The dreaded NAIRU is still about! I was thinking – rather optimistically – that it would just disappear from whence it came! But sorry to disappoint. Some economists just won’t learn. Yesterday the ABS released the latest data from the Australia Treasury Model (TRYM) database. You can get it here. Among other things of great interest that you can find in that database, is the Treasury TRYM model’s estimates of the so-called NAIRU. Sounds scary. Well, it stands for the the Non-Accelerating Inflation Rate of Unemployment and has a central place in neo-liberal mythology. The NAIRU is an important component of the TRYM model and influences the way it produces economic outcomes and policy simulations. So how much reliance should we place on this important component of the policy making process. Answer: not much!. My conclusion: any model that relies on a NAIRU is a crock!
In the last few weeks gardening has entered the macroeconomic discourse again. All over the place – apparently – little green shoots are emerging which bode well for the future. But are there any actual signs? Recent data releases from the US and today’s Index of Economic Activity in Australia suggest that the green shoots are still somewhat subterrainean in inclination. The latest data confirms the message that last week’s Labour Force data sent very loudly – the product and labour markets are now starting to align in a very ugly way and much more fertiliser (organic) is needed in the form of government stimulus …. sorry to repeat it, but, preferably in the form of direct job creation.
The unemployed cannot find jobs that are not there! I have written about that topic extensively. So today I have been examining what vacancy data is telling us about the labour market. The relationship between unfilled job vacancies and unemployment (the so-called UV ratio) is well entrenched in economics. The UV ratio is a good indicator of the state of the labour market because it tells us (approximately) how many people there are for each unfilled job. Of-course, it understates the degree of slack because it fails to include underemployment. Anyway, you can also determine whether there are significant supply-side issues going on which would require supply-side policies. As you will see in the following graphs – it is all demand side! Which tells us, yet again, that job creation is required.
I am currently researching (again) long-term unemployment and how it behaves. Neo-liberal economists typically consider long term unemployment to be highly obdurate in relation to the business cycle and thus a primary constraint on a person’s chances of getting a job. This was the assertion that underpinned the neo-liberal approach to labour market policy and which in Australia culminated in the privatisation of the public employment service and the establishment of the (failed) Job Network. It is one of the most disappointing aspects of current federal policy that the Government is intent of keeping this ideologically-driven supply-side approach going. While the Prime Minister continually claims that he wants to introduce evidence-based policy, his decision to retain the supply side neo-liberal approach to labour market policy fails the facts test outright.
The recent policy decisions of the Federal government appears to be in line with those of the previous (insidious) regime when it comes to the unemployed. In expansion packages which have so far totalled more than $A50 billion, there has been an allocation of $650 million for a Jobs Plan and renewed funding for the privatised and failed Jobs Network. You might think that odd given that the unemployed bear the brunt of any economic downturn. I find it obscene. And with the May budget coming up, there will be increasing claims that there is “not enough fiscal room” to do anything more. After all, the Federal Employment Minister has told us “there is no quick fix” despite knowing full well they have the capacity to offer minimum wage public sector jobs to anyone who wanted one. We might take lessons from more enlightened
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.
See how you go with the following five questions. Your results are only known to you and no records are retained.
Yesterday’s labour force data which showed how quickly the labour market is deteriorating, brought some extraordinary reactions from the Federal government. So far their response suggests to me that they have no coherent plan to meet the crisis and are trying to operate within the same labour market policy framework that the previous government installed. That framework failed to achieve full employment when the economy was growing and will do nothing at all for a labour market that is now in freefall. A major shift in policy is needed. More worrying is that the labour force data shows that the teenage segment is in terrible shape. That requires immediate policy action. But the responses I have heard overnight suggest very little will be done because the Employment Minister seems to want us to believe that “there is no quick fix”. That claim is of-course nonsense. The costs of the downturn could be considerably lessened if the Government abandoned neo-liberalism and demonstrated some leadership through direct job creation.
I did an extended interview the other day for BTalk which is a CBS on-line business news site on whether working less hours was the solution the rising unemployment. You will guess right that I thought that it was not an answer and only disadvantaged workers further.
Despite all of us commentators clutching at straws in recent weeks looking for good messages in each new data release (for example, yesterday’s consumer sentiment data), today’s ABS Labour Force data confirms the worst. The Australian labour market is contracting fast and is now outstripping the rate at which the US labour market is deteriorating. The overall unemployment rate rose a further 0.5 per cent in March to 5.7 per cent, meaning it has risen 1.2 per cent in the first three months of this year. The dream states of Western Australia and Queensland, which had enjoyed the commodities boom bounty while the rest of us slowed, are now looking significantly sick. The speed of this decline is now faster than the early stages of the 1982 and 1991 recessions. It is time the Government ramped up its new Jobs Plan to really stop this before it escalates further.
In this blog, we consider the debt question (again) with streamlined language to ensure it is accessible to all who choose to read it. Yesterday I asked whether future taxes will be higher, which is now being claimed by conservatives who are running a relentless political campaign against the demise of neo-liberalism. Today, the partner claim: will we be paying higher interest rates because of the borrowing? Answer: no! Whether interest rates are higher or lower in the future will have little to do with the movements in today’s budget balance. It is possible that voluntary arrangements set in place by the Australian government in the past will drive interest rates up. But if that occurs it will because the Government wants higher interest rates rather than having anything to do with the net spending that is being engaged in to stop employment growth falling off the cliff. So time to discuss bond markets a bit.