Does low unemployment have to come with a high price?

More importantly, there is encouraging evidence from the experience of Scandinavian and smaller European countries that a strong "worker safety net" comprising relatively generous unemployment benefits, strong legal rights for trade unions and some basic worker protection regulations is compatible with low unemployment so long as governments:

• allow employers considerable freedom to hire and fire;
• impose stringent availability for work requirements as a condition for unemployment benefits; and
• invest heavily in human capital, e.g. through early childhood intervention, subsidized child care and other measures to increase the size of the labour force, education support, opportunities for life-long learning, provision of health care, public housing, public transport and high quality employment placement services, as well as active labour market programs (such as formal re-education or retraining, subsidised on-the-job training, geographical mobility incentives and, to a degree, job creation measures (including measures to foster a more entrepreneurial culture).

Of course, Australians would never put up with the high taxes borne by Scandinavians (although it is worth noting that the tax system in Denmark is structured to minimise the incidence of high marginal effective tax rates). But what we are discussing in Australia is the marginal direction of future policies - should we be gradually heading further down the US libertarian route or towards the Nordic model?

To sum up: I reject the gloomy Howard Government proposition that low unemployment must necessarily be associated with higher inflation, rising interest rates and a retreat from decent safeguards for vulnerable workers. We do have a wider range of policy options than this proposition implies.