Under and Unemployment in Australia Is Far Worse Than Initially Thought, White Paper Shows

September’s employment white paper has adopted the broadest-ever definition of what “full employment” means for Australia.

The new paper says closer to 2.8 million Australians are either underemployed or out of work – equivalent to one-fifth of the current workforce. That new estimate is much higher than the official unemployment total of 539,700.

Going further than any of the previous employment white papers over the past 80 years, the new report defines full employment as meaning:

everyone who wants a job should be able to find one without searching for too long

While it commits the government to keeping employment as close as possible to the current maximum sustainable level “consistent with low and stable inflation”, it goes further, noting that this measure – the so-called non-accelerating inflation rate of unemployment (NAIRU) – has been falling and is hard to estimate.

The white paper still cautions that “full employment” does not mean zero unemployment.

There will always be some “frictional unemployment” (as people change jobs) and “structural unemployment” (as industries decline or skills do not match needs). But it commits the government to minimise “cyclical unemployment”: unemployment caused by the state of the economy.

It incorporates into its definition of full employment “underemployment”, which happens when people who do have jobs are unable to get the number of hours they want.

Underemployment and unemployment approach 2.8 million

While 539,700 Australians are unemployed, there are another 1 million who are employed but want to work more. And there are another 1.3 million “potential workers” who are interested in working, but not currently actively looking.

This lifts the total number of Australians who are in some way unemployed to 2.8 million, according to the white paper.

The white paper also talks of “inclusive full employment”, by which it means “broadening labour market opportunities” to encourage more people to seek jobs.

Economists refer to this as further increasing the participation rate, which is already near a record high.

Enhanced support for childcare (already announced in Labor’s first budget) is one of the sorts of measures that would help, reducing barriers to work for parents.

Another, announced in this white paper, is a permanent extension of the A$11,800 work bonus for pensioners over age pension age and eligible veterans, which was temporarily lifted from $7,800 to $11,800 in the October 2022 budget.

Employment white papers date back to WWII

This isn’t the first Australian government employment white paper.

The very first was released by the wartime Curtin government in 1945, entitled Full Employment in Australia.

Curtin wanted to ensure that post-war unemployment would not return to the extraordinarily high levels experienced in the 1930s.

That 1945 white paper was inspired by the British white paper released in 1944, which set out an ambitious plan to carry forward the high employment achieved during wartime into peacetime.

A large team of economists and other experts, led by HC “Nugget” Coombs, spent almost a year preparing the white paper, producing eight drafts.

No specific target for our unemployment rate

As with this white paper, the 1945 full employment white paper didn’t put a number on the unemployment rate which corresponds to “full employment” – although early drafts of the 1945 paper included numbers ranging from 2% to 5%.

The 1965 Vernon Report on the economy was more optimistic, defining full employment as an unemployment rate of 1 to 1.5%.

The Keating government’s Working Nation paper – released in 1994 when unemployment was almost 10% – adopted a target of 5% by 2000. That wasn’t quite met – unemployment remained above 6% in 2000, but fell to 5% by 2004.

By 2010, many economists regarded 5% as effectively “full employment”.

In June this year, the present Reserve Bank governor, Michele Bullock, defined full employment as

the point at which there is a balance between demand and supply in the labour market (and in the markets for goods and services) with inflation at the inflation target

She nominated an unemployment rate of around 4.5%.

Australian economists surveyed by The Conversation and the Economic Society of Australia last month nominated 4%. Curiously, that’s the same rate nominated by the Department of Postwar Reconstruction’s Chief Economist, Trevor Swan, in work for the full employment white paper in 1945.

The words, but not the numbers, in this employment white paper are consistent with an unemployment rate of 4% or lower.

Few ideas for lifting productivity

The white paper identifies labour productivity (output per hour worked) as crucial to increasing the purchasing power of wages, yet details few ideas for increasing it.

Labour productivity has slowed over recent decades, and in recent years has actually fallen. The causes are not obvious. Some of it may be a temporary reflection of the very desirable reductions in unemployment.

Workers who have been out of work for a while are, at first, likely to produce less than workers already in work.

Declining labour productivity is also likely to reflect the gradual shift from manufacturing to services.

The white paper says the services sector now accounts for more than 80% of employment, compared to around 50% at the turn of the 20th century.

Productivity in many services is hard to increase. A haircut or a live performance of Vivaldi’s Four Seasons by a string quartet takes about as many hours of labour now as it did a century ago.

But weak productivity probably also reflects other things. The white paper refers to evidence that dynamism and innovation have declined in Australia. This is not easy to address. The government’s two-year competition review will help.

And low investment is another problem. Companies might not be moving fast enough to equip workers with the tools they need to help them produce more.

A more robust economy might encourage them to invest, as could tax changes – but they were beyond the scope of this white paper.

John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra and Selwyn Cornish, Adjunct Associate Professor, Research School of Economics, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.