Does everybody who wants a job have one? If you want to know the question really keeping policy makers awake at night (when they’re not worrying about earthquakes, floods, tsunamis, etc, of course), this is it.
Australia in the past decade has emerged from a period in which concern centred on high joblessness into a new era where the scant availability of workers is the main concern.
The resources boom is firing up mining investment, straining the economy’s spare capacity, including workers, machines and factories.
In such a situation – strong demand but relatively fixed supply – it becomes important to ask: can we get everything done that we want to do? Do we have enough workers to both rebuild Queensland after flooding and, for example, to build a national broadband network?
In an economy operating with absolutely no spare capacity, one new project must come at the expense of another. When there is limited spare capacity, that is when there remain a few idle workers – more like the situation today – employers must compete against each other for scarce workers, bidding up wages.
Fabulous! Everyone who wants a job can get one, you might think. But if it sounds too good to be true, that’s because it is. The risk is that workers on new super-sized salaries start spending that money, bidding up the price of goods and services, pushing up the prices that all workers must pay. The value of other people’s wages is eroded by inflation. Those workers start demanding higher wages too, pushing up prices even further. And so on, into what economists call a wages and inflation spiral. That story doesn’t end well.
As enshrined in the Reserve Bank Act 1959, the job of the Reserve is three-fold: ensure a stable currency, maintain full employment and safeguard the economic prosperity and welfare of Australians.
Since the dollar was floated in 1983, the first objective is less important. More recently the Reserve’s mandate has been broadly interpreted as keeping consumer price inflation within a band of 2 to 3 per cent a year, ensuring price stability and protecting against the erosion of real income.
In reality, this means accepting some degree of unemployment to keep pressure off wages. It means full employment is not zero unemployment, but something higher.
The job of government in this economy is to expand the potential labour force to relieve pressure on wages and prices. There are only three ways to achieve this: get people to have more babies, lift the skills of existing workers, or import them.
The first takes a while and the second can too, making the third option by far the quickest solution. But importing more workers, while boosting supply, also adds to demand for goods and services in the economy.
Improving the skills of existing workers to perform the jobs required in the new economy is by far the best option. This is why the federal government’s announcement this week of skills measures to ease resource sector job vacancies is welcome. Experienced workers will be able to undertake an 18-month accelerated trades qualification, and $200 million has been set aside for other skills programs.
It is all too easy for these sorts of worthy policies to get lost in the headline political argy-bargy. But for all the political turbulence, managing the boom must remain this government’s top priority.
The Irvine index 19-20/03/2011
Unemployed people in Australia last month. (Those searching for and available to start work, but unable to find it.)
Percentage of Australia’s 12 million strong labour force who are unemployed.
Jobless rate in the eastern suburbs of Sydney
Jobless rate in the Canterbury-Bankstown region of Sydney.
February jobless rate in far north Queensland – the highest in the country due to the floods.
Part-time workers in Australia who would prefer more hours.
Predicted shortfall of tradespeople by 2015, according to the Natural Resources Sector Employment Taskforce.
West Australians working in the mining industry today.
NSW mining employees, mostly in the state’s coalmines.
Sources: abs.gov.au, Natural Resources Sector Employment Taskforce, rba.gov.au.