Underemployment, confusing economics and a higher Australian dollar
In Australia: unemployment is 5.7 per cent; underemployment is 9 per cent and near a record high (6.6.16).
What’s more, there is a strong case that the underemployment problem is not merely a cyclical issue caused by weak economic growth, but structural, caused by a mismatch between the skills that are needed in the modern workplace and those available as reported by The Australian.
Whatever the cause, there is not much doubt that the labour market — both here and in the US — is in much worse shape than the unemployment rate suggests.
Does the same goes for the broader economy?
According to last week’s national accounts, Australian GDP grew 1.1 per cent in the quarter and output growth is running at a robust 3.1 per cent.
Yet real domestic income is barely growing at all, and wages growth is the lowest on record. Nominal GDP growth is less than real GDP, which is a rare event.
The contradictions in Australia are caused by the collapse in the terms of trade, so that output as measured by GDP no longer tells the real story of what’s going on in the economy — income matters more, just as underemployment matters more than unemployment.
Globally, the situation is both amplified and inexplicable. World trade has collapsed to the second lowest level since 1958 and manufacturing is in recession. Yet global GDP growth was 3.1 per cent in 2015 and the IMF predicts 3.4 per cent this year.
Inflation is low almost everywhere.
In the United States, core inflation is 1.6 per cent, up from 1.3 per cent last year, but some measures of inflation expectations are trending lower.
Much the same goes for Australia: above trend growth and low unemployment is coupled with record low wages growth and falling inflation.
Central banks, including the RBA, are not only out of ammunition, they’re out of ideas and what’s more they don’t know where to look — at GDP and unemployment as they always have, or national income, wages and underemployment.
Eight years after the financial crisis, the economy is a mass of contradictions and puzzles and as a result setting policy is very difficult.
How can the Fed hike again this month with a weak labour market? How can the Reserve Bank cut again this month with GDP at 3.1 per cent?
And that means the Aussie dollar is probably heading higher, not lower. To read more click here.
The 2016 Australian Long-Term Unemployment Conference; Finding Solutions will be held on the 1-2 December 2016, at the Mercure in Brisbane. To register for the Conference CLICK HERE.
The conference theme focuses on industry working together with employment agencies to create positive outcomes for Australia’s long-term unemployed.
Authors or organisations interested in presenting at the 2016 Australian Long-Term Unemployment Conference are invited to submit a 300 word abstract. To submit an abstract CLICK HERE.
Combining practical examples, theory, research and best practice this conference elevates the dialogue to include businesses, not-for-profits, Government agencies, human resource professionals, social security services and industrial relations advocates.