Although labour demand is not quite keeping up with jobs, the labour market remains broadly stable. This is hardly surprising, given the strong fiscal and monetary stimulus. This is now expected to decrease gradually in the next few months.
Yet we are still left with very high rates of effective unemployment (which includes the under-employed and discouraged workers). For example, total unemployed has now reached about 11%, Newstart Allowance jobseekers are some 31.5% higher at 564,601, compared with last year, and young people (up to age 24) have hit almost 12 percent.
This is of concern to the Government, to people like Ross Gittins and Tim Colebatch and many of their readers but it is of no concern to the RBA (or people like Michael Stutchbury in the Australian) because they argue that the economy is not operating too far below capacity – and their forecasts of unemployment are very positive. In fact, the RBA is dead set to increase interest rates up a few notches (one of the tiny few central banks to do so).
This raises the issue which I discussed in a recent article (In Economic Papers March 2005). It is now raised by Mark Thoma: will there be a new normal for structural and frictional unemployment?
Should Australia expect an increase in structural unemployment (unemployment arising from technical change and changes in composition of output)?
The answer for Australia must be yes. If our exchange rate remains close to parity with the US dollar, there will surely require a big shift in resources required to assist the WA, Queensland, NT and SA mineral developments. Tourism, agriculture and manufacturing will have to stagnate.
This will require the Government to invest heavily in labour market programs such as in job training and encourage relocation geographically (further labour market deregulation is now largely dead). This will be a big challenge for the budget.