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Australia Needs an Honest Conversation about Unemployment & the Economy

Every so often I want to pull out my eyeballs and throw them at the media. No, at society. At a society that demonises unemployment as a personal failure, but at the same time does not understand the structural integrity of the economy being underpinned by a need for job scarcity. Australia demands about 5 per cent of our labour market must be unemployed in any given week at a participation rate currently around 66 per cent. And government will take measures to ensure that happens. But nobody is having that conversation outside economics. Certainly not in politics.

The Scarcity of Labour and Inflation

Enter the economic concepts of the Full Employment Rate of Unemployment and the non-accelerating inflation rate of unemployment. In short, employment and inflation are linked. And inflation is controlled using the scarcity of labour (aka jobs). In that relationship we choose a full employment rate of unemployment to be around 5 per cent; this calculates to approximately 700,000 job seeking Australians that we would rather, as an economy, weren’t able to get a job in the given fortnight.

Here’s the idea in a nutshell. If too many people get work then the scarcity of labour falls to a point that recruiters would need to offer higher wages to attract employees. The market power would be in the hands of the workers. This means the companies would have to charge more for their products and services to cover those higher wages. In turn, the rising cost of products and services to those workers increases and they would demand higher wages as their standard of living declined. Again, this leads to a spiral of price rises and resulting wage rises. Spiraling inflation.

So get over the idea that everybody should have a job. We, Australia, do not want that to happen. It’s designed into the system. There is an unemployment rate around 5 per cent that we want to exist to protect our economy from overheating. Employment is defined as 1 hour work or more in the given week for someone actively seeking and available to work in the given week. The unemployment number is represented as a percentage of the labour force. The underemployment rate (people with work but not enough work) is over 8 per cent of the labour force.

It should be obvious in that explanation that government also does not want wages rising beyond a minimum level. But that’s another conversation.

The Economic Lever of Interest Rates

The interest rate is an economic lever. If too many people gain employment (thereby reducing job scarcity and forcing wages and prices higher), overheating the economy, then interest rates are increased to slow down access to capital that enables economic growth. We don’t want our economy to grow too fast or too slow. Think of interest rates as a brake lever on a train… you control the economy with job scarcity and an inflation lever. It’s a bit of a wing and a prayer thing. If your train goes too fast, you slow it down with your lever. Therefore, if too many people are getting jobs because there’s too much access to capital in our society; we increase interest rates, remove the access to capital, slowing down the economy and employment. This prevents inflation (because, as explained, higher wages create higher costs of products and services that can potentially spiral out of control).

Propaganda & the Waste in Centrelink Policing

Now, explain to me why we have a constant demonisation of the unemployed in this economic reality of a full employment rate of unemployment. If it’s a government macroeconomic decision to control job scarcity and inflation?

The big waste of money in the unemployment space aren’t hangers-on and society’s leeches holding the hard workers of Australia back from greater prosperity. The big waste is the massive infrastructure we call Centrelink, specifically when it comes to policing the unemployed. Invented jobs for unemployed people to get paid policing the unemployed people. Remove that infrastructure and you might save a few billion dollars right out of the gate.

Today’s Centrelink is the smoke and mirrors result of decades of anti-poor propaganda disseminated by politicians and echoed by the unthinking. Street hustler 101… demonisation of the unemployed is the left hand distraction that stops us focusing on the real perks and free-riders in our economy.

Finally, the Role of Unemployment in our Economy

A British guy I knew who did his economics PhD in unemployment explained something one day that you might find interesting. Unemployed people spend 99.9% of the money passed to them in the given fortnight. Try running our economy without that ongoing stimulus. They buy food, newspapers, pay rent, power, medicine, clothes. And, yes, sometimes they smoke choof and drink a beer. It circulates. It keeps all those small businesses in our society thriving. And how much of our economy are small to medium businesses? Two thirds of Australian businesses are non-employing; over 70% of employing businesses have 1-4 employees.

Using the employment measure of small business, there were 2,065,523 small businesses in Australia employing less than 19 people, accounting for 97 per cent of all Australian businesses by employee size. There were 51,000 medium sized businesses, employing 20 to 199 employees, which is 2.4 per cent of all firms. Only 3,700 Australian firms employed over 200 people in 2015, meaning that large businesses account for only 0.2 per cent of all Australian businesses.Australian Small Business and Family Enterprise Ombudsman

Unemployment is not a black dog of our economy dragging us down; unemployment is an important government macroeconomic tool. Take away the distribution of cash every fortnight to the unemployed and our economy would stall and stagnate. Welfare benefits hand an ongoing economic stimulus that contributes indirectly to GDP (Gross Domestic Product) by keeping all those small businesses ticking over and making money. More customers, more products and services, and the economy grows. Imagine running your business with 700,000 less customers in the market for your goods and services.

There is a very good argument for increasing the unemployment benefits to inject more cash into our economy. But there you go, most people will only hear gifts to the undeserving. In reality, the unemployed and unemployment benefits are an integral part of our economic success. We could be more generous with welfare and prosper as a consequence.

This is the uncomfortable conversation around unemployment I’d like to see in our society. Instead of the propaganda. The bullshittery of vested interests saying look the other way while I fleece the coffers and scoff the lobster. Perhaps if we all understood this better we would be a Fair Go country again. Or at least a better society. Certainly, a more humane and educated people.

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About the Author

Steven Clark Steven Clark - the stand up guy on this site

My name is Steven Clark (aka nortypig) and I live in Southern Tasmania. I have an MBA (Specialisation) and a Bachelor of Computing from the University of Tasmania. I'm a photographer making pictures with film. A web developer for money. A business consultant for fun. A journalist on paper. Dreams of owning the World. Idea champion. Paradox. Life partner to Megan.

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