers of changes in the traineeship system made by the Howard government.

There has been a modest fall in the number of traditional apprenticeships since 2012, but this is despite the absence of any change in the full funding of traditional apprenticeships.

No one would understand the distinction between apprenticeships and traineeships better that Shorten, the minister responsible, the employer groups and the ACTU.

None of them would fail to realise that the public worries a lot more about trade apprenticeships than about short-term service sector traineeships.

So when they chose to depict a crackdown on employer rorting of traineeships as a crisis in the apprenticeship system, they knew full well they were misleading us.

But how did they think they could get away with such deceit? That no Peter Noonan would blow the whistle on them?

Here's the bit you'll have trouble believing. It sounds like it's straight out of Utopia.

They thought they'd get away with it because, some years ago, some genius in the federal government decided to add the traineeship figures to the apprenticeship figures and call them all apprenticeships.

You know, add oranges to apples and call them all apples. Good one.

So far has that bureaucratic obfuscation gone, that actual figures for apprenticeships and traineeships have disappeared.

You can, however, divide the so-called apprenticeships between trade apprenticeships (the real ones) and non-trade "apprenticeships" (actually traineeships).

The number of traineeships has long been a lot greater than the number of apprenticeships, which tend to vary with the strength of the economy. Even so, commencements have increased in some categories: carpenters, plumbers and electricians.

But the number of traineeship commencements ballooned after 1998, when the Howard government took a scheme aimed at encouraging employers to hire more young people, and made subsidies available for training of existing employees, of any age.

The report says registered training organisations, apprenticeship centres and brokers "aggressively marketed" these existing-worker traineeships.

"A business model emerged whereby employers would share the incentives with registered training organisations, who then delivered training, too often of questionable duration and quality," the report finds.

By 2012, the peak year before the Gillard government's restrictions took effect, 44 per cent of all traineeship commencements were for existing workers. About 18 per cent of all "trainees" were aged 45 or older.

The Howard government also decided in 1998 to make employer incentives available for part-time traineeships and apprenticeships.

"This decision . . . also created a market in Commonwealth employer subsidies, through which firms could shift their part-time and casual youth workforces (including full-time school and university students) into part-time traineeships," the report says.

"This had a dual benefit for employers – they were able to pay trainees the national training wage (below the relevant award) while also claiming employer subsidies, with training provided fully on the job.

"Major retail firms and franchises, in particular in the fast food industries, took full advantage of these incentives."

Now why do I find that easy to believe?

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Seeking the truth about the extent of unemployment

So, the Australian Bureau of Statistics told us this week, the rate of unemployment fell a tick to 5.6 per cent in July. Trouble is, most people know the official unemployment rate understates the extent of the problem.

What many people don't know, however, is that when you take the rate of unemployment and add the rate of under-employment, which in May took us up to 14.5 per cent, you overstate the extent of the problem.

It's well known by now that the official definition of unemployment is a very narrow one because you only have to do one hour's work in a week to be classed as employed.

A lot of people also know – or think they know - that this amazing definition was introduced by the government some years ago to stop the figures looking so bad.

Labor voters know it was a Coalition government that fudged the figures; Liberal voters know the villain was a Labor government.

Sorry, this is an urban myth. It is just not true. The bureau would never allow any bunch of politicians to fiddle with the definitions it uses.

As it has explained many times, the bureau uses internationally agreed standards to define unemployment, which are set by the International Labour Organisation, part of the United Nations.

They had to draw the dividing line between unemployed and employed somewhere, and they chose one hour – a choice that was easier to make in the days when almost all the jobs were full-time.

Even today, there'd be very few people actually working just an hour or two a week. Most would work at least one shift of seven or eight hours.

Even so, there's no denying that such a narrow definition understates the extent of joblessness. This is why the bureau also publishes a measure of underemployment.

The underemployed consist of all those people who are working part-time – defined as less than 35 hours a week – but would prefer to be working more hours.

When you take the rate of underemployment and add it to the rate of unemployment (with both unemployment and underemployment expressed as proportions of the labour force) you get what the bureau calls the "labour underutilisation rate", which we can think of as a broader measure of unemployment.

If you look over the years, the rate of unemployment tends to go higher and lower in line with the downs and ups in the business cycle.

You can also see the business cycle reflected in the rate of underemployment, but it has a much clearer underlying upward trend. It was 2.6 per cent in 1978, but 8.3 per cent in November 2015 and 8.8 per cent this May.

Until early 2003, the unemployment rate was higher than the underemployment rate, but since then the underemployment rate has been higher, with a growing gap.

Between February 2015 and this May, the unemployment rate fell by 0.5 percentage points, whereas the underemployment rate rose by 0.3 points.

The underemployment rate is a lot higher for females, 11 per cent, than for males, 6.9 per cent.

It's also greatest among people in lower-skilled occupations and lowest among people in higher-skilled occupations. (Uni students please note.)

Now get this: although workers of all ages suffer underemployment, it's much more a problem for the young. More than a third of the underemployed are aged 15 to 24, and their rate is 18.5 per cent.

But why has the trend rate of underemployment been rising steadily since the late 1970s?

Since underemployment is an affliction of part-time workers, the steady rise in part-time employment over that time – so that it now accounts for about a third of all jobs – does much to explain why there's more part-timers who happen to be saying they'd prefer to be working more hours.

Professor Jeff Borland, of the University of Melbourne, adds that "younger workers appear to have experienced the largest increase in underemployment because they have had the largest growth in part-time employment".

He reminds us that more young people have part-time work because more of them are in full-time education and needing a part-time job.

But here's my punchline: although the official unemployment rate understates the size of the problem, just adding the underemployment rate goes to the other extreme of exaggerating it.

Why? Because it adds apples to oranges. We worry most about underemployment because we assume it involves people who need full-time jobs but have had to settle for part-time.

It does. But it also includes people who are happy to stay part-time but, even so, would prefer to work an extra shift or maybe just a few more hours.

It doesn't make sense to add people with such a small problem to people with the much bigger problem of needing a full-time job but not being able to find one, as though they were similar.

Remember, too, that almost a third of the people included in the official unemployment rate are looking only for part-time work.

This is why, if you search very deep on the bureau's website (clue: catalogue no. 6291.0.55.003, table 23b) you find that, as well as just counting heads, it also does a more accurate measure of underemployment that counts the hours people are looking for – meaning part-timers needing a full-time job count for a lot more than those just wanting a few more hours.

This "volume" measure shows that, in May, the underemployment rate was 3.2 per cent of all the potential hours the whole labour force could work, and the unemployment rate was 4.3 per cent, giving an hours-based measure of labour underutilisation of 7.5 per cent.

Which is closer to the truth of the matter.

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What's happening in the labour market

Oh, no! They say the Bureau of Statistics' jobs figures for November are good because they show employment growing by 39,000, with all those jobs full-time. But then they say the unemployment rate increased a click to 5.7 per cent. Huh?

It is possible to make sense of what's happening in the labour market, but only if you follow a few rules.

For a start, it's never possible to make sense of the monthly figures if you focus on the change from last month because they're subject to sampling and other errors and keep bouncing around.

You make it doubly hard if you defy the bureau's advice and focus on its "seasonally adjusted" estimates rather than its "trend" (smoothed) estimates.

Also, employment and unemployment aren't opposite sides of the same coin. There's a third possibility: neither employed nor unemployed, because you don't have a job and aren't looking for one. The statisticians call this "not [participating] in the labour force".

So it's perfectly possible for both employment and unemployment to increase at the same time - if, say, some people are leaving the unemployed because they've found a job, while others are adding to the unemployed by joining the labour force to look for work.

But let's stick to the trend figures and step back for a longer view, looking at the 12 months to November.

The figures show total employment grew by 87,000 and the rate of unemployment fell 0.3 percentage points to 5.6 per cent.

If you think that sounds good, sorry. Over the same period, the proportion of working-age people participating in the labour force, either by having a job or looking for one, fell by 0.6 percentage points to 64.5 per cent.

About 0.25 percentage points of that fall would have been caused by the ageing of the population, but the rest was probably caused by "discouraged jobseekers" ceasing to be classed as unemployed because they gave up looking for work.

The bureau points out that growth in total employment of 87,000 is an annual increase of only 0.7 per cent, which is less than half the average growth rate over the past 20 years of 1.8 per cent.

Then, when you delve into the employment story you find that while part-time employment grew by 138,000, full-time employment actually fell by 51,000.

It's not so surprising that the jobs market isn't doing as well as our reasonable rate of growth in gross domestic product would lead us to expect, because a lot of the output growth is coming from increased production of minerals and energy, which involves employing very few extra miners.

But why are those jobs we are creating more likely to be part-time? The Reserve Bank investigated this question in last month's quarterly statement on monetary policy.

It says much of the recent swing from the creation of full-time jobs to the creation of part-time jobs is explained by the economy's return to non-mining led growth since the end of the mining construction boom.

The Reserve divides the economy into three broad sectors. First, the goods-related sector: agriculture, mining, manufacturing, construction, utilities and distribution (transport, postal and warehousing, and wholesale and retail trade).

Second, the business services sector: finance and insurance, administration and support, media and telecommunications, professional scientific and technical, and rental, hiring and real estate.

Third, the household services sector: health and aged care, education, accommodation and food, and arts and recreation.

"Since 2013," the Reserve says, "employment growth has been strongest in the household services sector, where the share of part-time employment is relatively high at about 45 per cent."

Over this period, the share of part-time employment in the business services sector and the goods-related sector has also increased but, at about 25 per cent, it remains much lower than for the household services sector.

Employment growth has been weakest in the goods-related sector, partly reflecting the loss of jobs as mining construction projects come to an end and the ongoing decline in manufacturing employment.

So far we've said that, since 2013, some sectors of the economy have growth faster than others, with the sector that's grown fastest also being the one that's always had the biggest proportion of part-time jobs.

But there's also been a shift to part-time employment within each of the sectors. The Reserve says this fits with what businesses are telling it in its "liaison" interviews, that they've been hesitant to employ full-time workers until they see evidence that increased demand for their output is likely to be sustained.

Of course, the share of part-time employment in total employment has been increasing steadily since the mid-1960s. Then, it was 10 per cent; today it's about a third.

Being able to employ people for those times in the week when you need them - rather than having full-timers with little to do for much of the week - has allowed firms to increase the efficiency with which they use labour.

So there's been growing employer demand for part-time workers. At the same time, however, there's been growing willingness among employees to supply their labour on a part-time basis.

The obvious examples are full-time students, parents of very young children and, these days, older workers seeking semi-retirement.

This makes it wrong to think that part-time jobs are inferior to full-time jobs, that everyone with a part-time job really wants a full-time job (there aren't many for whom that's true) or that all part-time jobs are casual rather than permanent.

What is true, however, is that with the rise in part-time employment has gone a rise in under-employment - essentially, people with part-time jobs who'd prefer to be working more hours.

Since February 1990, under-employment's risen from 4 per cent to 8.5 per cent today, though it's been steady for the past two years.

On the downside of the resources boom, employment growth isn't as strong as we'd like it to be.

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