Many illusions performed in the name of creating jobs

How on earth can someone get to be Treasurer of our oldest state and yet say something as uncomprehending as that he has to freeze NSW public servants’ wages so he can use the money to create jobs? Fortunately, Victoria’s Treasurer is better educated.

So, for the benefit of Dominic Perrottet, Economics 101, lesson 1: every dollar that’s spent by governments, businesses, consumers or the most despised welfare recipient helps to create jobs. And don’t tell me that, as well as creating jobs directly, your pet project will also create jobs indirectly. That’s also true of every dollar spent.

In high school economics it’s called “the circular flow of income”. They ought to write a song about it: the money goes round and round. That’s because what’s a cost to an employer is income to their employee. And when that employee spends part of their wage in another employer’s business, that cost to the employee becomes income to the other business. (I know it’s complicated, but stick with it.)

You have to be a duly elected politician to believe that only dollars that are spent by governments, bearing the label “job creation”, do the trick – preferably with a ribbon to cut while the cameras roll.

Perrottet claims that “everything for me is jobs, jobs, jobs”. He’s certainly right to believe that the political survival of every government – state or federal – will depend on their success in getting people back to work after this terrible, government-ordered recession. And it won’t be easy.

But if he cared as much about jobs as he claims to, he’d raise state public sector wages by 2.5 per cent as normal and spend big on his specific, look-at-moy, look-at-moy job creation projects.

If it’s all so important, why must one form of job creation be sacrificed to pay for another? Why must Peter be robbed to pay Paul? Perrottet says “this is not about the budget. This is not about savings”.

Really? Then what is it about? Well, one possibility is that it’s about party prejudices. Perrottet hails from the Liberal tribe, whose members tend to regard people who work for the government as overpaid and underworked. If private sector workers are likely to miss out on a pay rise this year, those tribe members might be pretty unhappy about seeing nurses and teachers and pen-pushers escape unscathed.

But I suspect the real reason is Perrottet’s unreal fear of debt and, more particularly, of having the state’s triple-A credit rating downgraded. In the old days, governments worried a downgrading would mean having to pay higher interest rates on their bonds. But these days rates are already so close to zero you couldn’t see the difference with a magnifying glass.

So why are our politicians – state and federal – willing to cede their sovereignty to a bunch of American rating agencies, whose creditability was smashed in the global financial crisis? Not only did they fail to see it coming, they contributed to it by selling triple-A ratings to business borrowers whose debt was later found to be “toxic”.

So why? Because the pollies live in fear of the drubbing they’d take from the other political tribe. Unfortunately, Labor is as much into playing cheap tit-for-tat politics as are the Libs. Being downgraded by a bunch of Yanks on the make is, we’re always assured, the ultimate proof of economic incompetence. Yeah, sure.

Turning to the private sector, its long-established practice is for annual pay rises to be forgone during recessions. Despite the Victorian government’s support for a 3 per cent increase in national minimum and award wages, the Fair Work Commission is likely to follow precedent and give it a miss. The Morrison government wouldn’t have the gumption to propose otherwise.

Individual big businesses will press their unions to skip a beat, and workers afraid they could be next on the dole queue won’t be inclined to argue. Economic orthodoxy says it’s never smart to raise the price of something – labour, in this case – when you’re not selling enough of it. (It’s just a pity there’s so little empirical evidence to support this over-simplified model of how the job market works.)

One of the troubles with recessions is they encourage counter-productive behaviour. Fearful of losing my job, I cut my spending and save as much as I can. But when everyone does the same, we all suffer.

It’s the same with wages. When business is weak and profits are down, it makes sense to keep your wage bill low. But when every business does it, the result is no growth in the wages your customers use to buy your product and get you back to health and strength. Allow you to employ a few more people even.

What gets me is that their “debt and deficit” phobia stops even the Liberals from seeing that, at times like this, the role of the public sector is to do whatever it takes to rescue their mates in the private sector (which includes you and me). Even the business lobby groups don’t seem to get it.

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Reserve Bank has just one thing to say to Scott Morrison

It’s possible Reserve Bank governor Dr Philip Lowe has been reading a book about speechmaking – the one that says: keep the message simple and keep saying it until it sinks in. See if you can detect his one big message last week in his evidence to the Senate inquiry into the response to the coronavirus.

Lowe said that when the JobKeeper wage subsidy scheme was due to end in late September was "a critical point for the economy". This was also when the banks’ six-month deferral of mortgage and other payments would come to an end.

"It will be important to review the parameters of that [JobKeeper] scheme. It may be that, in four months’ time, we bounce back well, and the economy does reasonably well, and these schemes, which were temporary in nature, can be withdrawn without problems," he said.

"But if the economy has not recovered reasonably well by then, as part of [Treasury’s] review we should perhaps be looking at an extension of the scheme, or a modification in some way. . . More generally, right through the next year or so, I think the economy is going to need support from both monetary policy [interest rates] and fiscal policy [the budget].

"There are certain risks if we withdraw that support too early. I know, from the Reserve Bank’s perspective, we’re going to keep the monetary support going for a long period of time, and I’m hopeful that the fiscal support will be there for a long period of time.

"If the economy picks up more quickly, that can be withdrawn safely. But if the recovery is very drawn out, then it’s going to be very important that we keep the fiscal support going," he said.

The Reserve’s contribution was to keep interest rates low and make sure credit was available. It had the official interest rate down at 0.25 per cent, which was effectively as low as it could go. But, as the head of the US Federal Reserve kept saying, "Central banks work through lending, not through spending".

"So it’s an indirect channel and there’s a limit to what we can do. . . Going forward, fiscal policy will have to play a more significant role in managing the economic cycle than it has in the past. . . In the next little while there’s not going to be very much scope at all to use monetary policy in [the way it’s been used in the past 20 years].

"So I think fiscal policy will have to be used, and that’s going to require a change in mindset," he said.

Lowe said he thought it was going to be "a long drawn-out process" to get back to full employment which, before the crisis, he’d thought was an unemployment rate of 4.5 per cent, "which means that we’re going to keep interest rates where they are perhaps for years".

It was too early to say what the economy was going to be like in four months’ time, but "if we have not come out of the current trough in economic activity, there will be, and there should be, a debate about how the JobKeeper program transitions into something else, whether it’s extended for specific industries or somehow tapered".

"It’s very important that we don’t withdraw the fiscal stimulus too early," he said, adding a minute later that "my main concern is that we don’t withdraw the fiscal stimulus too early".

Several minutes later, in answer to another question, he said that "if we’re still in the situation where there hasn’t been a decent bounce-back in four or five months’ time, then ending that fiscal support prematurely could be damaging".

Later: "My main point here is: we’ve got to keep the fiscal stimulus going until recovery is assured. I’ve seen, particularly over the past decade, the fiscal stimulus withdrawn too quickly and the economy suffered".

He’s referring, I think, to the US, Britain and the euro-zone countries which, not long after their recoveries from the global financial crisis in 2009, took fright at their rising levels of public debt and switched abruptly to policies of "austerity" – cutting government spending and raising taxes – causing their economies to languish for the past decade.

"The level of public debt in Australia, while it’s rising, is still low. The government can borrow for three years at 0.25 per cent, and it can borrow for 10 years at 0.9 per cent. The [Treasury] held a bond auction two weeks ago and it was able to borrow $19 billion at 1 per cent for 10 years.

"The Australian government has the capability to borrow more, and I think it would be a mistake to withdraw the fiscal stimulus too quickly," he said.

I think I’m getting the message, but is it getting through to Scott Morrison and Treasurer Josh Frydenberg?

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Treasury: no depression, but no big bounce-back either

Although the virus has delayed the budget until October, Treasurer Josh Frydenberg will deliver an update on the budget and – more importantly – the economy, within the next fortnight. But last week the secretary to the Treasury dropped some big hints on what to expect.

In evidence to the Senate committee inquiring into the response to the virus, Dr Steven Kennedy started with the outlook for the labour market. The latest figures from the Australian Bureau of Statistics are for the four weeks up to mid-April.

In round figures, they show that 900,000 people lost their jobs during the period (although 300,000 gained jobs), 1 million people worked fewer hours and three-quarters of a million kept their jobs but worked no hours (most of them protected by the JobKeeper wage subsidy scheme).

So that’s a total of 2.7 million workers – about one worker in five - adversely affected by the snap recession. Total employment fell by 4.6 per cent, but total hours worked fell by twice that – 9.2 per cent, telling us much of the pain was borne by part-time workers. The rate of under-employment (mainly part-timers working fewer hours than they want to) leapt by almost 5 percentage points to 13.7 per cent.

The “good” news is, Kennedy thinks that’s most of the collapse in employment we’re likely to see. We may get a bit more in the figures for May, and maybe even a fraction more in June. But that should be it.

The trick, however, is that though the underlying position won’t be getting much worse, we’ll see the rate of unemployment shooting up. It had risen by “only” 1 percentage point to 6.2 per cent by mid-April, but Kennedy expects it to be closer to 10 per cent by mid-June. (And it would have gone a lot higher but for the JobKeeper scheme.)

Such a strange outcome – it’s not actually getting much worse, but the unemployment rate is rocketing – is explained by the strange nature of this coronacession: a recession caused by the government, acting under doctors’ orders.

In an ordinary recession, almost all the people who lost their jobs in April would have immediately started looking for a new one, and so met the bureau’s tight definition of being unemployed. This time, most people didn’t start looking because many potential employers had been ordered to cease trading and, in any case, you and I had been ordered to stay in our homes and rarely come out.

As the lockdown is eased, however, people will start actively looking for work, and the bureau will change their status from “not in the labour force” to unemployed, making the figures look a lot worse.

On Wednesday, the bureau will publish the “national accounts”, showing what happened to real gross domestic product – the change in the economy’s production of goods and services – during the March quarter.

Kennedy is expecting real GDP to have fallen a bit, mainly because of the bushfires and the ban on entry to Australia by foreign tourists and overseas students. He’s expecting the big fall to come in the June quarter, and for the combined fall since December to be as much as 10 per cent.

If it’s anything like that big it will be humongous. The total contraction in the last recession, in the early 1990s, was just 1.5 per cent. But, as with the job figures, Kennedy is expecting the contraction in GDP to end with the June quarter.

The big question is, what happens after that? With most of the economy reopened – but, of course, our borders still closed to international travel – will most of us be back at work and producing and spending almost as normal? That is, will the period of the economy dropping like a stone be followed by it bouncing back like a rubber ball, producing a graph that looks like a big V?

No. Kennedy told the Senate committee “I’m not predicting a V-shaped recovery in any sense, but the way we entered this [downturn], and the nature of this shock, give me some hope that if governments respond well, particularly through their fiscal levers [that is, their budgets], we needn’t have what’s called the L-shaped recovery”.

That is, economic activity drops a long way, but stays there without growing. Kennedy says the L-shape is probably what people would think of as more like a depression.

Kennedy noted that, according to separate figures from the bureau, the number of jobs in the accommodation and food sector fell by more than 25 per cent in just the three weeks to April 4, while jobs in the arts and recreation services sector fell by almost 19 per cent.

He drew some hope from the fact that the sectors worst affected by the lockdown are “quite dynamic”. “They’re sectors that have high turnover in businesses coming and going, quite high turnover in employees and a lot of casuals,” he said.

So, in the right conditions, they had the potential to re-establish quickly. In contrast, it was hard to re-establish a manufacturing plant quickly. In this strange recession, manufacturing, construction and mining had been allowed to continue without much disruption.

If you rule out V-shaped and L-shaped recoveries, what’s left is a U-shape. You go down fast, but bounce along the bottom before going back up. But our success in suppressing the virus means we’ve been able to start dismantling the lockdown earlier than the six months initially expected.

“So in some ways we’re actually a little more optimistic [than we were] – maybe we just squeeze the U together a bit,” he said.

That’s looking at our domestic economy. Looking at the prospects for the global economy, it’s possibly worse than he first thought. But even here Kennedy finds some source of hope. It so happens that our major trading partners – China, South Korea and Japan – are among the countries that have done better at beating the virus and getting back to work.

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Treasury: the budget won't ruin us, but will help save us

Something we should be thankful for is that Scott Morrison saw fit to return the leadership of Treasury to another highly respected macro-economist in the months before the arrival of a virus obliged Morrison to hit the economy for six.

The key to our success in suppressing the virus was his willingness to follow his medicrats’ Treasury-like advice to “go early, go hard”. Unfortunately, going hard meant governments closing our borders and ordering a large slab of private enterprise to cease supplying goods and services to their customers.

We’re left with a sudden, unexpected, government-ordered, supply-side “disease-led” shock to the economy that’s without precedent. By mid-April, this had caused 2.7 million Australians to have either lost their jobs or had their hours reduced.

It would have been several million souls worse than that, but for the quick thinking that saw we needed a new measure – the JobKeeper wage subsidy – to preserve the attachment between businesses and their workers, even though there was much less work to be done.

Treasury and the Australian Tax Office had to design and implement this completely unfamiliar program within a few weeks. It thus shouldn’t be too surprising that their initial estimate of its size and cost proved badly astray. Especially when you remember how far their staffing levels have been run down in the name of smaller (and thus less capable) government.

The JobKeeper program is now expected to involve 3.5 million rather than 6.5 million workers, and cost $70 billion over six months rather than $130 million. According to Treasurer Josh Frydenberg, this $60 billion reduction is “good news for the Australian taxpayer” - which suggests he’s yet to learn that the economy matters more than the budget.

Make a note, Josh: the budget serves the economy (and society), the economy doesn’t serve the budget. Taxpayers gain their livelihoods from the economy, which brings them many benefits (starting with three meals a day) along with taxes to pay. In my experience, someone who loses their job gets little comfort from the knowledge that they’ll be paying less tax.

In truth, the $60 billion stuff-up is good news for the economy and the people whose livelihoods it supports. It suggests that fewer businesses than expected have had their revenues cut by 30 per cent (or 50 per cent for big businesses), so that fewer workers than expected have had their livelihoods threatened.

In any case, Treasury secretary Dr Steven Kennedy’s remarks to the Senate committee examining our response to the virus, made the day before the stuff-up was announced, suggest there’ll be plenty of other important uses to which the $60 billion could be put.

Kennedy stressed the central role that the budget (“fiscal policy”) would have to play in getting the economy back to full employment “in the months and years ahead”, especially because the other instrument for managing demand, “monetary policy”, is “not able to provide the usual impact that it would”.

That is, interest rates are already as low as they can go, whereas in the global financial crisis they were cut by 4.25 percentage points to help stimulate demand.

As we move away from the supply shock and cautiously reopen industry, “it will become more about managing demand and more about confidence. The focus will be very much on fiscal policy – how it’s contributing to growth and how the composition of those policies contributes to growth and how they encourage re-employment”.

It was obviously a matter for the government but, in the run-up to the budget in October, Treasury would be advising the government on “macro-policy and the composition of existing fiscal stimulus and whether any more is required”.

“I realise people are very excited about lots of reform, but I would encourage us not to get too far ahead of ourselves; we need to keep the economy afloat as it is now and to also get it open,” Kennedy said.

When they think of the huge budget deficits coming up, readers ask me where all the money will be coming from. Short answer: it will be borrowed. And Kennedy advised the committee there was no shortage of institutions keen to buy the government’s bonds (including, no doubt, your super fund, but also foreign institutions).

Countries such as Australia and New Zealand had been “incredibly well placed” to borrow more because “we did start with relatively low levels of debt”. This meant our deficit spending in response to the economic shock could be managed without much debate, he said.

And with the cost of borrowing so low (10-year government bonds cost the government an interest rate of 1 per cent), once the economy was back to growing strongly and the budget balance improving – which wouldn’t be for some time – “debt will bring itself down over time”.

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Joblessness hasn't been worse in our lifetimes - nor as hidden

Voters have highly stereotyped views about which side of politics is better at handling which of our problems. So it’s no surprise that the party of the bosses is seen as better at managing the economy, the budget and interest rates, whereas the party of the workers is regarded as better at industrial relations and anything that involves the government spending money.

These stereotypes aren’t necessarily right, but they’re deeply engrained in our thinking. What keeps politics interesting, however, is that voters’ list of our most pressing problems keeps changing with our circumstances. Sometimes Liberal strongpoints are at the top; sometimes Labor strongpoints.

The new problem for Scott Morrison is that though the Libs are seen as best at managing the economy and the budget, when the economy falls into to recession, voters’ focus shifts to the massive unemployment.

That’s a problem his opponents are regarded as better at – perhaps because we know fixing it involves spending shed-loads of money. The Libs are feeling terribly guilty about the $200 billion they’ve committed to spending so far, and are telling themselves they’ll be turning off the tap in September, come what may.

I’m sure you remember the shocking TV footage we saw some weeks back of long queues outside Centrelink offices. You’ve seen the movie; now read the stats. They arrived last Thursday. They showed what had happened in the jobs market just between mid-March and mid-April.

They were the most appalling news on jobs we've had since the Great Depression of the 1930s. Actually, they’re worse than then, in the sense that they happened in just a month (with some more bad months to come), whereas in the Depression it all took several years.

But the unique nature of this coronacession – where, acting under doctors’ orders, the government simply instructed non-essential businesses to close their doors – makes it much harder than usual to see what’s happening in what the media call “the jobs market” and the Australian Bureau of Statistics calls “the labour force”.

At present, a lot of the job loss remains hidden. Tracing what’s happening is like peeling an onion. Except that onions get smaller as you peel, whereas this problem gets bigger as you delve into the fine print. Much bigger.

How do we know how bad it was in the Depression? We know the rate of unemployment got to 20 per cent. By that measure, our problem is small. In April the number of people classed as unemployed by the bureau rose by about 100,000 to more than 800,000. Expressed as a proportion of the labour force (that is, everyone with a job or actively seeking one), the rate of unemployment rose just from 5.2 per cent to 6.2 per cent.

But don’t trust this. As most people know, the bureau’s definition of what it means to be unemployed is very narrow. You have to be actually looking for work and ready to take up any job you’re offered.

You get a better idea from the news that, of the 13 million Australians employed in March, 900,000 lost their jobs in April. However – and I know you’ll find this hard to believe – 300,000 people without jobs gained one during the month, so the net loss of jobs was almost 600,000.

But why, then, did unemployment rise by only 100,000 rather than 600,000? Because 500,000 people didn’t look for another job – understandable since so many employers were in lockdown – and so were classed as “not in the labour force”.

So that’s the first source of hidden joblessness. Most of those people will start looking for jobs as soon as it makes sense to, and then will be counted as unemployed.

The next source of hiddenness comes from the new and worthy JobKeeper wage subsidy scheme, intended to preserve the attachment between employers and their workers even though, during the lockdown, those employers don’t have much work needing to be done.

There are now more than 6 million workers on the JobKeeper allowance – that is, about half the entire workforce. Because they’re receiving a wage, they’re all counted as employed. Some are working pretty much as normal and some are working reduced hours, but many do no work at all.

It turns out that the best guide to what’s happening comes from the change in the total number of hours worked during the month. It’s fallen by an unprecedented 9.2 per cent, double the 4.6 per cent fall in the number of people employed.

The fall in hours is explained by people losing their jobs, people keeping their jobs but being given fewer hours to work, and people on JobKeeper working fewer hours – or none. This explains why, despite the limited rise in unemployment, the rate of underemployed workers (those working fewer hours than they want to) leapt from 8.8 per cent to 13.7 per cent.

All told, that means about 2.7 million people – almost one worker in five – either lost their job or lost hours during just a month. Gosh.

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There's a lot of economic worry about, but here's what matters

If you’re wondering what shape the economy will be in when we come out of lockdown, how the recovery will go – what to worry about and what not to – there are three key issues: the economy and its growth, the budget and its deficit, and unemployment and its consequences.

These three are different but related. The trick is to understand how they’re related. What causes what. The media bombards us with information about them — without pausing to put them into context.

For instance, we hear so much about the budget and its deficit (which adds to the huge amount of debt) that I’m sure some people think the budget is the economy. If only we could get the budget balanced, the economy would be right, right?

No. But you could be forgiven for thinking so because Prime Minister Scott Morrison and his Treasurer, Josh Frydenberg, have been saying things that get the two muddled up. They’ve been saying: terribly sorry about what the lockdown's done to the economy, and all the money we’ve had to spend on JobKeeper and JobSeeker and the rest as a consequence, but at least we’d got the economy back in good shape before, through no fault of ours, we were hit by the virus.

But they’re not talking about the economy, they’re talking about the budget. It was the budget they’d finally got back to balance after six years in office and were set to it get back into surplus this year before the virus upset their plans.

They were saying, at least we’d got the budget back in balance before we had to start spending like mad — about $200 billion so far — and going back into (huge) deficit. Trouble is, they’d got the budget back in shape by causing the economy to grow more slowly than it would have. So the economy was in a weak state before the virus hit – which doesn’t sound like a good thing to me.

Huh? Let’s get back to basics. The budget is just a summary of the federal government’s finances: how much money it brings in from taxes and charges, less how much money it puts out in spending on health, education, pensions and the rest.

When it raises and spends equal amounts, its budget is in balance. When it spends more than it raises, its budget is in deficit and this deficiency has to be covered by borrowing. When it raises more than it spends, its budget is in surplus. It will use the surplus to repay money it’s borrowed in earlier years.

The government and its budget are just part (a reasonably small part) of the economy, which consists of all our businesses and our households (you and me) as well as the government (federal, state and local).

The money the government raises in taxes comes from the rest of the economy, whereas the money it spends goes to the rest of the economy. So when the government reduces its deficit (as it has been until now), this means it’s reducing the net amount it’s putting into the private sector, causing its growth to be weaker than otherwise.

This can be a good thing if the private sector is growing too strongly and threatening to worsen inflation. But if the private sector’s growth is weak, as it has been, this pullback by the government will weaken it further – as it has been.

Until now. The response to the virus, with all the lockdown has done to reduce the turnover of businesses and the income of workers, has hit the private sector for six. But all the extra government spending – which has hugely increased the budget deficit – has done much to break the private sector’s fall. That cushioning will make it easier for businesses and workers to get back on their feet.

But here’s the thing: the government’s big spending (plus, don’t forget, the much less income and other taxes we’ll be paying on our greatly reduced incomes) has blown out the budget deficit and will hugely increase the government’s debt.

So, which is the bigger worry? The big increase in the government’s debt, or the big contraction in the economy? I think it’s obvious. It’s the health of the economy that matters most because that’s where all Australians (even the retired) gain their livelihood.

The budget isn’t an end in itself. It’s an instrument – one of the means to the ultimate end of helping Australians have a good life. In recent weeks, we’ve seen the government doing what all governments do: using its budget to protect our lives and livelihoods.

Sure, that will leave us with a lot more deficit and debt. But first things first. What matters most is the health, economic and social wellbeing of the people who constitute “the economy”.

We’ll worry about the debt later. In any case, as I’ll explain another day, the debt isn’t as worrying as it looks. Hint: the lower interest rates are, the less you need to worry about how much you owe — and the less hurry you need to be in to pay it back.

Next, what’s the relationship between the economy’s growth and unemployment, and which matters more? The economy is usually measured by the value of all the goods and services we produce – gross domestic product – during a period, which is also the nation’s income.

The econocrats are expecting real GDP to fall by an unprecedented 10 per cent in the present quarter, but then start growing quite quickly as businesses get back to normal. If that happens, it will be good because it’s goods and services that people are employed to help produce.

So an early return to growth in the economy is good because it gets employment up and unemployment down – which is what matters most if you think people matter more than money.

But here’s the trick: the economy returns to growth a lot earlier than unemployment returns to where it was.

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Women are making themselves at home in the workforce

In the world of paid work, women still have a lot to complain about: unequal pay and promotion, still-inadequate childcare, and a tax and benefit system that discourages “secondary earners” from working more.

All true. But don’t let this conceal from your notice the success women are having at flooding into the long male-dominated workforce and slowly reshaping it to their needs.

In my never-humble opinion, for as long as girls continue making themselves better educated than boys, it’s only a matter of time before women are calling the shots.

Reserve Bank deputy governor Dr Guy Debelle highlighted women’s growing role in the labour market in a speech he gave last week.

You’ve no doubt heard the government boasting about how strongly the number of jobs has grown on its watch. It’s true. The rest of the economy hasn’t been doing well – wages, the standard of living, for instance – but employment has been growing at the disproportionately strong annual rate of about 2.5 per cent over much of the past three years. As a consequence, a near-record 62.6 per cent of all Australians aged 15 and over have a paid job.

But here’s what the pollies never mention, but Debelle noted: women accounted for two-thirds of the additional jobs in the past year.

This means the rate at which working-age females are participating in the labour force is now at its highest. So with female participation continuing to grow strongly over the decades, while male participation has fallen back, the gap between male and female participation is the narrowest it’s been.

Similarly, if you look just at the gender of those with jobs, women’s share is now above 47 per cent. Similar trends are occurring in all the advanced economies, of course.

Debelle says “changing societal norms and rising educational attainment have contributed to more women moving into ... employment outside the home. Female participation has also been influenced by the increasing flexibility of working-time arrangements, the availability and cost of childcare and policies such as parental leave.”

True. There was a time when most employers thought in terms of full-time workers and not much else – an attitude reinforced by the male-dominated unions. The increasing use of part-time employment has greatly added to the “flexibility” with which employers can deploy labour within their businesses, and no doubt helped to make them more profitable.

But the fact remains that the advent of part-time employment has been a boon, first, to women seeking a career as well as motherhood, then to full-time university students seeking income while they study, and now to many older workers seeking a mid-point between the extremes of full-time work and retirement. So the dread “flexibility” can benefit workers as well as bosses.

Debelle says that the participation rate of mothers with dependent children has kept increasing, rising by 10 percentage points since the early 2000s to 73 per cent. Over the past decade, the rise has been most pronounced for mothers with children aged up to 4.

Of those returning to work within two years after the birth of a child, an increasing majority are citing “financial reasons” as their main reason for doing so. Others returning to work cite “social interaction” or to “maintain career and skills” as their main reason.

Financial reasons could be capturing a number of considerations, according to Debelle, including low growth in wages, the rise in household debt or childcare costs.

Research suggests the cost and quality of childcare does have a significant effect on the willingness of women to do paid work, he says. According to the HILDA survey – of household income and labour dynamics in Australia – the share of households using (more expensive) formal childcare for young children has increased notably over the past decade.

Even so, access to childcare places and financial assistance with childcare costs remain “very important” issues for mothers not back at work.

Debelle says the rise in the level of mortgage debt owed by households in recent decades has “broadly coincided” with the increase in women’s rate of participation in the labour force. But which one’s causing what?

Are debt levels higher because more households have two incomes and so can afford to borrow more? (If so, that would suggest the increase in second incomes is helping to push up house prices.)

Or does the need to borrow more to afford the higher prices drive women’s decisions to go back to work? Maybe the low growth in wages in recent years has caused couples to have more debt than they anticipated and thus needing to work more to pay it down.

What little research evidence there is has usually found it’s the higher debt levels that lead to more women going back to work, but the evidence isn’t strong.

Looking beyond the continuing increase in participation by the mothers of young children and the ever-growing workplace role of prime-aged women – 25 to 54 years – of which it is part, women also account for a big part of the swing from early to later retirement.

Do you realise that 60 per cent of women aged 55 to 64 are taking part in the labour force? That compares with 20 per cent or so before the turn of the century. And the rising participation by women 65 and over isn’t all that much less than for men. Times change.

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Want the jobless to find jobs? Then increase the dole

It’s so familiar a part of political economy you could call it Galbraith’s Law, after John Kenneth Galbraith, the literary Canadian-American economist who put it into words. As the late senator John Button paraphrased it: the rich need more money as an incentive and the poor need less money as an incentive.

Consider the first actions of the re-elected Scott Morrison and his government. First, pushing through its three-stage tax plan, which in time will cut the income tax of those on the minimum wage by 1.5¢ in every dollar, those full-time workers on the median wage by 2.4¢ in every dollar, and those on $200,000 a year by 5.8¢ in the dollar.

Second, steadfastly resisting the ever-mounting calls for a rise in the single dole of $278 a week (less than 38 per cent of the minimum wage), which hasn’t been increased beyond inflation since 1997, making it now about $180 a week less than the pension.

It’s true that, until very recently, Labor was just as opposed to raising the dole as the Coalition has long been. Why? Because both sides know that doing so would displease many of their supporters.

As everyone knows, the dole is paid to lazy youngsters, who much prefer surfing to looking for a job – which, if only they’d get off their arses, they’d soon find. (Never mind that the number of unemployed vastly exceeds the number of job vacancies.)

Even so, the number of those calling for an increase is mounting rapidly. Apart from the welfare groups, it has long included the Business Council, which has now been joined by various economists – including those working for two of the big four accounting firms, plus someone called Dr Philip Lowe – and backbenchers from both sides, including Barnaby Joyce, who says the dole isn’t high enough for country people to afford the travel to job interviews.

Even John Howard, the man who initiated the freeze in real terms, now says it’s time for it to end.

Morrison, however, is unmoved. He argues the dole is better than it's been painted. It’s increased twice a year in line with inflation, and 99 per cent of recipients get other payments.

True. But what the 99 per cent get is the “energy supplement”, which is worth 63¢ a day and doesn’t change the claim that the dole amounts to about $40 a day.

About 40 per cent of singles on the dole get rent assistance – of up to $9.80 a day – provided they’re paying rent of more than $21.40 a day which, rest assured, they are. Much more.

There are 722,000 people on unemployment benefits. Half of them are over 45 – strange to think how sure people are that employers discriminate against older job applicants, but don’t ever imagine them being on the dole.

Similarly, more than a quarter of recipients have an illness or disability, but are on the dole because they’ve been denied the disability support pension. These people, along with more than 100,000 single parents, face challenges and discrimination in finding paid work.

Another argument ministers use is that the dole was only ever intended to be a temporary payment while people find another job and, indeed, two-thirds of people going on to it move off within 12 months.

But get your head around this: accepting that’s true, it’s also true that, at any point in time, two-thirds of people on the optimistically named Newstart allowance have been on it for a year or more. These are the long-term unemployed who, presumably, include many of those with particular challenges.

I agree with Morrison that “the best form of welfare is a job”. It’s true, too, that in recent years many additional, full-time jobs have been created. But it’s equally true that many of those jobs have gone to immigrants and other new entrants to the labour force, meaning the rate of unemployment hasn’t fallen below 5 per cent. That’s acceptable?

The truth is that, even in the city, the meanness of the dole makes it hard for people to afford the transport and other costs needed to search for jobs. The notion that poor people will seek work only under the lash of poverty is heartless nonsense.

Other facts are that the economy has slowed sharply since the middle of last year, employment is growing more slowly and unemployment is now rising.

This is why Reserve Bank governor Lowe has twice cut the official interest rate and is begging the government use its budget to do more to stimulate the economy. It partly explains his support for an increase in the dole – an extra $75 a week is the popular proposal – which, as a stimulus measure, has the great virtue of being likely to be spent fully and quickly by its impoverished recipients.

So why the refusal? For the reasons we’ve discussed but also because, having given up tax revenue of $300 billion over 10 years, Treasurer Josh Frydenberg now insists he can’t afford a dole increase costing a whopping $39 billion over 10 years. Too much threat to his promised return to budget surplus.

Strange logic. Should the economy’s slowdown not be reversed, unemployment – and the budgetary cost of the dole – will go a lot higher, and hopes of budget surpluses will evaporate, replaced by angry people accusing the government of economic incompetence.

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For every problem there’s a job, and no shortage of problems

With the economy subsiding in a heap within days of Scott Morrison winning re-election thanks to the Coalition’s superior economic management skills, he and his ministers are being swamped with helpful hints about how they can get things moving again.

The business lobby groups are proffering some novel solutions: what would do the trick is to cut the rate of company tax and reform industrial relations so the unions are no longer running the country and extracting exorbitant pay rises from employers.

But, in doing what they always do, the lobby groups are selling business short. The conclusion I suspect our smarter business people are drawing is that the surprise re-election of a government that isn’t able to agree on many policies means that if they’re waiting for these guys to fix their problems, they’ll be waiting a long time.

We’ve entered the DIY economy: if you’ve got a problem, fix it yourself. Since the government can’t agree that climate change is more than a lip-service problem, the electricity industry will have to find its own solution.

Same goes for our low rate of productivity improvement. The nation’s productivity improves when the nation’s businesses work smarter, not from government planes dropping policy cargo from the sky.

That’s what I like about a new report from Deloitte Access Economics, The Path to Prosperity: Why the future of work is human.

According to its lead author, David Rumbens, “we don’t face a dystopian future of rising unemployment, aimless career paths and empty offices. Yes, technology is driving change in the way we work, and the work we do, but it’s ultimately not a substitute for people.

“Technology is much more about augmentation than automation, and many jobs will change in nature because of automation, rather than disappear altogether. We can use technology to our advantage to create more meaningful and productive jobs, involving more meaningful and well-paid work.”

Rumbens’ boss, Richard Deutsch, says that “for every problem there’s a job, and the world isn’t running out of problems”.

Just so. The report disputes the popular notion that robots will take our jobs. “Technology-driven change is accelerating around the world, yet unemployment is close to record lows, including in Australia,” it says.

“New technologies will have the capacity to automate many tasks, but also create as many jobs as they kill, and employment is growing in roles that are hardest to automate.”

Another mistaken notion is that people will have lots of different jobs over their careers. Despite all the things people who wouldn’t know try to tell you, overall, work is becoming more secure, not less. Australians are staying in their jobs longer than ever.

The gig economy is not taking over, and the proportion of casual jobs isn’t changing, despite what the unions claim. This is not opinion, it’s statistical fact.

Why are jobs becoming more secure rather than less? Because, with more tasks being done by machines, the kinds of skills employers need their workers to possess are changing. And the skills employers increasingly need are in short supply.

When you find people who possess the skills you’re looking for, you don’t make them casuals, you try to keep them. If they left, they’d be hard to replace. That’s particularly true if they’ve acquired those skills on the job – at the boss’s expense.

It shouldn’t surprise you that employers’ demand is shifting from manual skills to cognitive skills – from the hands to the head – and from routine to non-routine jobs. Manual and routine white-collar jobs are most easily done by machines.

What may surprise you is that, as machines get better at doing routine cognitive jobs, employers increasingly require skills of the heart rather than the head – the “soft skills” needed for “interpersonal and creative roles, with uniquely human skills like creativity, customer service, care for others and collaboration, that are hardest of all to mechanise”.

Such heart skills will be needed most in the services sector, where people rather than machines are the key to driving how value is created – government services, construction, health, professional services and education.

So, what must the government be doing to meet this need? The report doesn’t say. Its focus is on what employers – private or public – should be doing.

“With skill requirements changing faster and becoming more job-specific [good point], the future of work will require much more, and much better, on-the-job learning than Australia has today,” it says.

“Business leaders will have to make active choices, and just buying skills won’t be enough, they will have to adopt an investment frame of mind, and train them.

“With investment in on-the-job training cheaper, more relevant and more focused than classroom learning, the future of work will be a combination of learning and work integrated into one. And refreshing the skills of current, experienced workers will be just as critical as producing students and graduates with the skills they need.

“By making workers smarter and better suited to the jobs of the future, and improving the match between what businesses need and what workers have, we will make our workplaces happier and more productive.”

Who’d have thought one of the big four chartered accounting firms could talk so much sense?

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Forget what’s happening in the economy, just find a scary label

If you want the unvarnished truth, the economy’s rate of growth slowed surprisingly sharply in the second half of last year. If you prefer titillating silliness, we’ve entered a “per capita recession”.

The national accounts for the December quarter, issued by the Australian Bureau of Statistics this week, show real gross domestic product growing by only 0.2 per cent during the quarter, following growth of only 0.3 per cent in the September quarter.

That compares with growth in the first half of 2018 of 0.8 in the June quarter and 1.1 per cent in the March quarter. Six months ago, it looked like the economy was moving into top gear. Now we realise it was changing down.

You’d think that would be bad enough for those tireless in their search for bad news. But, no, they delved around in the fine print and discovered that real GDP per person actually fell by 0.2 per cent in the December quarter and by 0.2 per cent in the previous quarter.

So, that must mean we’re in a “GPD per capita recession”. Eureka! Much scarier. (And saying it in Latin rather than English makes it even more so.)

Making it more entertaining obscures the truth, of course, but you can’t have everything.

Speaking of truth, let me give you a tip: any “recession” that has to be qualified by an adjective ain’t the real deal.

The more excitable end of the economy-watchers – the financial markets and the media – is always looking for an excuse to shock mum by using the ultimate in economic bad language, the r-word. Over the years they’ve given us “technical” recessions, “manufacturing” recessions, “growth” recessions and now “per capita” recessions.

There is no science behind the notion that two successive quarters of “negative growth” – contraction – equal a God-given licence to use the r-word. It’s no more than a rule of thumb, whose one virtue is that it allows the over-excitable to shout Recession! within seconds of seeing a new set of figures, when they really should look and wait for more convincing information.

It’s no more than circumstantial evidence, when you can’t find the body or the murder weapon. No economist I know is comfortable with it as a way of judging whether we really are in recession.

What they know is that, as a test, it delivers too many false readings. Because it’s so arbitrary, it can tell you you’ve got a recession when you don’t, or tell you you don’t when you do.

The national accounts’ first stab at measuring the growth during a quarter is so rough and ready, and will be changed so many times before it stabilises, that two successive negative quarters can easily be revised out of existence.

The real world is too messy for such simple rules of thumb to be reliable.

Treasurer Josh Frydenberg tweeted that “in 2000 and 2006 the Howard government had consecutive quarters of negative GDP per capita growth, and Rudd and Gillard had five negative quarters”.

And all this while our record period of continuous economic growth – now up to 27 years – remained unbroken. See what I mean about false positives?

But even if you do use the successive-quarters test, you’re supposed to apply it to the whole economy, not just to the bit that happens to qualify.

That’s why Scott Morrison was justified in dismissing the “per capita recession” as “made-up statistics”. The figures may have been calculated by the bureau, but it didn’t say anything about recession. That notion was spread by the media.

The bureau calculates about eight different versions of GDP (page 21 of the release). The excitables ignored the six that didn’t show two successive minuses, and zeroed in on one of the two that did. It was a contrivance in search of a headline.

The various versions of GDP are calculated to answer different questions. GDP per person is not designed to tell us whether we’re in recession. It’s designed to show how much of the growth in the economy is coming just from population increase rather than rising prosperity.

Making it a useful indicator. For instance, Frydenberg boasted that “Australia continues to grow faster than all of the G7 nations except the United States”.

True, but GDP per person tells us why. It’s because our population’s growing so much faster than theirs. (Of course, if you’re looking for a job, the growth caused by a higher population should make it easier.)

Admittedly, GDP per person is often used as a measure of what’s happening to the standard of living. But it’s a terribly crude measure. Which is why economists agree that one of the other measures, “real net national disposable income per person”, is the best you’ll get just by modifying GDP itself.

Trouble is, it shows the income of households growing by 0.8 per cent in December and by 2.1 per cent over the year. Wouldn’t get a headline out of that.

Time for a reality check: why is it that the r-word strikes fear into the minds of ordinary people? Because they know that genuine recessions involve falling employment and rapidly rising unemployment. Businesses fail, people lose their jobs, and the rest of us fear we’ll be next.

Any sign of that happening? No. The reverse, in fact. Using the bureau’s “trend” (smoothed) figures, over the six months to December, employment increased by 175,000, with 87 per cent of the extra jobs being full-time, and the proportion of people aged 15 and over with jobs at a record 62.4 per cent.

The unemployment rate fell by 0.3 percentage points to 5.1 per cent and the under-employment rate fell 0.2 points 8.7 per cent.

That’s how terrible a per capita recession is.

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We've had plenty of new jobs - for the young, not so much

You can be sure Scott Morrison and Josh Frydenberg will be boasting about this week’s job figures, which show the jobs market remaining unusually strong. But their critics know not to believe the numbers.

The Australian Bureau of Statistics’ figures for January show the seasonally adjusted rate of unemployment steady at 5 per cent – the lowest it has been since the start of the decade. The more reliable “trend” (smoothed) estimate is little different at 5.1 per cent.

Sticking with the trend figures, employment has increased by more than 295,000 people over the past year. That’s a rise of 2.4 per cent – a lot bigger than the average annual growth rate over the past 20 years of 2 per cent.

Almost three-quarters of those extra jobs were full-time. Full-time employment has been growing particularly strongly in the past few years.

Another good indicator of how well the economy is going at providing jobs for those who want to work is the employment ratio – the proportion of everyone in the population aged 15 and over who has a job. It’s steady at 62.4 per cent, the highest it’s been.

Just during January, employment increased by 24,900 to reach 12.7 million. That’s an increase of 0.2 per cent, above the monthly average growth rate over the past 20 years of 0.16 per cent.

But don’t get the idea this means all of us stayed in our jobs while another 24,900 joined us. That’s just the net increase. There was a lot more coming and going than that. Indeed, the bureau informs us that, each month, about 300,000 people leave employment and about 300,000 enter it.

Looking at that strong performance over the past couple of years, what’s not to like? With a federal election coming up, why shouldn’t Morrison and Frydenberg boast about the great job they’ve done on jobs?

Well, a lot of their critics would be happy to tell you. They know the official unemployment figures understate the true extent of joblessness.

Did you realise, for instance, that the bureau counts you as employed even if you’ve worked for as little as one hour a week?

This means that, as well as the 680,000 people counted as being unemployed, there are another 1.1 million people who are under-employed – those who have a part-time job, but want to work more hours a week than they are.

Those 1.1 million represent 8.3 per cent of the “labour force” (all those with jobs or looking for jobs). Add that 8.3 per cent to the official unemployment rate and you get a total “labour under-utilisation rate” of 13.3 per cent.

This is down from 14 per cent a year ago, with under-employment accounting for just 0.2 percentage points of the fall and unemployment accounting for the rest.

So the under-employment rate, which rose in the years after the global financial crisis, has fallen since its peak of 8.8 per cent in early 2017, but much more slowly than the fall in unemployment.

That’s the standard critique of the official story: the “true” extent of joblessness is far higher than the official unemployment rate tells us, and when you take account of widespread under-employment you see also that the rate of improvement has been a lot smaller.

What are we to make of this criticism? Well, it’s correct factually, but when you look deeper you see it goes to the other extreme of overstating the extent of the problem.

Take, for instance, the oft-repeated news that people are counted as unemployed if they work for as little as an hour a week. That’s true, but how many people do work as little as an hour?

Answer: almost no one. This week the bureau issued a special note about this matter. It says that only about 14,500 people do, out of total workforce of 12.7 million – that is, 0.1 per cent. (If you think 14,500 people is a lot, you don't realise how big our economy is.)

Make it people working up to three hours a week and you’re still only up to 100,400 people, or 0.8 per cent. In fact, about 97 per cent of workers usually work seven hours or more a week. That’s at least one full shift a week.

The point is that you have to draw the dividing line between unemployed and employed somewhere, and by adhering to the longstanding international convention of drawing it at an hour a week, we are not significantly overstating the position.

Many people assume the only good job is one that’s full-time. Wrong. Many students, parents and semi-retired people are perfectly happy working only part-time.

Further, many people assume that every part-time worker who says they’d like to work more hours is someone who’d rather have a full-time job if only they could find one. That’s wrong, too. Though many would indeed prefer a full-time job, many part-timers want to stay part-time, but wouldn’t mind working a few extra hours.

So when you take the unemployment rate (people with no job) and simply add the under-employment rate of 8.3 per cent on to it, you’re exaggerating the number of people working significantly fewer hours than they want to.

But let’s take a closer look at under-employment. As the bureau has explained, it is concentrated among the young. More than a third of the under-employed are aged 15 to 24. About 18 per cent of all workers in this age group are under-employed.

It seems clear that education-leavers have borne more than their fair share of the pain during the period of below-par growth since the global financial crisis in 2008. Many people leaving university have had to settle for a part-time job and, until quite recently, they’ve taken more months to make it into full-time employment.

The latest figures from the universities show their new graduates are now taking less time to find a decent job than they were.

But, in any case, caring about the troubles of young people is deeply unfashionable. It’s the well-off elderly we should be worrying about.

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Hey pollies: weak wage growth won't fix itself

The economy’s prospects are threatened by various risks from overseas – about which we can do little – and by continuing weakness in wage growth – about which the two sides contesting the May federal election have little desire to talk.

In his major economic speech last week, Scott Morrison gave wages only a passing mention: “by focusing on delivering a strong economy we create the right environment for wages growth, which we are now beginning to see, and more will follow”.

Actually, you need a microscope to see any improvement. The microscope shows that most of it is explained by the Fair Work Commission’s hefty 3.5 per cent increase in minimum wage rates last June.

(And why was it so generous? To offset the effect on pay packets of its earlier decision to phase down Sunday penalty rates.)

Not, however, that Bill Shorten has had a lot more than Morrison to say about the causes and cure of weak wage growth. Presumably, Shorten fears that anything he says about changes to wage fixing will be used to feed yet another scare campaign about him being a patsy for a union takeover.

Two or three years ago, I was happy to entertain the view still publicly espoused by the Reserve Bank (and still happily hidden behind by Morrison) that the wage problem was simply cyclical: wages are taking longer than expected to recover from the ups and downs of the resources boom but, be patient, they’ll come good soon enough.

Sorry, that possible explanation gets harder to believe as each quarter passes without any sign of nominal wage growth moving ahead of weak inflation, so as to give employees their rightful share of the improvement we’ve achieved in the productivity of their labour.

(And thus – ScoMo please note - giving the boost to real household disposable income, then consumer spending and then business investment spending, that has always been the greatest single contributor to “delivering a strong economy”.)

No, as years pass without the cycle restoring real wage growth, it becomes easier to believe the problem arises from some deeper issue with the structure of the economy.

The most popular structural explanation – best espoused by Professor Joe Isaac, an eminent labour economist – is that the “reform” of wage fixing went too far in shifting the balance of industrial bargaining power in favour of employers.

Isaac’s various proposals for reforming the reform – including restoring unions’ right of entry to the workplace, reducing the rigmarole before workers can strike, and restoring permission for industry-wide bargaining – would no doubt have crossed Labor’s mind for serious consideration should it win the election.

But another noted labour economist, former top econocrat Dr Mike Keating, has his doubts. He says he has no great objection to Isaac’s wage-fixing reforms, but doubts they’ll get wages moving because the structural problem is much deeper.

As argued in detail in his book with Professor Stephen Bell, Fair Share, and many articles and blogs, Keating sees our wages problem in the much broader context of the malaise of “secular stagnation” that’s been gripping the US and other advanced economies for at least a decade.

Keating reminds us that wage growth has been weak in most of the advanced economies for several decades, accompanied by rising inequality.

The distribution of earnings (that is, wages, rather than income from all sources) has become more unequal, Keating argues, mainly because of technological change and, to a lesser extent, globalisation.

Technological change has been “skill-biased”, with strong growth in high-skilled employment, and reasonable growth in unskilled jobs, but a decline in middle-level jobs, where routine jobs are being done by computers.

The result is a change in the structure of employment, one which increases earnings inequality. If so, it’s not a problem that could be fixed by higher wage-rates.

Keating says we’ve been slow in Australia to see what’s increasingly been realised overseas and by the international economic agencies: income inequality is bad for economic growth (mainly because the high-paid save rather than spend a higher proportion of their incomes).

But Keating’s more fundamental policy response to the problem of technology-driven weak wage growth and increased inequality is enhanced education and training, to help workers adjust to the challenges posed by new technologies, as well as spur the adoption of those technologies.

He’d give priority to early childhood learning and life-long learning through the TAFE system. He's happy to note this would require us to pay more tax rather than less – another thought the pollies don’t want us thinking about right now.

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More jobs for older workers than ever before

“Too old, too senior, too experienced, too expensive – heard ’em all. Ours is a society which does not value age and lived experience. Over 50? It’s the scrap heap for you.”

I can’t remember where I saw that quote, but I bet you’ve heard those sentiments many times. The media are always bringing us stories about people who, having lost their job in late middle age, find it very hard – even impossible - to get another one.

It’s understandable that people experiencing such treatment get pretty bitter about it. And it’s not surprising the media and the politicians take their complaints so seriously. The federal government has appointed successive age discrimination commissioners, and instigated various schemes offering subsidies to employers willing to hire older workers.

All of which is just as likely to increase prejudice as reduce it. The more public figures bang on about the prevalence of age discrimination, the more they risk sending a message to employers that if everyone else is ridding themselves of older workers, why aren’t they?

And if older workers weren’t sub-standard, why would the government find it necessary to subsidise their cost?

It would be silly to deny that some employers are prejudiced against older workers – just as some are prejudiced against young workers (an injustice the media are far less eager to tell us about).

But it’s just as silly to leap from the truth that some proportion of older workers has trouble finding re-employment to the outlandish claim that every worker over 50 is headed for the scrap heap.

I don’t know the true extent of discrimination against older workers, but I’m pretty sure we’ve been given an exaggerated impression of it, with many older workers caused to worry unnecessarily.

If there was any truth to the notion that everyone over 50 is headed for the scrap heap, we should be seeing a sharp decline in the rate at which people over 50 are participating in the labour force.

But we’re not. Indeed, the reverse is happening. The statistical truth is that the participation rates of older age groups are higher than they’ve ever been – a point Reserve Bank governor Dr Philip Lowe made in a little-noticed speech last year.

The ageing of the population – and, more particularly, the retirement of the baby-boomer bulge – means the proportion of older people working should have declined. Remarkably, it’s increased.

There was a time when early retirement was all the rage. As soon as you could retire, you did. And a lot of workers were retired involuntarily.

But those days are long gone. The age at which men and women are retiring keeps rising. In the 1980s and ‘90s, less than one worker in 10 was over 55. Today it’s almost one in five.

Since 2000, the “participation rate” for men aged 55 to 64 has risen from 60 per cent to about 67 per cent. The rate for women has been rising since the early ‘80s – from 20 per cent to 60 per cent.

For men aged 65 and over, the participation rate has risen since 2000 from 10 per cent to almost 20 per cent. (Read that again if it didn’t sink in.) For women in the same age group, participation has gone from a per cent or two to about 10 per cent.

The big news is that older people are staying longer in the workforce than ever before, but the story we’re being fed is that employers are discriminating against older workers wherever you look.

How has this remarkably under-reported truth come about? Partly for negative reasons. The higher cost of homes has caused people to take on mortgages later in life, meaning some people have higher levels of mortgage debt as they approach retirement and don’t want to stop working until it’s paid off.

The knowledge that we’re living longer – combined with the super industry’s unceasing efforts to convince us we haven’t saved enough – has prompted some people to delay their retirement.

Governments have lifted the age pension age to 65 for women, and are now phasing the age for both sexes up to 67. They’ve also raised the age at which you may access your superannuation savings.

But then there are the positive reasons. The present generation of older workers is much healthier than earlier generations.

And we’re living longer. Which makes it hardly surprising we’re working longer. Of course, another factor that’s helping is greater acceptance by employers of “flexible work practices” – including allowing workers to shift from full-time to part-time. That is, there’s been a rise in semi-retirement.

Then there’s the fact that more and more people work in the services sector, in jobs that tend to be less physically demanding.

But perhaps the biggest factor is the delayed effect of the trend for most mothers to return to the workforce after childrearing. Now more of them are still working decades later.

Oldies are always expounding on the supposed shortcomings of the younger generation. But there’s one respect in which oldies set youngsters a bad example: they’re champions at feeling sorry for themselves – even when the facts don’t back them up.

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Sorry, small business has no special sauce for jobs

Scott Morrison is surely on a winner with his decision to step up pursuit of jobs and growth by bringing forward the time when small and medium businesses have their company tax rate cut to 25 per cent.

Certainly, it’s likely to be a popular decision, not just with the owners of the more than 3 million businesses who’ll be paying a bit less tax, but also with a lot of ordinary voters.

After all, as everyone knows, small business is the backbone of the economy and its engine room. It’s where most of the economy’s jobs are.

How does everyone know it? Because that’s what politicians – and the small business lobby – keep telling us.

This is why Morrison is so confident of getting the bring-forward passed by the Senate.

Cutting the smaller-business company tax rate to 25 per cent by 2021-22 rather than 2026-27 will have an additional cost to revenue of $3.2 billion over four years.

Only about $1.3 billion of this would be offset by the government’s abandonment of its plan to cut the tax rate for bigger businesses. The rest would be covered by repaying government debt more slowly than previously projected.

There’s likely to be enough cross-benchers keen to push the fast-tracking through – big business may not be judged worthy of a tax cut, but smaller business is - even if Labor isn’t playing ball.

But it seems Labor will be. Why? Because it, too, professes to believe small business is what the economy revolves around.

According to its official policy: “Small businesses make a huge contribution to national prosperity and supporting Australian jobs. Small businesses play a central role in the economy.”

There’s just one problem with all this stuff. It ain’t true.

When you study the facts and figures, there’s no reason to believe small business has any economic virtue not possessed by businesses of any other size. If anything, the reverse.

I’ve spent my whole career as an economic journalist refuting the delusional claims of this or that part of the private sector to be more worthy than the rest of it.

If it’s not small business claiming to be the economy’s engine room, it’s farmers claiming to be the bedrock on which the rest of the economy is built, or manufacturing claiming that making things is more virtuous than doing things (providing services).

There are all those ads telling us it’s mining the country most depends on. (They’re trying to draw attention away from the truth that mining is hugely profitable, about 80 per cent foreign owned, avoids as much tax as possible and employs surprisingly few workers.)

Then there are the exporters claiming that producing things for sale to foreigners is more important than producing things for sale to locals.

Plus, of course, the common delusion that the private sector is “productive” whereas the public sector is unproductive and even parasitic. Do you really think curing the sick or teaching the young – or even directing the traffic – is unproductive? That people in the private sector pay taxes, but workers in the public sector don’t?

It’s all economically illiterate hype. And it’s used to try to justify demands that the government give my bit of the economy a special deal not available to other bits. Economists’ name for it is “rent-seeking”. (Though, as recent events remind us, no one does rent-seeking better than the Catholic schools.)

But back to measuring against the facts the claims that small business has a special sauce when it comes to jobs. It’s complicated by the fact that the usual way of measuring the size of businesses is according to the number of their employees, whereas eligibility for the lower company tax rate is determine by the size of a business’s turnover (sales, not profits).

Morrison says there are more than 3 million businesses with turnover of less than $50 million a year, employing “nearly 7 million Australians”.

If so, that’s more than half of our total “employed persons” of 12.6 million. But about a third of those 7 million would be in medium-size businesses, not small.

According to the latest figures from the Australian Bureau of Statistics, for 2016-17, small business (defined as firms with fewer than 20 employees) has 4.8 million workers, medium-size business (20 to 199 employees) has 2.6 million workers and large business (200 plus) has 3.5 million.

That means small business employs just 44 per cent of the private sector workforce and about 40 per cent of the total workforce.

But just because a sector employs a lot of workers, that doesn’t necessarily mean it's creating jobs faster than other sectors.

Over the two years to June 2017, small business may have had 44 per cent of the existing private sector jobs, but it accounted for only 18 per cent of the growth in jobs.

Overall, private sector employment grew by 2.3 per cent, but small business employment grew by just 0.9 per cent. Combine small and medium and they grew by 2.3 per cent, about the same rate large-business employment growth.

And this during a period when smaller businesses were paying a lower rate of tax, supposedly to encourage them to create more jobs.

Actually, the lack of apparent response shouldn’t be a surprise. The typical tax saving is small. Morrison himself says that an independent supermarket or a pub that makes a $500,000 annual profit would save $12,500 in 2021-22 “to invest back into the business or staff, or help to manage cash flow”.

That doesn’t buy many jobs, nor many pay rises. And since businesses are free to use their tax saving however they see fit, there’s no reason to think they’ll favour more jobs or higher wages. No more than big businesses would.

If Morrison’s on a winner, it’s a political winner, not an economic one.

But if there’s nothing special about small business, why do politicians on both sides keep spreading the sector’s propaganda that it is special?

Because the many more owners of small businesses have far more votes than the relatively few bosses of big businesses do. It's politics, not economics.

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How economists lost their fear of minimum wage rises

Do rises in the minimum wage come at the expense of jobs? If you listen to the employer groups, they certainly do. But this is a question on which economists have changed their tune.

So much so that the latest issue of the Reserve Bank’s Bulletin includes an article by one of its researchers, James Bishop, concluding there’s no evidence that modest, incremental increases in minimum award wages have an adverse effect on hours worked or the rate of job destruction.

There’s no way the Reserve would have said such a thing 20 years ago.

For decades, most economists did believe increases in the minimum wage would cause employment to be lower than otherwise if they took the wage rate above where market forces would have set it – the “market-clearing” price at which the quantity supplied and the quantity demanded were equal.

Their certainty came from elementary economic theory. Their simple “neo-classical” model of markets, the bedrock on which most economists’ thinking is based, told them that if you raise the price of something without any change in its supply, you’ll cause less of it to be demanded.

That was as true for the price of labour as it was for the price of bananas or anything else.

This continued to be the conventional wisdom among economists until 1994, when two American economists, David Card and Alan Krueger, published the results of their “natural experiment” in which they compared what happened in 410 fast food restaurants in two adjoining states after New Jersey raised its minimum wage by 19 per cent but Pennsylvania didn’t.

To much amazement, they found that the rise in the price of labour actually led to a small rise in employment, not a fall.

In other words, they checked the theory against the real world and found it wanting.

This implied that the simplified model of demand and supply might be good for predicting the consequences of a rise in the price of bananas, but it isn’t much good at predicting developments in a market where every unit of labour is different and comes with a human attached.

A model that could predict the outcome Card and Krueger found is one that assumes employers have a degree of market power over wages, allowing them to fix wage rates below where a free market would put them, until the government intervened.

Card and Krueger’s challenge to the conventional wisdom set off decades of empirical studies throughout the developed world trying to replicate or refute their findings. Not surprisingly – since academic economics is riven by ideological conflict – they found both.

Bishop says that, on balance, the weight of evidence is that “modest and incremental increases in minimum wages do not have significant adverse effects on hours worked and job loss”.

But Australia’s system of minimum wages is very different to other countries’ systems, and there hasn’t been much empirical testing here.

Countries such as Britain, Germany and New Zealand set a single national minimum wage; in the United States it varies by state.

In Oz we, too, have a national minimum wage, but we also have more than 100 industrial awards covering particular industries or occupations, each of which sets a number of minimum wage rates for particular job classifications covered by that award.

Awards cover those aspects of employees' pay and conditions that they’re permitted to cover by the national Fair Work Act. Awards are awarded by the Fair Work Commission after submissions from unions and employer groups and they have the force of law.

Pay someone less than the minimum amount specified in the relevant award and you’re breaking the law.

It’s true, of course, that many workers’ pay – a good third of all employees – is determined by their enterprise agreement rather than their award. The wage rates specified in agreements are usually a fair bit higher than those in the award.

Roughly 40 per cent of employees are covered by “individual arrangements” between the individual and their employer, which may be formal (written) or informal. These wage rates need to be at least as high as provided in the individual’s award.

Not a huge number of workers depend on the national minimum wage (of $18.93 an hour, $719 a week and $37,406 a year), but many workers are paid according the much higher minimums set out in their award.

And here’s the trick: when, after a public hearing, the Fair Work Commission decides by how much it will increase the national minimum wage on July 1 each year, it increases the thousands of minimums set out in awards by the same percentage. (The highest award minimum is $171 an hour.)

So our minimum wage directly affects the wages paid to about a quarter of all employees. That’s a much higher proportion than in the other rich economies.

What’s more, the minimum wage increase probably affects many more workers indirectly, particularly those on individual arrangements.

Our national minimum wage has long been among the highest in the rich countries, both in its absolute level and relative to the median wage.

Consider this: while the wage price index has been rising by only about 2 per cent a year in recent years, the annual increase in the minimum wage was 3.5 per cent this year, 3.3 per cent last year and 2.4 per cent in 2016.

All these are the reasons it was important for Bishop to study our minimum wages to check that the broad conclusions reached in other countries also apply to us.

He did, and they do. He finds that our minimum wage increases “appear to have no discernible adverse effect on hours worked or job loss”.

But minimum wages being the contentious topic they are, he’s quick to add some qualifications.

“The results do not necessarily generalise to large, unanticipated changes in award wages. There will always be some point at which a minimum wage adjustment will begin to reduce employment significantly,” he says.

And here’s a worry: “It is possible that the adverse consequences of higher wage floors may be borne by job seekers, rather than current job holders.”

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Young people bearing the brunt of a weak economy

Without wanting to be branded a class traitor, I have to admit that we Baby Boomers have enjoyed a rails-run in the race of life.

Most of us had little trouble getting ourselves set up in the jobs market and then the housing market. I look at today’s bright and bushy-tailed youngsters, just starting out in both markets, and don’t envy them one bit (except, of course, their instinctive understanding of the right place to click on a webpage).

(Just to protect my back: those Baby Boomers who were conscripted, or ended up in Vietnam, didn’t have it easy. Nor should those who’ve come after us imagine all Baby Boomers are rolling in it, have never been unemployed, never paid uni fees nor suffered bad luck.)

In the decade since the global financial crisis and the recession we supposedly didn’t have, the supply of people wanting to work has been stronger than employers’ demand for work to be done.

That’s true even though the rate of unemployment never got very high and isn’t all that high today. But a study by Zoya Dhillon and Natasha Cassidy, of the Reserve Bank, confirms what I’ve long suspected: the reason the position overall hasn’t looked so bad is the brunt of the weakness in employers’ demand for labour has been borne by young people leaving school and university.

Whatever you’ve heard in the media, not a lot of workers have been laid off since the shock in September 2008. Employer behaviour has changed, the study confirms. Firms have been less inclined to get rid of people and more inclined to reduce the total amount of hours they’re paying for.

This has become easier for them to do because of their greater ability to employ people on a part-time or casual basis.

On balance, and from an economy-wide perspective, this change of behaviour is an improvement, a shift to a lesser evil. It’s a terrible blow to suddenly lose your job. Better to have some paid work than none.

But the price for this marginal improvement has been paid mainly by the young. Established workers have tended to keep their jobs, but employers haven’t recruited as many people at entry-level. And more of the jobs they’ve offered young people have been part-time.

A new twist on last in, first out.

The result is that education-leavers have had greater trouble – and suffered longer delays – in finding a full-time job suited to their education.

“Over the past decade,” the study says, “increases in the unemployment and underemployment rates for younger people have been twice as large as for the overall labour market. The share of 20 to 24 year-olds that have become disengaged from either study or work has also increased.”

“Younger people” means those aged 15 to 24, though remember that those aged 15 to 19 will mainly be still at school, while many of those aged 20 to 24 will be at university or TAFE.

Some younger people have part-time jobs while still at school, and most higher education students in full-time study also work part-time.

Nothing new or worrying about that. But “in recent years there has been a pronounced increase in the share of 20 to 24 year-olds working part-time who are not studying full-time”.

You’ve heard, no doubt, that while the official unemployment rate has been edging down, the rate of underemployment – people working part-time who want to work more hours – has been edging up (until lately, as we’ll see).

What’s less well known is that underemployment is dominated by younger workers, and it’s they who’ve done most to drive the rate up over recent years. A lot of this would be people finishing uni but having trouble finding a full-time job and taking a part-time job while they keep searching.

In the mid-1990s, about 80 per cent of all bachelor-degree graduates found a full-time job within four months of graduating. By last year, that had fallen to just over 70 per cent – about the same as it got down to during our last severe recession in the early 1990s.

Remember, it’s like a traffic jam. It takes a lot longer than it should, but you do get through eventually.

The most worrying thing is the “NEET rate” – the proportion of younger people who are “not in education, employment or training”. The NEET rate has fallen over the decades as we’ve done better at getting more of our young people into education and training.

But the rate for 20 to 24 year-olds has increased in recent years and is back to where it was in 2005.

The study says prolonged spells of disengagement from the labour market are known to have lasting ill-effects. “Poor labour market outcomes early on not only affect an individual’s future employability, but also have persistent negative effects on lifetime earnings.”

All this says the difficulties younger people are encountering in finding decent full-time jobs are better explained by the economy’s prolonged period of below-par growth since the financial crisis than by the sexier and more frightening explanation that it’s caused by the rise of the “gig economy”.

Which brings me to a little good news. The trend rate of underemployment for all ages has fallen a little to 8.4 per cent over the past year. And the rate of unemployment for younger people has fallen from 12.4 per cent to 11.6 per cent in just the past four months.

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Jobs growth goes from extraordinary to ordinary

How’s the job market going? Not nearly as well as the Turnbull government would like us to believe, but not as badly as its critics claim.

According to the money market economists, the figures we got this week from the Australian Bureau of Statistics for the labour force in June were “another strong jobs report”.

Total employment rose during the month by a “stronger than expected” 51,000 jobs. More than 80 per cent of the extra jobs were full-time, and the rate of unemployment fell to 5.4 per cent, its lowest in more than five years.

Impressed? Don’t be. What happened in just the past month tells us little about how the labour market is travelling, particularly as the money market economists insist on using the ropy seasonally adjusted figures because this makes their betting games more exciting.

That the increase was “stronger than expected” sounds nice, but it means nothing to anyone but them and anyone foolish enough to lay money based on their prediction. They make predictions every month, but they’re wrong more often than they’re right.

No, for a sensible view of what’s been happening to jobs we need to look over a run of months and focus on the bureau’s “trend” (smoothed) estimates.

Six weeks ago, when we learnt that real gross domestic product grew by a “stronger than expected” 3.1 per cent (seasonally adjusted) over the year to March, Treasurer Scott Morrison was keen to put this together with the fact that total employment grew by more than 400,000 in 2017 – the strongest growth ever for any calendar year, with more than 1000 jobs created on average every day.

It was proof that Australia had “climbed back to the top of the global leaderboard”. Tough times were over and, under his and Malcolm Turnbull’s masterful plan for Jobs and Growth, everything was on the up and up.

Now, all his claims about our extraordinary jobs performance last year were true. But last year was six months ago. How’ve we been travelling since then?

Ah, not quite so swimmingly. Whereas over the course of 2017 total employment grew, as we’ve seen, by more than 400,000, or 3.3 per cent, over the first six months of 2018 it’s grown by 124,000, which is growth of 1 per cent or, annualised, 2 per cent.

So, after its extraordinary performance last year, this year the job market’s been very ordinary. Indeed, 2 per cent is right on the average annual rate of growth over the past 20 years.

And note this: whereas last year 80 per cent of the extra jobs were full-time, over the past six months less than a third of ’em have been.

I don’t take this as a sign the economy is slowing, however. Rather, it’s an indication that a year-long period in which employment grew far faster than the economy’s unspectacular rate of growth would have led you to expect, has ended and things have returned to normal.

And while we’re cutting the hype back to size, note this. You could have expected that the extraordinary period of jobs growth would have produced a big fall in unemployment. It didn’t. The rate of unemployment fell just from 5.8 per cent to 5.5 per cent, which is good to see, but not outstanding.

Why was the improvement in unemployment relatively modest? Why didn’t the extraordinary growth in jobs cause an extraordinary fall in unemployment?

Because while employment was growing by 3.3 per cent, the number of people in the labour force (that is, those with jobs or actively seeking one) grew by an extraordinary 3 per cent.

Why did the labour force grow so strongly? Partly because the population of working age (everyone 15 and older) grew by a strong 1.7 per cent, but mainly because the rate at which those of working age chose to participate in the labour force (either by holding a job or by seeking one) rose by 0.8 percentage points to a (near record) 65.5 per cent.

Why is participation so high when the experts were expecting the ageing of the population (aka the retirement of the baby-boomer bulge) to bring it down? Mainly because so many baby boomers are continuing to work, even if only part-time. (Stop looking at me like that.)

But while we’re deflating the government’s triumphalism, its critics also need taking down a peg. They like to remind us that the official unemployment rate understates the true extent of worklessness. Specifically, it fails to take account of under-employment  – people with part-time jobs who’d like to work more hours.

All that’s true. But when you correct the unemployment rate (for May) of 5.4 per cent by adding the underemployment rate of 8.5 per cent to give a broader measure of labour “underutilisation” of 13.9 per cent (as, admittedly, the bureau encourages you to do), you’ve gone from understating the problem to overstating it.

Why? Because, by using this “head count” method of measurement, you’re adding apples to oranges. The underemployment rate counts every part-timer who’d like more hours (which is only about a quarter of them), whether they’re after a full-time job or just a few more hours a week.

(Similarly, many people don’t realise that, of the 720,000 people who account for the unemployment rate of 5.4 per cent, about 30 per cent of them are seeking only a part-time job. That is, the official unemployment rate also involves adding apples and oranges.)

Knowing this full well, the bureau also measures labour underutilisation (unemployment plus underemployment) on a consistent, “volume” (or hours-wanted) basis, which it buries deep on its website at catalogue no. 6291.0.55.003, table 23b.

On this other basis, the rate of unemployment falls from 5.4 per cent to 4.2 per cent, and the rate of underemployment from 8.5 per cent to 3.1 per cent, giving an overall rate of underutilisation of not 13.9 per cent, but 7.4 per cent.

This measure of the rate of underemployment hasn’t changed in three years, but the rate of unemployment has fallen slowly, meaning underutilisation has fallen from 7.9 per cent in May 2015. Slow progress.

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Digging up a lot more coal won't bring more jobs

One thing I admire about greenies is their soft hearts. Whereas big business pushes its self-interest to the exclusion of all else, environmentalists worry that, in their efforts to save the planet, some workers may lose their jobs.

What worries me, however, is the greenies’ soft heads. Many of them profess to a soul above such sordid (and boring) matters as economics, but the less you know about economics the more easily you’re taken in by developers’ and politicians’ promises of Jobs and Growth.

Greenies know that the “green economy” creates jobs and growth, but worry that their opposition to the building of new thermal coal mines would cost jobs and growth.

So does the miners’ union. Hence the advent of “just transition” – the notion that the transition from fossil fuels to renewables needs to be “just” in that people who lose their jobs in the fossil fuel industries get treated fairly.

Fair enough. Trouble is, if you think the goal is to eliminate the need for workers and regions to change, rather than to help workers adjust to the reshaped economy – you end up doing crazy things like insisting new solar and wind farms are built near the old coal mines, rather than where there’s most sun and wind.

A particular sore point at present is the greenies’ implacable opposition to the establishment of Adani’s Carmichael coal mine in the Galilee Basin of Queensland. What about all the potential jobs and growth that wouldn’t happen?

Well, perhaps it’s not as big a problem as it seems. The thing about the economy that non-economists keep forgetting is that “everything’s connected to everything else”. And as the economists at the Australia Institute remind us in a new paper, when you trace through the linkages you realise that development of the Galilee Basin could be expected to displace a lot of mining jobs – maybe even more than it created.

First point, the Adani mine would be huge. It aims to produce 60 million tonnes of coal a year, making it three times the size of the highest producing mine in NSW.

And if some government subsidises a railway linking Adani’s mine to the nearest port, this would clear the way to building other mines in the Galilee Basin, which could take the basin’s total production to 150 million tonnes a year by 2035.

Australia is already the world’s largest coal exporter. Modelling by commodity analysts Wood Mackenzie, commissioned last year by the world’s largest coal export port, Port of Newcastle, estimates that such increased production would raise the world supply of internationally traded coal by about 15 per cent.

Wood Mackenzie estimates that, assuming the Paris agreement has little effect and world demand for traded thermal coal rises by 10 per cent out to 2035, the excess of supply over demand would cause coal prices to be $3 a tonne lower than otherwise in 2026, rising to $25 lower in 2030.

(Such an assumption about world demand is optimistic for coal producers and pessimistic for the planet. Coal use has been falling in Europe, the US and China, with global coal demand falling by 2 per cent in 2016, for the second year in a row. The International Energy Agency sees the traded thermal coal market as having contracted by 60 per cent in 2040 if countries keep their Paris commitments. If so, coal prices would fall by a lot more than Wood Mackenzie suggests.)

The lower world prices caused by the development of the Galilee Basin would discourage development of new mines – and thus the maintenance of production levels, as existing mines are worked out - in other coal producing regions.

Wood Mackenzie estimates that, by 2035, production in NSW’s Hunter Valley would be 86 million tonnes a year lower than would have been the case had the Galilee development not gone ahead.

For Queensland, this relative reduction would be 17 million tonnes a year for the Bowen Basin and 13 million for the Surat Basin. So, plus 150 million from the Galilee versus minus 116 million from the rest.

The Australia Institute economists’ study seeks to translate these relative reductions in production into relative reductions in employment. Based on Adani’s estimates of labour productivity in its mines, the whole Galilee Basin would employ between 7,800 and 9,800 people to produce 150 million tonnes per year by 2035.

By contrast, their most optimistic estimate is relative reductions of 9100 jobs in the Hunter Valley, 2000 in the Bowen Basin and 1400 in the Surat Basin, a total of 12,500.

How could a net increase in production yield a net decline in jobs? Much greater scope for economies of scale in the Galilee Basin. And that's before you take account of rapid advances in automation, such as driverless trucks controlled remotely from head office in Brisbane.

If we want Jobs and Growth in the future, mining ain’t the place to look.

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