The Queensland Branch of the Economic Society of Australia, of which I’m the Secretary, was delighted yesterday to host a speech by the Assistant Governor (Economic) of the Reserve Bank of Australia Christopher Kent on Adjustments in the Labour Market. The Assistant Governor presented the RBA’s thoughts on why unemployment has remained relatively stable at just over 6 per cent for the last twelve months, and has not increased as a result of the sub-trend growth Australia has experienced. He considered greater labour market flexibility, which has seen a reduction in wages growth, as an important factor. As economic conditions have moderated, wages growth has fallen and this has allowed for greater employment growth than otherwise. He also noted possible contributions from:
- the increasing importance of services in the economy – jobs which do not require as much capital per worker and hence provide less of a GDP boost through related investment, and
- a decline in the net number of immigrants arriving to seek work, particularly from New Zealand.
The Assistant Governor made a very interesting observation about the linkages between the Australian and New Zealand labour markets:
…there has also been a large decline in net immigration from New Zealand. Labour market conditions in New Zealand tightened at the same time that spare capacity in the Australian labour market increased. The reconstruction activity in Christchurch took off around the time that construction in Australia’s resource sector was winding down. Indeed, the key mining states of Queensland and Western Australia have seen the largest declines in net immigration.
Some issues I would have liked the Assistant Governor to discuss were trends in average hours worked and the composition of employment growth, which are of course related issues. What we have seen recently is a relatively high proportion of new jobs being part-time jobs (see chart below). This may help reconcile sub-trend GDP growth with an unemployment rate that has not worsened.