A few remarks made by RBA assistant governor Christopher Kent this week suggest that joblessness could be a far greater issue than many expect.
Much of the rhetoric coming from the Reserve Bank recently has focused on two things: inflation and household indebtedness. When it comes to jobs, RBA governor Philip Lowe as made clear that the central bank is seeking to achieve the lowest rate of unemployment that can be sustained without inflation becoming an issue.
But inflation is an issue and it looks like unemployment is starting to become one too.
Addressing the Finance & Treasury Association in Sydney on Tuesday (13 August), RBA assistant governor of financial markets Christopher Kent expanded on the June and July rate cuts.
“The board noted that, although employment growth remained strong, there had been little inroad made into spare capacity in the labour market recently, with the unemployment rate having risen slightly,” he said.
“Financial market prices currently imply that the cash rate is expected to be reduced by a further 25 basis points later this year and then again in the first half of next year.”
Economists are becoming increasingly concerned about this “spare capacity” in the Australian labour market, something that the RBA governor spoke about extensively in a 20 June speech in Adelaide. Here he discusses the rising levels of underemployment in Australia, where workers would like to work more hours but are unable to secure full-time work.
Deloitte Access Economics director Mike Thomas told delegates at the 19th Annual Wraps, Platforms and Masterfunds Conference in the Hunter Valley last week that the issue comes down to demographics.
“The unemployment rate is hovering around what used to be considered full employment. But underemployment is higher than it has ever been,” Mr Thomas said.
“Even though the unemployment rate is down, there are lots of people, young workers especially in that under 35 bracket who want to work more hours and can’t get them. The other area where there is a stack of spare labour is in older workers between 55 and 64. They want more hours.
“In the younger group it is trying to make that transition from training into the workforce that is proving difficult. For the older group it is the retraining story and trying to keep up with changes in the work place. That’s where the two pockets of underemployed labour is, which is keeping wages down.”
The RBA has also found that workers have reduced powers in the workplace when it comes to negotiating pay rises and more hours. Workers are also less confident about their job security at a time of major technological disruption.
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...