Unemployment is a necessary evil?

The fact we have an economy that relies on about one in 20 of us being unemployed to remain stable suggests we haven’t yet reached the pinnacle of economic organisation, writes Michael Janda.

Unemployment is good.

I don’t personally think it is, but most economists do.

“That’s ridiculous,” I hear you say. “Isn’t the focus of economic policy to lower unemployment?”

That’s true, it is. But only so far.

The limit on how far is quaintly termed NAIRU – not the island where Australia offloads unfortunate asylum seekers, nor a former Indian prime minister, but the non-accelerating inflation rate of unemployment.

NAIRU is the level of unemployment in any particular economy at a given time where economists feel that wages and prices won’t start rising out of control.

Also often, quite inaccurately, termed “full employment”, NAIRU is currently guesstimated to be about 5 per cent in Australia.

Translated from the quaint technical acronym, this means that the Reserve Bank, the federal government (of either Liberal or Labor persuasion) and other policymakers want at least one-in-20 working age Australians out of work to ensure that wages and inflation don’t get out of hand.

And that 5 per cent figure is based on the Bureau of Statistics definition of work, where one hour will suffice to be employed, and where only those actively looking for, and able to immediately start, a job are considered unemployed.

The NAIRU is not a fixed percentage, so it may be that the prevalence of underemployment (currently at a record high 8.6 per cent – much higher than the 6.3 per cent unemployment rate) and increase in part-time, casual and insecure work is reducing it.

It may also be that policies such as wage subsidies, or better education and training to boost the productivity of each worker, may also reduce the NAIRU.

However, unless it can be cut down to levels near zero that merely reflect the transition periods of workers moving between jobs rather than long-term unemployment, there seems something fundamentally wrong with an economic system that currently requires large numbers of people fit for work, wanting to work and looking for work to be denied a job to keep it functioning smoothly.

Aside from the personal costs of unemployment – poverty, low self-esteem, lack of social interaction and more – and the social costs such as crime and disadvantage passed down through generations, it is clearly a massive waste of human resources.

A system that requires such waste for its stable functioning would seem not to be the most efficient economic system.

Not that I’m arguing that we’ve yet found a perfect system, or that one necessarily exists – indeed, we’ve tried a fair few and the one we have now seems to work better than most.

However, in the context of arguments by some that humans have reached the pinnacle of economic organisation, the human toll of NAIRU is, by itself, surely enough to indicate that we should keep looking for something better.

Michael Janda has been the ABC’s Online Business Reporter since 2009. View his full profile here.
Posted Mon 5 Jan 2015

 

– Featured Photograph: Mick Tsikas/AAP

Source photo

Leave a Reply

Your email address will not be published. Required fields are marked *

Next Post

LBJ's climate warning 50 years ago - do we have your attention yet?

Wed Feb 18 , 2015
An old saying in marketing and communications says: ‘Repeat it, and repeat it, and repeat it again. When you are tired of repeating it, people might just start to take notice’. […]