Booming jobs, high unemployment, low wages

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By Leith van Onselen

The ABC’s Stephen Letts is the latest to question why unemployment and wages growth has stubbornly refused to budge in the face of “booming” jobs growth:

The jobs market continues to be one of the more perplexing points of contention in the Australian economy.

Jobs growth has soared — around 400,000 new jobs created in the past year — while wages growth and the unemployment keep plodding along the same uninspired path.

A new set of jobs numbers out this week are not expected to change perceptions.

The consensus view is another 20,000 or so new jobs and the unemployment rate will be stuck around 5.5 per cent.

The year kicked off with a solid 16,000 jobs in January. It was more than double that in December.

Unemployment ticked down, but that was largely due to a fall in the number of people looking for work, or the so-called participation rate…

An unemployment rate stuck in the mid-5 per cent rut along with elevated rates of underemployment — workers who would like, and are available to work, additional hours — is behind the well documented weakness in nominal wage growth…

“There are a few reasons for it [weak wage growth], but the primary one is that there is plenty of spare capacity in the labour market which reduces the ability of employees to negotiate pay rises,” CBA’s Michael Blythe said…

It becomes even more problematic when you consider a lot of the heavy lifting is done by government spending, not the private sector.

“From a growth rate perspective, public sector employment rose by a whopping 7.6 per cent per annum while private sector employment was up by 2.6 per cent,” Mr Blythe said.

“Clearly, the headline employment growth figures have been flattered by growth in public sector jobs”…

“It is no wonder that households are feeling the pinch,” Mr Blythe said.

It is that “pinch” that is part of the current vicious cycle which starts with unemployment and underemployment not going down and ends with an economy spluttering along well below its potential.

The week’s jobs numbers are unlikely to break out of that unhappy loop.

It’s called the ‘rat-wheel’ economy, Stephen. That is, an economy where strong jobs growth is absorbed by the never-ending flood of labour via mass immigration, thus ensuring ‘spare capacity’ forever remains.

Sure, the economy added some 400,000 jobs last year, thanks largely to the boom in public spending, but it also added some 388,000 people, primarily via mass immigration. So it was largely a wash.

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ABC’s Carrington Clarke summed-up the situation perfectly late last year:

“When you have a population growing that fast, you need to create a lot of jobs just to keep up…

Simply by letting more people in, you bump up the overall size of the economy…

However, it doesn’t necessarily make life any better for the people who live in the country and arguably, makes it a lot worse.

This is more people competing for jobs and housing, pushing down wages and pushing up property prices…”

Exactly. Australia is running faster just to stand still.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.