One in five Australian workers are underemployed or unemployed: white paper

Today’s Employment White Paper adopts the broadest definition yet of what ‘full employment’ means for Australia.

Nearly 2.8 million Australians are underemployed or unemployed, a fifth of the current workforce, according to a new paper. This new estimate is much higher than the official total of 539,700 unemployed people.

Going further than any previous employment white paper in the past 80 years, the new report defines full employment as:

Everyone who wants a job should be able to find one without having to look for too long.

While the Act commits governments to bringing employment as close as possible to the current sustainable maximum level “consistent with low and stable inflation”, it goes further and goes further by stating that this measure, known as non-accelerating inflation rate unemployment, It points out that the ratio (NAIRU) is important. – It is on the decline and difficult to estimate.

Federal Treasury, Employment White Paper 2023

The White Paper still warns that “full employment” does not mean zero unemployment.

There will always be ‘frictional unemployment’ (when people change jobs) and ‘structural unemployment’ (when industries decline or skills do not match needs). However, the government is committed to minimizing “cyclical unemployment”, or unemployment caused by economic conditions.

It incorporates “underemployment” into its definition of full employment, which occurs when people who have jobs cannot get the number of hours they want.

Underemployment and unemployment approaches 2.8 million people

While 539,700 Australians are unemployed, a further million Australians are employed but would like to work more. And there are an additional 1.3 million “potential workers” who are interested in working but are not currently actively searching.

The white paper says this brings the total number of Australians unemployed in some way to 2.8 million.

The Unemployed and Underemployed series reports monthly results for August of each year, while the Not in the Labor Force but Wants to Work series is based on the different timing of the survey over the year. Reflects different months of the year. This group also includes workers who said they had a job to return to, but were considered outside the labor force at the time of the survey. These data are not seasonally adjusted.
Federal Treasury, Employment White Paper 2023

The white paper also talks about “inclusive full employment,” which means “expanding labor market opportunities” to encourage more people to seek work.

Economists say this will push participation rates, already near record highs, even higher.

Enhanced childcare support (already announced in Labour’s first budget) is one measure that will help reduce barriers to work for parents.

Another proposal announced in the White Paper is a permanent extension of the A$11,800 work allowance for pensioners over pension age and eligible veterans, which will be increased by A$7,800 in the October 2022 budget. It was temporarily increased from $11,800 to $11,800.

Read more: Jobs white paper to deliver more highly skilled workers in net zero, care and digitalisation

The history of employment white papers dates back to World War II.

This is not the first employment white paper from the Australian government.

The first, published by the wartime Curtin government in 1945, was entitled ‘Full Employment in Australia’.

Curtin wanted to ensure that post-war unemployment did not return to the extraordinarily high levels of the 1930s.

Federal Treasury, Employment White Paper 2023

Its 1945 White Paper was inspired by the British White Paper published in 1944, which set out ambitious plans to continue in peacetime the high employment levels achieved during wartime.

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

There is no specific target for the unemployment rate

Like today’s White Papers, the 1945 Full Employment White Paper did not include an unemployment rate figure equivalent to ‘full employment’, although early drafts of the 1945 White Paper ranged from 2% to 5%. It contained a range of numbers.

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

The Keating government’s Working Nation document (published in 1994, when unemployment was almost 10%) adopted a target of 5% by 2000. That was not fully achieved, and the unemployment rate had fallen from over 6% in 2000 to 5% by 2004.

By 2010, many economists considered 5% to be effectively “full employment.”

In June this year, the current Reserve Bank Governor Michelle Block defined full employment as:

The point at which supply and demand in the labor market (and markets for goods and services) are in balance and the inflation rate reaches the inflation target

She expected the unemployment rate to be around 4.5%.

In a survey conducted by The Conversation and the Australian Economic Institute last month, Australian economists named 4%. Oddly enough, this is the same rate that Trevor Swan, chief economist at the Department for Post-War Reconstruction, named in his 1945 Full Employment White Paper.

The wording, not the numbers, in today’s employment white paper is consistent with an unemployment rate of less than 4%.

Read more: We can and should keep unemployment below 4%, top economists say

Few ideas to increase productivity

The white paper states that labor productivity (output per working hour) is important for increasing the purchasing power of wages, but provides little detail on ideas for increasing it.

Labor productivity has slowed in recent decades and has actually fallen in recent years. The cause is not clear. Some of that may be a temporary reflection of a much-desired decline in unemployment.

Workers who have been out of work for some time may initially be less productive than workers who are already working.

The decline in labor productivity is also likely to reflect a gradual shift from manufacturing to service industries.

According to the white paper, the service sector accounts for more than 80% of employment, compared to about 50% at the beginning of the 20th century.

Improving productivity in many services is difficult. A haircut or a live performance of Vivaldi’s The Four Seasons by a string quartet takes as many working hours as it did 100 years ago.

Read more: Government’s jobs white paper promises jobs for everyone who wants them, and helps them get them

But low productivity likely reflects other things as well. The White Paper cites evidence that Australia’s dynamism and innovation are in decline. Dealing with this is not easy. A two-year competitive review by the government would help.

Another problem is that the investment amount is small. Companies may not be moving fast enough to give their employees the tools they need to be productive.

A stronger economy could encourage investment, as could tax changes, but these are beyond the scope of this white paper.

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