Wednesday, June 25, 2008

Labor abondons full employment

Labour market specialist and all-round macroeconomist Barry Hughes used to advise the former Treasurer Paul Keating and several state Labor Premiers.

He was part of the 1983 decision to float the Australian dollar, among many things other things. A few years before that he lectured and tutored me in economics.

He served on the Keating government's Working Nation inquiry which in the early 1990s recommended that Australia shoot for an unemployment rate as low as 5 per cent when such a thing seemed unattainable.

Today in the smh he argues that we shouldn't stop at 5 per cent. More disturbingly he makes a pretty strong case that is exactly what the officials who work for the Rudd Labor government are doing. Odd, eh?

Some extracts:
"Nearly 30 years ago I wrote a book called Exit Full Employment. In the 1960s and early 1970s unemployment had to fall to 2 per cent before it was considered full employment. But what about now? Leading bureaucrats have broken cover to declare something close to 5 per cent as the new full employment.

On June 13 the Reserve Bank boss, Glenn Stevens, came out of the closet to declare the economy "pretty fully employed".

The bank is coy about unemployment, except to admit numbers will rise, but Treasury is a little more forthcoming. The budget says measured unemployment will rise from February's 4 per cent to 4.75 per cent by June next year, and by a little further subsequently, although this has to be inferred from surrounding forecasts. Hidden unemployment is expected to rise appreciably, too, as discouraged workers drop out of the labour force.

Why is this happening to a resources-rich country?

At a political level it is strange to see John Howard, who last year contemplated unemployment in the threes, being more ambitious on jobs than the new Labor government. Perhaps Howard was economically naive, but are the Prime Minister, Kevin Rudd, and the Treasurer, Wayne Swan, aware of what their Government is projecting?"