Gareth Hutchens from the ABC has been writing some cracking stories about structural unemployment. He’s exposing the shame and scandal of why we have so many people unemployed and under employed – even before Covid. I’ve edited for space. The full story is here.
In the 1970s, Australia’s economy was hit by “stagflation” – stagnant demand and persistently high inflation, with high and rising unemployment – and Australia’s policymakers couldn’t work out how to fix it.
So they dumped the full employment policy of the post-war years that had kept the unemployment rate below 2 per cent for over 25 years, and which helped Australia’s middle class to expand rapidly after World War II.
They replaced it with a different policy. The new model, built in the 1980s and early 1990s, deliberately allowed a much higher level of unemployment.
That higher level of unemployment was used as a policy tool to suppress wages and inflation. It’s the model we’re still living with.
But when policymakers turned their backs on the old full employment model, they threw the baby out with the bathwater.
The positive spillovers from having a fully employed economy? Gone. The cultural and economic benefits of having a public good like the Commonwealth Employment Service? Gone.
Something else happened, too. Policymakers lost faith in the capacity for fiscal policy (the government’s taxing and spending powers) to manage the business cycle.
They gave that job to monetary policy (the central bank’s use of interest rates to influence economic activity). The shift to the new model ushered in a new era.
And after the horror of the early 1990s recession, the economy eventually grew for a record 29 uninterrupted years. But it caused long-term unemployment. Casualisation and precarious work have spread through the economy.
Wealth inequality soared and in recent years, wages growth has whittled down to nothing, while the share of national income going to workers has hit record lows.