Australia’s Leading Economists Push for Lower Unemployment Targets, Challenging Official Estimates

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In a recent Economic Society of Australia survey, prominent economists state that Australia can sustain an unemployment rate of 3.75%, well under the Reserve Bank’s 4.25% estimate and the Treasury’s 4.5% projection. The poll involved 51 economists chosen by their peers.

The economists’ consensus, arriving ahead of an impending government employment white paper release and a potential directive from Treasurer Jim Chalmers for the Reserve Bank to clarify its official employment target.

“The concept was not helpful even in the short run, and certainly not in the long run because NAIRU kept changing depending on what else was happening in the domestic and global economy,” Former OECD official Adrian Blundell-Wignall said.

Of the 46 respondents willing to specify a numerical “full employment” range under the current policy framework, the average rate they identified was 3.75%. While the median response was slightly higher at 4%, the key takeaway remains the divergence from official estimates.

The sustained dip in Australia’s unemployment rate to 3.5% in mid-2022 and its subsequent stability has prompted economists to reconsider established benchmarks. 

Varying views on the non-accelerating inflation rate of unemployment (NAIRU) create complexity. Certain experts find NAIRU less useful in the current dynamic economic environment, given its susceptibility to shifts in both local and global conditions.

John Quiggin of the University of Queensland posits that full employment aligns job vacancies with unemployed individuals, implying the current 3.5% unemployment rate fits this view. Conversely, shifts in labor dynamics may render NAIRU less relevant due to evolving wage negotiations.

“A high-quality job-matching service would reduce unemployment and boost productivity because Australians would be matched to jobs for which they were best suited,” Labour market specialist Sue Richardson said.

As the government’s employment white paper is slated for release by September’s end, the economist community’s sentiment signals a call for more ambitious unemployment targets. 

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