Australia’s long period of full employment that
followed World War 2 came to an end in 1975 when the federal government
abandoned its responsibility for maintaining demand at levels sufficient to
ensure that employment growth absorbed the growing labour force.
Subsequent discretionary monetary and fiscal policy
decisions have meant that the Australian economy, like most others, has been
prevented from generating enough jobs to employ the available labour.
The same policy decisions have also not allowed the
economy to generate enough hours of work to match the preferences of the
employed. The result has been persistently high unemployment and rising
levels of underemployment. In 1972 there were more job vacancies than
unemployed. Now there are around 8 unemployed for every job vacancy. The
unemployed cannot search for jobs that are not there!
Despite the long period of robust economic growth since
the early 1990s recession, the Australian economy did not remotely approach
full employment. In the last four economic cycles low point unemployment
rates have been 4.6 per cent (June 1976), 5.5 per cent (June 1981), 5.6 per
cent (November 1989) and then 6.0 percent in September 2000.
The low point unemployment has steadily ratcheted upwards
over successive cycles. Despite one of the stronger growth rates in the
1990s among OECD economies, the unemployment trend remains positive. The
problem is even worse when one broadens the measure of labour wastage.
In May 2002, the official unemployment rate was 6.3 per
cent. The labour market indicators developed by the Centre of Full
Employment and Equity (CofFEE) at the University of Newcastle show that if
estimated hidden unemployment (workers who want work but are not actively
looking) is included the rate of labour underutilisation jumps to 8.6 per
cent. Including the underemployed (part-time employees who desire more hours
of work but cannot find them) pushes the wastage rate to 12.5 per cent.
The cumulative costs in terms of foregone output and the
social malaise related to unemployment are huge and dwarf the costs of
alleged microeconomic inefficiency.
Accompanying the persistently high unemployment in most
countries has been increasing levels of economic inequality. This has
manifested in terms of declining employment opportunities for the least
skilled and a wider dispersion of earnings.
While unemployment remains the major cause of poverty the
new problem is that growth no longer seems to be associated with improved
equity. The combination of strong growth, persistent labour underutilisation
and rising economic inequality in the 1990s has overturned the received
wisdom. Economic growth had until the mid-1970s provided upgrading bonuses
which reduced income inequality (and poverty rates). These bonuses were in
the form of productivity improvements, increased working time and labour
force participation rates, occupational upgrading, and rising average
earnings for the most disadvantaged in the labour market.
The considerable labour market deregulation and
microeconomic reform since the late 1980s has not only created job losses
overall but has also exacerbated inequality. More fractional employment
opportunities with less earnings security are now being forced onto the
The indicators of poverty in Australia have shifted as a
result. In the 1970s, the main group at risk was the aged without home
ownership. Now the youth, the unemployed, the underemployed and the low-paid
service sector workers are the groups at risk. Increasing numbers of older
workers are also induced into premature retirement by disability and other
pensions as a consequence of the lack of available work.
Economists offer several explanations to link joblessness
to the rising inequality. First, technological change has been biased
towards higher skilled workers. There is some truth in this but it does not
explain the large shifts away from unskilled job opportunities. Second,
increased competition through trade from low wage countries in Asia has led
to declines in manufacturing in the older industrialised nations. While
valid, the shift against the unskilled has also occurred in the non-traded
services sector. Third, significant changes have occurred in the industrial
relations and wage determination machinery that have disadvantaged the lower
paid workers. The growth in individual agreements in Australia has
disadvantaged full-time employees who can earn higher mean and median wages
with correspondingly less inequality under collective agreements. Further,
employees receiving awards only are subject to relatively low wages, as
compared to other employees in the same occupation or industry. Finally,
labour market changes referred to as ‘bumping down’ whereby as job
opportunities for lower skilled workers shrink and more skilled workers
enter the labour force the less qualified are driven out of traditional
employment areas by the more skilled employees.
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