Today I have been working with various datasets (labour costs, long-term unemployment) and this blog provides some interesting aspects of what is going on at present. The blog should also be seen in the context of a speech made yesterday by the Deputy Governor of the Reserve Bank of Australia (RBA), Ric Battellino (a NAIRU devotee) to the Committee for Economic Development of Australia in Perth. His presentation was intending to justify the interest rate hikes that the RBA has been pursuing this year. He continued to assert the RBA line that the Australian economy is running out of spare capacity and so interest rate hikes are necessary. This is in the context of a sharp rise in the exchange rate which is deflationary, actual falls in the inflation rate (and well within their “target band”), more than 12.5 per cent of available labour resources remaining idle and long-term unemployment rising because employment growth can barely keep pace with labour force growth. Macroeconomic policy in Australia is severely distorted at the moment because of the dominance of monetary policy and the obsessions about budget surpluses. In summary, the NAIRU mantra is preventing good macroeconomic policy and the growing pool of long-term unemployed are carrying the burden more than most.
There is an election campaign upon us in Australia now and one of the themes the government is developing by way of garnering credit for its policies is that Australia is operating at near full employment thanks to their economic policy framework. Nothing could be further from the truth – both that we are close to full employment and that their policy framework is moving us towards full employment. But this claim, which is repeated often these days and was a catchcry of the former conservative government as well, is a testament as to how successful the neo-liberal orthodoxy has perverted the meaning of signficant concepts (like full employment) and convinced the community that you can be near full employment and therefore there is no real problem to address when you have at least 12.2 per cent of your willing labour resources being wasted. It continually amazes me.
Today, Fair Work Australia, the new body that the incoming Labor government set up to replace the Fair Pay Commission, which the conservatives had crafted to cut real wages, released its first decision. The Minimum Wage Panel of FWA released its first Annual Wage Review under the Fair Work Act 2009 (Fair Work Act) and awarded minimum wage workers an additional $26 per week which amounted to a 4.8 per cent rise. With inflation running around 2.9, the decision provides for a real wage increase barely in line with productivity growth. The decision will apply over from July 1, 2010 to June 30, 2011. The decision does little to restore the real wage losses that low-paid workers have endured over the decade is it sufficient to restore the deterioration of low-pay outcomes relative to average earnings in the economy.
Today the Australian Bureau of Statistics released the Labour Price Index, Australia data for the March 2010 quarter and it shows that we are back on the path to suppressing real wages growth while productivity growth has picked up strongly. The ABS results show that the annualised growth to March 2010 was 2.9 per cent which was steady but down on the higher growth achieved during the expansion. This is barely keeping pace with inflation and well below labour productivity growth. In recent months, I have noted that commentators are increasing claiming that a wages breakout will lead to an inflation breakout unless the government quickly tightens fiscal policy. Today’s data provides more evidence that this argument is flawed and reflects ideological fervour rather than being grounded in the facts. Today, we also heard the speech made at the National Press Club by the Opposition Shadow Treasurer in response to last week’s Government’s budget. The conclusion from my analysis of that speech: there is no political choice in Australia. All the parties are lost in deficit hysteria and the rest of us will endure the costs.