Yesterday afternoon I caught up with my good friend and former Treasury colleague Joe Branigan to chat about the upcoming Queensland election, and you can listen to our wide-ranging conversation via the player/link below.

Among other issues, we chatted about the Opposition’s proposed New Bradfield Scheme, it’s 5% jobless target, and the additional $600 million announced by the Premier for local governments if she wins re-election, a funding boost she announced at the LGAQ conference on the Gold Coast yesterday.

On the Opposition’s 5% unemployment rate target, in addition to his comments in our discussion yesterday, Joe provided me the following summary of his thoughts and the chart below.

Historically, Queensland has had a higher rate of unemployment than other states because of: (i) a combination of regionally based (disaggregated) labour markets and a relatively more pronounced boom/bust economic cycle (ie. resources and to a lesser extent tourism), and (ii) generally, Queensland has a higher participation rate than other states because of the net interstate migration effect. That is, people moving to Queensland are more likely to be of working age looking for work.

As a result, regional Queensland has a higher rate of frictional unemployment and structural unemployment compared to the big deep labour markets of Brisbane, Sydney and Melbourne. Since 2000, the average unemployment rate in Greater Brisbane has been 5.6% compared to 6.7% in the Rest of Queensland. That’s a difference of 1.1 percentage points. The overall average unemployment rate for Queensland since 2000 has been 6.2%.

Of course, in the middle of the once-in-a-century mining boom, the unemployment rate in regional Queensland reached a low of 3.2% by the end of phase 1 of the boom in late 2007. This was also during the Work Choices period of maximum labour market flexibility. However, regional unemployment rose sharply in 2008-09 and again after the end of the mining boom from 2012.

In terms of the LNP’s 5% unemployment rate target, there’s a big difference between a 5.9% unemployment rate, which I think is achievable by 2024, and a 5.0% unemployment rate, which in my view would be difficult to achieve for the reasons explained above outside of a booming economy (where it’s clearly possible to achieve a rate in the low 3’s). I suspect that, when the economy eventually returns to full capacity and is in equilibrium, the natural (or minimum) rate of unemployment possible in regional Queensland (under the current Fair Work Act legislation) is 6% to 6.5% and in Brisbane about 5%, with the combined rate for the whole of Queensland around 5.5% to 6%.

That said, policies that help to connect regional labour markets, especially regions immediately adjacent to SEQ, and policies that, in effect, lower the minimum wage hurdle that must be paid by employers (eg. by providing wage subsidies or subsidised training to low skilled workers) will help to drive down the natural rate of unemployment. These policies of course must be funded by the Queensland taxpayer. At the end of the day, despite all policy efforts, in my view Queensland’s overall natural rate of unemployment rate will continue to be a little higher than the more densely populated southern states.