Chronic Unemployment a Consequence of Deliberate Economic Policies

There is a contradiction between Australian macroeconomic policy—which deliberately maintains unemployment at 5% or higher—and a culture that blames unemployed people for their own unemployment and hardships.

New research from the Centre for Future Work shows that there is no statistical evidence for the long-held assumption that if unemployment falls below its so-called “natural” or non-accelerating inflation rate (the NAIRU)—currently thought to be around 5% unemployment—that inflation and wages will grow uncontrollably. The report concludes that Australia’s controversial NAIRU concept and it’s use in economic policy should be abandoned.

Key Findings:

·         Australian macroeconomic policy maintains elevated unemployment in order to restrain wage growth and inflation, this is known as the non-accelerating inflation rate of unemployment (NAIRU).

·         There are around 3 million Australians who would like to work, or more work, but can’t: that’s more than four times higher than the official unemployment estimate.

·         The economic benefits of reducing unemployment are enormous. Every one-percentage point reduction in unemployment results in 134,000 new jobs, $10 billion in additional output, and billions of dollars in revenue for governments.

·         Monetary and fiscal policy should aim to steadily reduce unemployment to as low as possible, rather than targeting a certain minimum unemployment rate.

“In Australia, we blame the unemployed for their supposed lack of skills and motivation but at the same time, use macroeconomic policy to stop unemployment getting ‘too low’ – it’s an enormous contradiction,” says David Richardson, senior research fellow at The Australia Institute.

“Record-low wages growth, and Australia’s generally sluggish economic performance, make the need for a change in policy direction all the more urgent.

“It is time for a fundamental rethink of Australian macroeconomic policy, which should instead be focused on restoring genuine full employment as the top priority.

“Since chronic unemployment is the outcome of deliberate policy, the least society can do is fairly compensate those who have been hurt by this policy – raising Newstart would be a start.” 

The full report: ‘Tolerate Unemployment, but Blame the Unemployed: The Contradictions of NAIRU Policy-Making in Australia’ by David Richardson, senior research fellow at the Australia Institute, can be downloaded below and is available here.

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