Friday, February 12, 2010

It's the stimulus, stupid. You can't spend $14 billion upgrading schools without employing people

Employing blokes

The stimulus has been credited with a surge in male employment that has pushed Australia's unemployment rate down to 5.3 per cent as the head of the Treasury has declared the financial crisis "behind us".

An extra 52,700 Australians found work in January, two-thirds of them male .

Since October an extra 123,000 Australians have found work, three quarters of them male .

"When men outnumber women so much it has to be an industry story," said Deutsche Bank economist Phil O'Donohue. "The building industry is the obvious candidate. Since mid last year almost 8000 primary schools have been building halls and computer labs and libraries with $14 billion from the Primary Schools for the 21st Century program."

"It looks as if in January with school about to return the tradies put on more blokes."

"It has to be the stimulus... Private non-residential construction is flat, private industry isn't investing outside the mining sector."
Victoria provided the lion's share of the new jobs creating 41,900 new jobs since October, half of them full-time. NSW by contrast created just 10,100; only 2,000 full-time.

The further plunge in unemployment from 5.5 per cent in December to 5.3 per cent in January pushed up the Australian dollar more than a cent to $US0.8874 as the money market doubled its bets on a March rate hike.

Coalition Treasury spokesman Joe Hockey called for an end to stimulus spending saying the big issue was no longer unemployment but interest rates.

"It’s time for the government to explain how spending money on school halls in 2012 is going to create jobs and help address the economic downturn in 2008," he said.

Treasurer Wayne Swan said were it not for the stimulus Australia would be in recession. "We celebrate that 52,700 Australians told their families in January they got a job. Nothing is more important to somebody’s security than the knowledge that they have a pay packet."

In a grilling before a Senate committee Treasury chief Ken Henry said the stimulus had been responsible for keeping or creating 210,000 jobs. Without them Australia's unemployment rate would be nearer 7.3 per cent.

He said what people called the global financial crisis had "passed".

"I think that's safe to say. There may be further adverse shocks, some significant for individual countries, but I don’t imagine shocks of the sort that would be globally significant and I certianly won’t be speculating about those sorts of possibilities," he told the committee.

Unemployment was worse than it looked because the hours worked had dropped. "If you wanted to translate our rate into what it would be if hours worked were higher you could probably add a couple of percentage points to it. That is instead of talking about 5.3 per cent, you might be talking about 7.3 per cent," he said.

Employment Minister Julia Gillard said despite the jobs growth there were 124,500 more Australians unemployed than were at the start of the global financial crisis.

"They are the Australians we want to support through the economic stimulus and through the economy so they get the benefits of work."

Published in today's SMH  and Age 

COLEBATCH: Garden state in blooming good shape

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. So who’s getting the jobs?

. How unemployment looks - now

. Wind back the stimulus? Where's the love?


carbonsink said...

Kohler: Aust stimulus 9% of GDP, biggest in the world.

The OECD puts the Australian stimulus package at 4.6 per cent of GDP in total – third largest behind the US and China.

In fact that seems to be a colossal underestimate of what the Rudd government is actually doing – it looks like the actual stimulus is double that figure, and what’s more there is at least a third of it still to be spent, possibly half.

The forward estimates surpluses in the 2008-09 budget brought down in May 2008 totalled $79.3 billion, spread over four years to 2011-12.

The 2009 Mid Year Economic and Fiscal Outlook last November contains deficits for the same years of $162.5 billion – a turnaround of $241.8 billion.

Of that figure, $143.1 billion is due to non-discretionary automatic stabilisers (mainly lower tax revenue), which leaves $95.7 billion in the discretionary fiscal stimulus bucket.

So whereas Kevin Rudd’s fiscal stimulus announcements in December 2008 ($10 billion) and February 2009 ($41 billion) do add up to 4.6 per cent of GDP, there is $44.7 billion of discretionary spending unaccounted for, taking the actual stimulus to 9 per cent – easily the world’s largest.

So Pete, is AK just writing something controversial to get some traffic to Biz Spectator, or is he onto something? I must say, I struggle with the concept of the RBA raising rates while the Govt is still pumping money into the economy, especially when unemployment is at 5.3%.

Peter Whiteford said...


I suspect that what he is talking about is the added effect of the automatic stabilisers, i.e. reduced tax revenue and higher spending on unemployment benefits and other transfer payments.

Have a look at and particularly Figure 3.1 which shows that the combined effect of the stimulus package and the automatic stabilisers is around 9% of GDP - but there are 9 countries with higher totals.

Particularly notable is Italy, which has had no fiscal stimulus, but has had a larger deterioration in its fiscal position than Australia.

There are also charts in the source cited that indicate that the estimated effect on GDP of the Australian stimulus package was greater than any other country, but we still have the best fiscal position of any of the countries included (look at figures 3.4 and 3.6)

carbonsink said...

No-one doubts Australia is in a better fiscal position than most other countries, but that still doesn't explain why we're pumping money into an economy with unemployment at 5.3% and the central bank well into its tightening cycle.

Look I know Joe is a bit of a buffoon, and the less said about Barnaby the better, but they have a point: Surely its time to cut back on the discretionary spending?

Andos said...

5.3% is too low for you? That's 627 thousand people.

How many people do you think need to be unemployed to keep your mortgage repayments low?

carbonsink said...

5.3% used to be considered "full employment". Unemployment never falls to zero. If you have unemployment at 5.3%, with low interest rates and a big fiscal stimulus you're going to hit capacity constraints pretty soon. Of the policy options available (cutting spending or raising rates) I think cutting spending is preferable.

P.S. I don't have mortgage repayments.

Chris of Adelaide said...

"5.3% used to be considered "full employment"" - by who and why and is that a good policy for our current and future prosperity?

From the end of WW2 to the early 70s unemployment in Australia averaged 2.0%. That is less than half what it is today. At the same time GDP grew steadily until 1907s oil price shocks.

Capacity constraints are a direct consequence of previous government decisions. Think cutting eduction funding. Think making it harder for the less well off to attend University. Think depressed labor markets due to an ideological obsession with surpluses.

It is the height of hypocrisy when our wealthy elites fearmonger incessantly about government spending then cry foul over skills-shortages. How dare the shortage of skilled workers we helped create use their leverage to demand better pay and entitlements!

Anonymous said...

According to MYEFO and Treasury commnets to Senate they consider 5% to be full employment.

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