Australia’s unemployment rate has descended to 3.9%, which is the lowest rate since 1974.
Introduction
Australia’s jobless rate remained stable at 3.9% in April, lingering at near half-century lows, as employees worked longer hours the economy added a small number of new jobs.
In April, the nation’s unemployment rate was a seasonally adjusted 3.9%, the Australian Bureau of Statistics reported recently, compared to 3.9% for March, revised from 4%.
The economy added approximately 4,000 jobs in a month, disrupted by Easter. Some economists had forecasted staff roles would have expanded by 30,000, with the jobless rate dropping to 3.8%.
Unemployment rate explained
In April, hours worked rose by 1.3%, or 23 million hours to 1.833 billion hours, while the participation rate that indicates the share of those of working age in the workforce or seeking jobs eased back 0.1 percentage points to 66.3% but remained near historic highs.
The rising cost of living, including petrol prices inching back above $2 a litre in cities (in spite of the temporary halving of the fuel excise), has also taken some of the edge off the lowest unemployment figure in Australia since the early 1970s.
Declining unemployment rates have been typical across most rich economies as skyrocketing debt levels during the Covid pandemic fuelled rapid rebounds. The US, UK and New Zealand have jobless rates in the 3% range, while Germany and Japan have 2% plus.
Before these numbers were released, NAB said that job vacancies and ads were still high, and further gains were impending. It sees unemployment reaching approximately 3.5% by around the middle of the year.
The unemployment rate across the country
Among the states and territories, WA’s jobless rate plunged to 2.9%, down from 3.4% in March, subsequently overtaking the ACT as the best performing region. Canberra’s jobless rate of 3.1% was down from March’s 3.4%.
The most populous state, NSW, also made promising moves, with its jobless rate down to 3.5% (from 3.9% in March), while Victoria went the other way to 4.2% (from 4.0% in March). Queensland and SA landed at 4.5%, while Tasmania improved sharply from 4.5% to 3.8%, while the NT was unchanged at 4.1%.
Nature and Covid played different parts. The flood crisis in Queensland and NSW was mitigated during April so that the number of people working fewer hours due to disruptions sank from more than half a million to approximately 70,000.
Contrastingly, the rising numbers of Covid-19 cases in April meant those working reduced hours due to illness continued to be high
A senior ANZ economist, Catherine Birch, noted that the April figure was almost 3.8% on rounding, with a decrease in the participation rate key to nudging that number.
Wages and unemployment rate
The wage price index in the year to March grew by just 2.4%, compared with a 5.1% headline inflation rose throughout the same period, which was the fastest rise in 21 years.
That means Australians have effectively been taking a pay cut, despite employers struggling to recruit staff in a tight labour market.
Mr Albanese indicated he would support the Fair Work Commission increasing the minimum wage in line with inflation after nine years of weak wage growth across the economy.
Australians are now working more hours, with the overall number rising in April by 1.3% or 23 million hours to 1.833 billion hours.
KPMG senior economist Sarah Hunter said Australian workers were likely to get a decent pay rise later this year as labour shortages persisted.
Future outlook
The Federal Treasury and the Reserve Bank are predicting unemployment to go even lower by the end of the year.
Before the latest figures were released, former Prime Minister Scott Morrison said a low unemployment rate was crucial for the economy.
“People being in jobs is the most important thing that [the] economy needs,” Morrison said while he was campaigning in Tasmania. “If you don’t have a job, you don’t have choices.”
Current Prime Minister Anthony Albanese, also speaking ahead of the release of the figures, said that he welcomed lower unemployment figures. However, most people were thinking about how they could afford essentials with a record gap between wage growth and inflation.
“People are doing it tough. That’s what I’m hearing,” he said.
For example, the youth unemployment rate rose to 8.8%. About 3 million Australian workers are void of basic job security, including some 2.4 million workers employed in casual positions with no paid leave entitlements. A further 500,000 workers are on fixed-term contracts. A survey by PwC discovered that anxiety regarding the economic future intensified due to the COVID pandemic. The survey also revealed that 56% of Australians now believe few people will attain stable, long-term employment in the future (more than two years).
The new Labor government will have to deal with deeper unease in the Australian economy, including stagnating productivity growth and the declining labour income share in GDP.
Industry-wide bargaining can improve productivity and real wages.
Over half a century ago, two paramount Australian academics argued for tying wage increases in any industry to productivity trends across the whole industry via a system of industry-wide bargaining. By adhering to industry-wide average productivity-based wage increases, they argued that industry bargaining raises relative unit labour costs of firms with below-industry-average productivity, forcing them to improve their productivity or exit the industry. Simultaneously, firms with above-industry-average productivity enjoy lower unit labour costs, thus higher profit rates for reinvestment – benefiting the growth of more efficient firms. Singapore adopted this approach to restructure its industry in the 1980s towards higher value-added activities, with great success.
In contrast, competing based on low wages is a recipe for failure. Low-wage countries generally demonstrate lower productivity, and research by a leading French economist, Edmond Malinvaud, demonstrated that a reduction in wage rates has a depressing effect on capital intensity.
Australia’s previously mentioned scenario implies that the availability of a growing pool of low paid workers makes firms complacent concerning innovation and skill or technological upgrading. Under-paid labour allows for inefficient producers and obsolete technologies to survive. Firms become stuck in a low-level productivity trap from which they have little incentive to escape. This is a form of ‘Gresham’s Law,’ whereby inadequate labour standards drive out good. The discipline imposed on all firms due to negotiated industry-wide wage increases forces all of them to innovate and become more efficient.
Need for wide-ranging policy shifts
Of course, industry-wide bargaining alone cannot solve all the wage inequity or wage stagnation problems. Instead, it must be part of a broader suite of policy measures to provide comprehensive support for greater equality and inclusive prosperity.
For instance, the next government should also address the system that produces soaring executive pay at the expense of workers. The annual CEO pay survey shows a drastic jump of 24% during the pandemic, with annual bonuses soaring by 67%, the highest increase in recent records, while workers suffer actual income losses.
A lower marginal tax rate is one incentive for the executives to pay themselves heftily, but tax cuts do not boost growth or employment. Share options for CEOs, which encourage job cuts and discourage reinvestment, also must be reined in.
If anything is causing vulnerability in the Australian economy, it is the growing economic imbalance between self-serving executive compensation and stagnant wages for the rest of the population.
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