The buzz-word at the moment in Australian government and policy circles is ‘hibernation’ – the government is hoping, that the economy can behave like a crocodile and find some ‘river bank’ and have a ‘good sleep’ until the pandemic is over, at which time, it will burst forth into a new growth phase and unless the virus mutates into something worse in the meantime then all will be well. Their policy interventions to date – while they have been like dragging a chain as their conservative instincts are being dragged very quickly into the demands and realities of real world macroeconomics, which is different to the nonsense that is taught by mainstream economists in our now depleted universities – have been crafted to ensure nothing important changes in a structural sense in our socio-economic lives. The problem is that the existing system, which they are hoping to put into hibernation for a while, is putrid to the core and needs major changes if we are to achieve a socio-ecological transformation. Remember the failings of neoliberalism? Remember climate change? Remember the poles melting? Remember the engineered cuts to workers who rely on penalty rates at weekends to maintain a sense of material prosperity? Remember the 13.7 per cent labour underutilisation rate? Remember the failed public transport and energy sectors, privatised and lacking in investment? Remember the financial markets that were exposed by the recent Royal Commission as corrupt, inefficient and downright dangerous to the our material and psychological prosperity? We don’t need a hibernation. We need the Government to take advantage of the dislocation that is currently occurring to make some basic changes. Like wiping out the gig economy. Like … read on. At present, the stimulus interventions, which are mostly about saving capitalism from itself. We should be demanding much more.
Major developments across the globe in monetary and fiscal policy keep happening on a daily basis at present. We are now hearing conservatives, who previously made careers out of claims that government deficits would send nations broke and more, appearing in the media now claiming “We need the state to bail out the entire nation”. Not too many economists are pushing the line that the market will deal with this crisis. They all the want the state to be front and centre as their own personal empires (income etc) becomes vulnerable. In a normal downturn there is not much sympathy for the most disadvantaged workers who bear the brunt of the unemployment. Now it is different. This crisis has the potential to wipe out the middle classes and the professional classes. And suddenly, who would have thought – the nation state is apparently back, all powerful and being begged to intervene. It is wake up time. Now no-one can be unclear about the fiscal capacity of the state. They now know that politicians who claim they don’t have enough money to do things were lying all along. They just didn’t want to do them. And when this health crisis was over we have to demand that the governments continue to lead the way financially and work out solutions to the socio-ecological climate crisis. No-one can say there is not enough funds to do whatever it takes. We all know now there are unlimited funds. The question must turn to the best way to use them. I also provide in this post some further estimates of the labour market disaster that Australia is facing as part of the development of my 10-point or something plan. It is all pretty confronting.
This post continues my thinking and analysis of the issues relating to the design of a fiscal intervention by the Australian government to ameliorate the damaging consequences of the coronavirus dislocation. Today, I delve a little bit back in history to provide some perspective on the current fiscal considerations. Further, I consider some of the problems already emerging in the policy response. And finally, I consider the lessons of history provide an important guide to the sort of interventions that the Australian government might usefully deploy. While the analysis is focused on Australia at present, the principles developed are portable across national boundaries. And the underlying Modern Monetary Theory (MMT) understanding is applicable everywhere there is a monetary system. This series of blog posts are building up to the production of my 10-point or something plan to address the crisis.
This is the ‘calm before the storm’ data release, although the calm is already pretty poor. It will get worse in months to come. The Australian Bureau of Statistics released of its latest data today (March 19, 2020) – Labour Force, Australia, February 2020 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for the start of 2020. The culprit in the coming months will be the coronavirus. But to date there is one culprit – the Australian government – which has been starving spending by its obsessive pursuit of a fiscal surplus. Employment growth was weak – 0.2 per cent and only outstripped the change in the labour force because participation fell by 0.1 points. As a consequence, unemployment fell by 26,400 as about that many workers exited the labour force. The fall in broad labour underutilisation from 13.9 per cent to 13.7 per cent is all due to the decline in participation. There were a total of 1,882.1 thousand workers either unemployed or underemployed. This is a deplorable result. My overall assessment is that the Australian labour market remains a considerable distance from full employment and that that distance is increasing. With the coronavirus about to dwarf everything, the prior need for a fiscal stimulus of around 2 per cent has changed to a fiscal stimulus requirement of several times that. There is clear room for some serious fiscal policy expansion at present and the Federal government should not delay any further.
On March 6, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2020 – which reveals a mixed picture – payroll employment growth has maintained its momentum since December, adding a further 273 thousand jobs and the unemployment rate fell marginally (although steady at the one-decimal point level). But the employment-population ratio fell by 0.1 points and the Broad labour underutilisation ratio (U-6) rose in January by 0.1 point to 7 per cent because there were more underemployed workers. Further, while real wages grew marginally, they lag behind labour productivity growth, which means there is scope for faster wages growth without triggering inflationary impulses. And the polarisation between high-pay and low-pay continues. So getting workers into paid employment is one thing. Paying them decent wages and providing them with secure jobs is another. I conclude that there is still scope for expansion even though the unemployment rates are at levels not seen since the 1960s.
The Australian Bureau of Statistics released of its latest data today (February 20, 2020) – Labour Force, Australia, January 2020 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for the start of 2020. The culprit – the Australian government – which is starving spending by its obsessive pursuit of a fiscal surplus. Employment growth was weak – 0.1 per cent and failed to keep pace with the underlying population growth. As a result, unemployment rose by 31 thousand persons and the unemployment rate rose by 0.2 points. Hours worked fell by 0.45 per cent. The only bright spot was the rise in full-time employment. The really worrying sign was the rise in underemployment – sharply up by 0.3 points to 8.6 per cent. The total labour underutilisation rate (unemployment plus underemployment) rose sharply to 13.9 per cent (up 0.5 points). There were a total of 1,905.2 thousand workers either unemployed or underemployed. This is a deplorable result. My overall assessment is that the Australian labour market remains a considerable distance from full employment and that that distance is increasing. This persistence in labour wastage indicates that the policy settings are too tight (biased to austerity) and deliberately reducing growth and income generation. There is clear room for some serious fiscal policy expansion at present. The Federal government is willfully undermining our economy with its irresponsible policy position.
On February 7, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2019 – which reveals a labour market was stronger in January by a considerable margin. Employment growth was robust and the participation rate rose by 0.2 points, which meant that the labour force change outstripped the net jobs added and unemployment rose as a consequence. But the employment-population ratio rose by 0.1 points. The Broad labour underutilisation ratio (U-6) remains high, and rose in January by 0.2 points, because there were more underemployed workers. An examination of the transition probabilities show that there is still strong growth into employment from those who were previously outside the labour force (in inactivity). The corresponding entry from outside the labour force into unemployment continues to fall. So the US labour market is absorbing new entrants straight into employment at increasing rates, which is a good sign. Overall, these appears to be excess capacity that can still be tapped if growth is strong enough. And while workers are still being absorbed into paid employment from outside the labour force is a sign of a strengthening labour market, as regular readers will know, I have documented the strong bias in the US to lower paid and precarious work. So getting workers into paid employment is one thing. Paying them decent wages and providing them with secure jobs is another.
The Australian Bureau of Statistics released of its latest data today (January 23, 2020) – Labour Force, Australia, December 2019 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for December 2020. The culprit – the Australian government – which is starving spending by its obsessive pursuit of a fiscal surplus. While unemployment fell by 0.1 points as a result of the employment growth, full-time employment also fell. So all the net job opportunities created were part-time which suggests that the quality of the overall employment mix has deteriorated. In the last six months, 74 per cent of net employment change has been in the part-time labour market. The broad labour underutilisation (unemployment plus underemployment) is at 13.4 per cent and has been stuck around that level for months. There is no dynamic – policy or otherwise – present, which will see this massive pool of available labour brought back into productive use anytime soon. That alone, is a indictment of failed policy. The unemployment rate is 0.6 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market. The Government is thus deliberately inducing deflationary tendencies into the economy and it is the workers that are bearing the brunt. My overall assessment is that the Australian labour market remains a considerable distance from full employment. This persistence in labour wastage indicates that the policy settings are too tight (biased to austerity) and deliberately reducing growth and income generation. There is clear room for some serious fiscal policy expansion at present. The Federal government is willfully undermining our economy with its irresponsible policy position. The impact of the bushfire crisis is likely to start being felt in next month’s figures.
When I was a relatively junior academic, one of the things I was interested in was how labour market prejudice is influenced by the state of the economic cycle. This was a period when Australia was undergoing a deep recession (early 1990s) and it was clear that hostility to immigrants had risen during this period. I was interested to see whether this was related. The interest goes back to my postgraduate days when I was studying labour economics and we considered labour market discrimination in some detail. Then, it was clear from the literature, that employers who used racial profiling to screen job candidates would lose out if the labour market was strong, but could indulge their negative views about different racial groups without loss in times of recession. But we didn’t do much work on supply-side attitudes – that is, what do other workers think? In more recent times, I have done detailed research projects with mental health professionals studying the best way to provide job opportunities for young people with episodic illnesses. The research revealed that one of the problems in placing these workers in conventional workplaces is the prejudice that other workers displayed towards them. We worked on ways to attenuate that resistance. So I have had a long record of studying and being interested in these matters. In this blog post, I consider whether prejudice is counter-cyclical. In the UK, for example, the British Social Attitudes survey found that in 2014, around a third of British people were racially prejudiced and this ratio spiked during the GFC. Clearly, there are many factors contributing to this rather distasteful result, but if austerity is exacerbating the underlying factors, then we have another reason to oppose it. This research also bears on the Brexit debate.
On January 10, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2019 – which reveals a labour market that that is still adding jobs, albeit at a slower rate than it was last year. The December performance showed that this moderation has not yet impacted on the unemployment rate – meaning that the employment growth is keeping pace with the underlying population growth with participation steady as indicated by the steady employment-population ratio. The Broad labour underutilisation ratio (U-6) remains high (but fell in December by 0.2 points) and the official unemployment is now hovering around levels not seen since the late 1960s. The U-6 indicator fell because underemployed workers are finding low-wage jobs in the service sector. Wages growth fell below the 3 per cent level for the first time since mid-2018 and real wages growth failed to match annual productivity growth. The worry is that the jobs being added represent a significant hollowing out of jobs in the median wage area (the so-called ‘middle-class’ jobs), which is reinforcing the polarisation in the income distribution and rising inequality. There is no hint, yet in the data, that a recession is coming any time soon or that that US labour market is at full employment despite the low unemployment rate.