Traditionally, the US political economy is much harder on workers across the business cycle than the Australian.
US business cycles end with mass headcount cuts, whereas Australian tend towards an informal kurzarbeit, a managed process of shared cuts in hours worked.
Thus Australian unemployment has not usually risen as much US over the cycle.
Not this time.
The US has a structural shortage of five million workers post-COVID, owing to excess deaths, retirements, and reversed immigration flows. Morgan Stanley explores the implications of such:
1. The historical relationship between payroll gains and GDP growth (Okun’s Law) suggests that for current GDP levels (2Q23), payrolls should be 300k above the current level. In other words, the economy is understaffed, mostly in the services industry and public sector.
2. We think firms are likely to hold on to their workers to a greater extent than in prior soft patches, staving off a significant rise in layoffs. The recent decrease in hours per worker and flat layoffs align with our view.
3. Sticky low unemployment primarily results from a downward shift in the Beveridge Curve post-COVID. This change reflects an increase in labor markets’ efficiency possibly due to: (i) declining dislocations after COVID,and (ii) more search intensity as firms focus on “need-to-have” open positions while canceling the “nice-to-haves”.
4. Higher labor force participation will likely cause additional slack, helping to ease inflationary pressures in core services ex-shelter CPI components.
5. Positive real wage growth ahead will support demand, without accelerating inflation significantly. Our previous research shows that wage-price pass-through to core inflation is low and has been decreasing over time, especially for the goods and shelter components of the CPI.
Conversely, in Australia, our post-COVID labour shortages were temporary because the lockdowns eliminated less labour, and the Albanese Government has inundated the economy with cheap foreign labour. Thus, as the business cycle ends, we will see:
- An overstaffed economy requiring reduced hours worked and job losses as GDP per capita craters.
- Less labour hoarding and faster-falling wage gains from a much lower peak.
- Higher unemployment and underemployment as we revert to the pre-COVID lowflation period.
- Fading participation as conditions deteriorate and spare labour mounts.
- Negative real wage growth as greedflation proves much more sticky than wage gains.
Making things much worse across the cycle, the tight US labour market means the looming AI boom will deliver tremendous productivity and income gains to be shared by workers and capital in the US.
Whereas, in Australia, the disproductivity of a labour market devolving into herds of foreign slaves over automation will retard the deployment of AI and ensure any productivity gains accrue entirely to capital.
A woke Albo is the worst thing to happen to Australian workers in a very long time.
