Australia’s labour market has a demand problem

New research from Anglicare shows that Australia has eight disadvantaged jobseekers for every entry-level job position:

Across the nation, there are eight entry-level jobseekers for every appropriate position. In Tasmania it is 21 jobseekers per job.

“In this downturn, people who need the most help to find work are being left behind,” Anglicare Australia executive director Kasy Chambers said in the report.

“There aren’t enough jobs at their skill level to meet demand in any part of the country.”

If you include all jobseekers — including newly unemployed people with skills and experience who may be looking for work at a level below what they have previously held — there are as many as 106 jobseekers for every entry-level position.

This highlights the key problem for Australia’s labour market: a lack of demand.

With the private sector economy having contracted at an unprecedented rate:

There is now a gaping output gap and there simply aren’t enough jobs to go around.

Sadly, the 2020 Federal Budget does little to remedy the situation.

For example, most of the extra disposable income from bringing forward the Stage 2 tax cuts will likely be saved, thereby it won’t significantly boost aggregate demand.

Ditto the Business Investment Incentives. Given the gaping output gap and oversupply everywhere, most businesses are unlikely to ramp-up investment. To the extent that some businesses do, it will likely be in labour-saving technologies which, while good for productivity, will drive up unemployment even further.

This brings me to the Morrison Government’s other signature policy – the JobMaker wage subsidy. While this program could help at the margins, it doesn’t boost the overall demand for workers and also incentivises employers to substitute a pre-existing employee for a part-time subsidised worker.

Moreover, empirical evidence on these types of wage subsidy programs shows that employers will generally substitute a worker receiving a wage subsidy for another worker who would otherwise have been hired.

In short, Australia’s economy and labour market faces a demand problem. Therefore, the 2020 Budget should have included measures that boost income support to the unemployed (e.g. by permanently lifting JobSeeker), as well as provided traditional Keynesian stimulus via big investments in public building works and infrastructure, among other things.

Because of these oversights, the Australian economy will face a longer and deeper downturn than necessary with stubbornly high real unemployment, widespread business failures, and increased homelessness.

Leith van Onselen

Comments

  1. Can I politely point out that a large chunk of ‘demand’ was pulled forward by this country’s citizens assuming a gargantuan amount of debt — very nearly the highest debt levels on the planet.

    That’s what debt does: it brings demand forward.

    If you want to solve the demand problem, solve the debt problem first.

    If we don’t, we’ll continue to have a demand problem for years. This is why endless rounds of ‘stimulus’ for the next decade or more is a cert.

    • Jumping jack flash

      THIS!

      Either fix the debt problem by mitigating the deflation caused by the interest redirected out of the real economy for the nonproductive debt, or give the debt can an almighty kick to hopefully get it self-sustaining again.

      20 years of back to back interest rate cuts only achieved one brief period of self-sustainability, which freaked everyone out back in 2007 and rates were raised… A very stupid move. But, we probably can’t be too harsh because not too many people knew what was actually going on back then, and what their New Economy of debt was actually capable of.

      The cat is well and truly out of the bag now though, so I don’t know why everyone is still so covert about it.

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