The policy framework in relation to unemployment is that both sides of the Government believe that those who are unemployed choose not to work. The economic framework we operate in is that a 4.9% unemployment rate is full employment. And when the unemployment rate starts to approach 4.5% the Government believes that there is too much demand in the economy. On this basis, the RBA will lift interest rates to create unemployment and reduce demand.
Look at the rhetoric in today's newspapers:
Australian Financial Review (afr.com May 10, 2011): Treasurer Wayne Swan is to force the long-term jobless to re-engage with employers or lose their benefits, as Labor braces for a fight over its budget deficits.
The Age newspaper: (theage.com.au May 10, 2011): Swan budget to offer carrot to long-term jobless: Michelle Grattan, "TONIGHT'S budget will crack down on the very long-term unemployed as part of its stick-and-carrot policies for getting people into work and working harder." "With participation a central theme of the budget, the government will also apply a ''stick'' to teenage mothers to try to keep them in education. It will give ''carrots'' in the form of more generous support for families with older teenagers who stay at school and bring forward tax relief for lower-income earners."
You will notice that Government policy is not to create jobs, but to prepare people for jobs. That is a massive difference in policy approach. And the media follows the political lead with stories like those above which vilify those who cannot get job.
It is based on the premise that the unemployed choose not to work and therefore need to be "encouraged" to take those jobs that are supposedly available. It is great if you are a skilled worker, but it is bad luck if you are unskilled.
The simple fact is that full time employment has shifted to part time employment over the past 24 years. Is this full employment?
You can see it in the aggregate hours worked figures. You may be employed, but it is not for the full week. Even though the headline rate has improved to 4.9%, the number of hours worked simply has not recovered from the slump of a few years ago. Household bills are paid by cashflow generated by the number of hours you work, not by the fact that you just have a job.
Tonight's budget will be based on a self imposed political constraint of trying to balance the budget by 2013. As Steve Keen says in the following article <click here>, the Government is filling "the airwaves with alarm about the level of government debt in Australia (which) is truly surreal". He makes the point that American government debt is 15 times larger than Australia's - relative to our respective GDPs.
Given Australia's relatively low debt position, is it really appropriate that the government throws an anchor out to slow the economy by reducing expenditure/increasing taxes to the tune of $55 Billion over the next few years. And who will help pay for the slowdown? Those on social welfare who are not taking jobs that are being offered to them. It is interesting to see the Labor Party are more conservative than the Conservatives, but that is the nature of politics today.