Australia’s economic recovery from the pandemic has exceeded almost everybody’s expectations, with the unemployment rate falling from a peak of 7.5 per cent in July to 5.6 per cent in March.
The jobless rate is now just 0.5 points higher than it was before the pandemic, but Labor says the government must set its sights much higher than a return to pre-COVID conditions.
Treasurer Josh Frydenberg has said the main aim of the federal budget on Tuesday will be to drive down unemployment comfortably below 5 per cent.
But although that is a respectable goal, and much better than attempting to repair the budget while unemployment is still in the fives, shadow treasurer Jim Chalmers says it fails to account for the more than one million Australians who have jobs but cannot get enough hours.
“It’s not just the unemployment rate that matters. There’s a lot of people who are working but can’t find enough hours to support their loved ones,” Dr Chalmers told ABC’s Insiders.
“So any jobs policy, if we’re looking for that growth in wages, which has been more or less absent over the past eight years of this Coalition government, we need to address unemployment, but we also need to address underemployment. That’s important too.”
Underemployment measures the proportion of working-age Australians who have jobs but would like to work more hours.
ABS labour force data shows almost 1.1 million Australians, or 7.9 per cent of the workforce, were classified as underemployed in March.
But while economists agree with Dr Chalmers that underemployment has dragged down wages growth in recent years, they often disagree over which policies should be used to address it.
University of Melbourne economics professor Jeff Borland said unemployment and underemployment were two sides of the same coin, and would both respond to government policies aimed at boosting aggregate demand and employment growth.
“I don’t see that we need special policies for underemployment versus unemployment,” Professor Borland told The New Daily.
“When you have an excess of people wanting to work versus the number of jobs available, that lets employers push the conditions of jobs towards the type of conditions they want, rather than the type of conditions workers would like,” Professor Borland said.
“Improvements in job conditions like wage growth, you buy that as well when you get the unemployment rate down, because you’re giving workers more bargaining power.”
Professor Borland said it would be unreasonable to criticise the budget for not specifically addressing the shift towards casual and contract work over the years – even though he said it presented several problems – as that would require changes to the industrial relations system.
University of Queensland economics professor John Quiggin, meanwhile, also said the underemployment rate would fall in step with declines in the jobless rate if the government kept spending.
But he said fiscal stimulus alone was “unlikely to be a complete solution” to the persistent problem of underemployment.
“Because, if you look back at the data before the pandemic, you see underemployment rising steadily, [while] unemployment bounced around 5 to 6 per cent for a long time,” Professor Quiggin said.
“So that certainly suggests that there’s a more fundamental problem there that is not just a question of inadequate demand.”
Professor Quiggin said the federal government should strengthen unfair dismissal laws and unwind reforms that made it easier for employers to classify employees as contractors.
But, again, this would require legislative changes and is not something we can expect to see in the budget.
And in the eyes of Blueprint Institute chief economist Steven Hamilton, it’s unclear if industrial relations reforms would solve the problem.
Dr Hamilton said there was “no doubt” that the decline in unionism had reduced workers’ bargaining power, and that the government should aspire to do more than return the economy to where it was before the pandemic.
But he said he was sceptical of arguments suggesting the government had failed to regulate enough “to encourage worker power when we have some of the highest minimum wages on Earth”.
He told The New Daily he wanted to see more incentives to encourage businesses to invest, as higher business investment would boost productivity and consequently lead to stronger wages growth.
“When you make workers more expensive, you deter investment. And when you deter investment, employment goes down,” he said.
“So there’s a balance, and it’s not obvious to me that over the long run, you could credibly argue that our industrial relations regime should have been a lot more restrictive.”