Why young women are beating men in the jobs market

By MILLIE MUROI, Economics Writer

COVID-19 changed the way we work, the skills we seek, and the types of jobs going around. But in the years since the pandemic, one of the biggest changes has been a leap in employment – especially for young women.

Since the pandemic, the unemployment rate of women under 35 has averaged about 1 percentage point below that of men the same age (the largest gap, in either direction, in two decades). And over the past decade, the gender pay gap per hour has narrowed from 11.5 per cent to 8 per cent.

We already know Australian women are finishing university at higher rates than men. But research by e61 economist Matthew Maltman reveals the boost in women’s job prospects and wages are largely driven by reasons linked to the expansion of the care economy, including childcare, aged care and disability care.

While the mining investment boom in the late 2000s and early 2010s led to more men than women climbing out of unemployment and into work, the growth in Australia’s care sector since the pandemic has seen young women be more successful than young men at securing work.

Since the National Disability Insurance Scheme (the third-largest program in the federal government’s budget, aimed at providing funding and support for those with permanent disabilities) was launched about a decade ago, the care economy has expanded sharply.

As Maltman points out, the care economy has been the biggest source of Australia’s economic growth over that time. And because it’s a sector that is labour intensive — meaning it relies on relatively large amounts of human work as opposed to work done by machines — it has also been the biggest driver of employment growth.

As demand for workers willing and able to provide care has soared, so have job opportunities in caring roles.

The people who have jumped to fill these opportunities, however, have tended to be women, and especially those who are relatively young.

Maltman notes young people tend to enter the field for two main reasons. First, care roles tend to offer a pathway for those in entry-level positions such as hospitality and retail to enter into more stable and better-paid work.

Second, while care jobs tend to pay less than the average job overall, that’s not the case for younger workers. Since the pandemic, the average hourly wage for 20-to-24-year-olds in the care economy has been about $3.50 higher than the average for workers of the same age across the economy more broadly (and $5 higher than in male-dominated sectors such as construction).

Women have also been more eager to take on these jobs. Caring roles — both in formal workplace settings such as hospitals and aged care facilities and informally at home — have long tended to be filled by women. And Maltman says that trend has continued.

Young women who weren’t previously working have moved into care roles at sharply higher rates since the pandemic, while only a slightly higher number of young men who weren’t previously working jumped into those same care roles. “While men face no formal barriers to working in care, and many already do, deep-seated gender norms and social factors have been slow to shift,” Maltman says.

This uneven uptake of care roles has contributed to a clear improvement in employment outcomes for young women compared with young men. While the care sector has morphed into a major destination for young women looking for work, the research notes there hasn’t been a similar industry or growth area that has appealed to young men.

The boom in the care economy, and growing demand for workers in the sector, has also led to higher wages — much of which has flowed to women who make up a majority of care workers.

Not only has the hourly gender pay gap narrowed over the past few years, but women now earn more than men per hour worked, on average, from age 15 to their early 30s.

Decisions made by the Fair Work Commission to significantly lift wages in the care sector (largely to make up for the historical undervaluing of care work) over the past few years has helped to boost wages for nurses and social workers — many of whom are women. And the rollout of the NDIS has led to a surge in demand for workers, resulting in shortages in labour and pushing bosses to boost wages in a bid to keep their workers.

Broadly, the health and social services sector (which includes the care economy) has had the highest wage growth of all sectors since the pandemic.

Maltman finds rising wages in the care sector account for about 15 per cent of the overall shrinking of the hourly gender pay gap.

Thanks to the expansion of the care sector over the past decade, the average full-time woman (across all sectors) is $440 closer to earning the same amount as an average full-time man per year.

Women becoming more educated explains a further 15 per cent of the improved hourly pay gap.

But a boost in the number of working age women in jobs (and those looking for jobs) has been about twice as important in narrowing the gap — part of which could be explained by the rise of work from home.

Over the past decade, the share of women working (and looking for work) has jumped, especially among those aged 30 to 40 – a time when earnings tend to start peaking, but also a time in which many women have historically had to reduce their professional work because they are taking care of family.

But Maltman says there are also other factors that have helped shrink the hourly gender pay gap — some of which are harder to put exact numbers on. That includes improved transparency in how much people are being paid and a continued fall in sex discrimination, but also what’s known as “spillover” effects.

That is, the growth in the care economy — and higher demand for workers — probably has knock-on effects for other sectors. More job opportunities for women in the care sector means they have greater bargaining power, not just in caring roles but also across other sectors as bosses fight to keep their workers (and maintain gender diversity in their workplaces), often through pay rises.

But it’s not all good news.

The hourly gender pay gap measures income per hour of work, and because women still work fewer hours than men on average, the annual pay gap for 25-year-olds was still about 12 per cent in 2022 (although that’s down from 16 per cent in 2016).

And while their pay may have increased, work satisfaction has been relatively low for some care workers — especially those in aged care.

There also tends to be fewer opportunities for earnings growth and career progression in the care economy after the age of 25 than in many other industries. Maltman points out if young women currently in care work stay in these jobs, they may end up earning less than their male counterparts in other industries over time. That means 10 to 20 years down the line, the gender pay gap may end up widening again for these workers.

While care work tends to offer job stability, it’s also a sector in which workers do not tend to change roles or workplaces very often. That can slow down productivity growth (our ability to achieve more with our limited resources) because workers might be less able or willing to move to jobs that suit them — and their skills — better.

And while growth in the share of women in jobs (and their pay) is welcome, Maltman points out the lack of adjustment by men — especially young men — to the changing structure of the economy is concerning, with a growing number of young men choosing not to participate in work or education.

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AI: Much ado about something that one day may be important

AI. AI. AI. Maybe if I utter those magic initials one more time, you’ll reach peak ecstasy. Worried about our lack of productivity? Fear not. The economy will soon be rocketing ahead.

What’s that? You’re worried AI will soon put all of us out of our jobs? Never fear. You’re gonna love it on the dole. All that spare time.

What are we to make of all the fuss about AI – or A1, as someone at my place calls it? Well, I’ll tell you what I think, although I’m no expert on the technological marvels that will be unveiled any time soon.

But that’s the first point. None of us knows what AI involves except a few self-appointed experts, who are doing all the talking about how fabulously big and revolutionary it will be. Well, maybe. Maybe not.

I’ve been around long enough to notice when it’s the proponents of the world-shattering development – the people who stand to gain most from it being big, big, big – telling us how wonderful it will be. (I’m so old I can remember when AI stood for artificial insemination.)

The experts are generating much of the hype about AI and what a revolution it will be because they want to attract the attention of governments, whose approvals and co-operation the proponents need to do what they want to do.

Of course, some experts have broken ranks to warn about the many thousands of workers who could lose their jobs. But this, too, is probably part of the proponents’ efforts to attract governments’ support.

Which brings us to the sharemarket. It’s booming right now, thanks to all the excitement about AI and the big profits it will bring to investors. We’ve seen such booms before, and they don’t end well.

I remember the “dot-com bubble” in the late 1990s. Investors were greatly excited by the advent of the internet and all the opportunities it presented to make a buck. Many people put their money in website start-ups they hoped would make a killing.

Soon enough, people realised that these weren’t going anywhere. The bubble burst and the “venture capitalists” did their dough. But this, of course, didn’t stop the internet being the great change we now know it was, with a few tech giants – Google, Facebook/Meta etc – making a fortune.

In the present sharemarket boom, speculators have bought shares in those tech giants, hoping to make a motser from the development of AI. The companies probably will do well, but not as massively well – or as immediately – as the get-rich-quick brigade imagined.

So it’s safe to assume the present boom is a bubble that will burst. You can never tell when, but my guess is it won’t be long. When it happens, many smarties will do their dough, but it won’t be a great disaster for the economy. As I never tire of explaining, the sharemarket and the economy are two different animals. The sharemarket will take a hit; the boring “real” economy of production and consumption will steam on.

What the bursting of the AI sharemarket bubble will do, however, is kill off most of the hype. What I’ve concluded from years of watching these excitements wax and wane, is that they’re never as wonderful as the marketing department claimed, nor as terrible are their critics feared.

My third conclusion is that these world-changing technologies always take a lot longer to materialise than the advertising led us to expect. Often, the big firms jump onto the new technology, but the smaller firms take their time. This protracted dissemination stops the change being so overwhelming, giving firms and workers notice of what’s coming and time to adjust.

So, I’m not saying there’s no substance beneath all the hype – there is. A significant change in the way businesses and other organisations use workers to do whatever it is the outfit does is coming. This will involve numerous workers losing their jobs and having to find other ones.

What I don’t believe are the predictions that AI will spread through the nation’s employers like a bushfire, making many thousands of people jobless at much the same time, so that the economy’s hit for six and new jobs are impossible to find.

So you can forget the fear that we’ll soon be beset by mass unemployment and depression. I say this with great confidence because people have been predicting that some new technology or other would cause mass unemployment on and off for at least the past five decades, without it coming to pass.

Last time I looked, the rate of unemployment was only up to 4 per cent of available workers. Add to that the 6 per cent of workers who have part-time jobs but would prefer to work more hours, and you’re only up to 10 per cent.

Remember, businesses have been investing in labour-saving equipment – that is, using machines to get rid of workers – continuously since the Industrial Revolution. So why didn’t we hit an unemployment rate of 90 per cent decades ago?

Short answer: because having employers use better machines to cut the resources needed to produce all the goods and services we consume improves the nation’s productivity – the efficiency of the economic machine – and so leaves us better off.

Our higher real income – we’ve had to spend fewer resources to acquire the same quantity of the goods and services we want – means we can afford to pay the now unemployed workers to produce more, and often different, goods and services.

It’s because there’s no limit to our appetite for goods and services that the workers “displaced” by labour-saving technology shouldn’t have too much trouble finding other jobs to do. Some individuals may find themselves unsuited to the new jobs but, with a bit of retraining, most jobless workers won’t.

Find that hard to believe? Just look at the history of capitalist economies using machines to replace workers for the past two centuries. It’s worked pretty well so far.

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What if people just want better jobs, not more stuff

Sorry, but the more the great and good bang on about the urgent need for more “productivity”, the more doubts I have. Have you noticed it’s always the businesspeople, economists and politicians who tell us what we need more of, never us telling them what we’d like?

How do we know whether what they say we need would be better for them but not better for us? Short answer: we don’t. We’re supposed to take their word for it.

The urgers rarely take the time to explain what this “productivity” is, let alone why we need much more of it. I’ve no doubt that, following the coming three-day economic roundtable, the Albanese government will make some changes to taxes and regulation that, it assures us, will increase this productivity thing, whatever it is.

We’ve seen such exercises many times before. “We’ll do this and it’ll all be much better.” Trouble is, they never come back to check whether it really is better – or who did better and who didn’t.

We were assured that cutting some rich people’s taxes would, say, create more jobs. The tax cuts go through, but we never hear any more about the jobs. Makes you wonder whether it was just a story we were told.

So, what’s the story with this fabulously desirable thing called productivity?

What we do in the economy is take a bunch of resources – labour, capital, equipment and raw materials – and transform them into a host of the goods and services we use to live our lives. When the output of goods and services grows faster than our input of resources grows – when our production processes become more efficient – economists say our “productivity” has improved.

Which means we’re better off. More prosperous. Believe it or not, our productivity has improved a bit almost every year since the Industrial Revolution. How? Mainly by us inventing better machines, finding better ways to do things and having a better-educated workforce.

It’s this huge improvement in our productiveness that’s given us a standard of living many times better than it was 200 years ago. Our homes, our health, our food, our entertainments and our possessions are far better than they were.

What’s worrying the great and the good is that this process of small annual improvement in our living standards seems to have stalled about a decade ago. They don’t actually know why it’s stalled, or whether the stoppage is temporary or permanent.

But the people at the top of our economy are worried by the thought that, unless we do something, our standard of living may never go any higher. This thought appals them, and they assume it appals us just as much. We’ve got used to ever-rising living standards, and for this to stop would be disastrous.

Well, maybe, maybe not. What no one seems to have observed is that this is a completely materialist view of how our lives could be better. Better goods, better services and a lot more of both.

My guess is that, for the managerial class, more money to buy bigger and better stuff is what they most want. But I’m not sure if that’s what the rest of us want – especially after we’d given some thought to the alternatives.

If an ever-higher material living standard came free of charge, of course we’d all want it. But if it came at a cost – as it’s likely to – we’d have to think harder about the price and what we’d have to give up to pay it.

When the big business lobby groups argue that our productivity has stopped improving because their taxes are too high and the Labor government has introduced too many regulations controlling how they pay and treat their workers, sometimes I think what they’re saying is: we could make you so much richer if only you’d let us make your working lives a misery.

In a recent article for Project Syndicate, Dani Rodrik, a Harvard economist, argues that most working people probably want a good job more than higher pay. “When people are asked about wellbeing and life satisfaction, the work they do ranks at the top, along with contributions to their community and family bonds,” he says.

This is something economists keep forgetting. In their simple theory, work is a pain. And the only reason you do it is to get money to buy the stuff you want. The bad bit is work; the good bit is consumption.

In truth, most of us get much of our identity, self-worth and satisfaction from our jobs. Some people hate their jobs, of course, but that’s the point: they would be a lot happier if they could find a job they enjoyed.

Rodrik adds that jobs can be a source of pride, dignity and social recognition. It’s clear that Australians hugely value having a secure job. One where they don’t have to worry about where their next meal’s coming from. Where they know they’ll be able to keep up their mortgage payments. Where their job classification is permanent, not temporary.

Good pay is nice, but work is about a lot more than pay. Psychologists tell us that job satisfaction is helped by having a degree of autonomy in the way you do your job. A more obvious need is a boss who treats you fairly and with respect. No one wants to work for an idiot who thinks they should treat ’em mean to keep ’em keen.

I have no doubt that all workers want the pleasure of being loyal to their boss and their company. But they have to be receiving loyalty to give it back.

So here’s my radical thought: what if, instead of pursuing an ever-higher material living standard, governments focused on improving Australian workers’ job satisfaction? Would that be better or worse? A good way to lose votes? I doubt it.

It could even be that a more satisfied workforce was more productive.

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In one awful decision, Albanese reveals his do-nothing plan

It didn’t take long for us to discover what a triumphantly re-elected Labor government would be like. Would Anthony Albanese stick to the plan he outlined soon after the 2022 election of avoiding controversy during his first term so he could consolidate Labor’s hold on power, then get on with the big reforms in term two? Or would he decide that his policy of giving no offence to powerful interest groups had been so rapturously received by the voters, he’d stick with it in his new term?

Well, now we know. The re-elected government’s first big decision is to extend the life of Woodside Energy’s North West Shelf gas processing plant on the Burrup peninsula in Western Australia for a further 40 years from 2030.

What was it you guys said about your sacred commitment to achieve net zero emissions by 2050? You remember, the commitment that showed you were fair dinkum about combating climate change whereas the Coalition, with its plan to switch to nuclear energy, wasn’t?

So you’re happy for one of the world’s biggest liquified natural gas projects still to be pumping out greenhouse gases in 2070, 20 years after it’s all meant to be over?

Some estimate that the plant will send 4.4 billion tonnes of greenhouse gas emissions into the atmosphere, but that’s OK because nearly all the gas will be exported. We won’t be burning it, our customers will. (Though we don’t quite know how we’ll ensure their emissions worsen their climate but not ours.)

To be fair, had the government failed to extend the project’s licence, Woodside would have been ropeable and the West Australian branch of the Labor Party – which I sometimes suspect is a wholly owned subsidiary of the mining industry, or maybe the mining unions – might have seceded.

But that’s the point. If you want to govern Australia effectively – if you aim to fix our many problems – you have to be prepared to stand up to powerful interest groups. It’s now clear Albanese isn’t prepared to stand up, but still wants to enjoy the spoils of office.

The strange thing is, according to our present law, the environment minister’s power to end Woodside’s franchise stems only from the project’s effect on the environment, not on climate change. But this would have been no impediment to rejecting the continuation.

Other acidic pollution from the gas plant at Karratha has done great damage to the Murujuga rock art, and will do more. And this isn’t just any old bunch of Aboriginal carvings.

It is the most extensive collection of etched rock art in the world. More than a million carvings chart up to 50,000 years of continuous history, showing how the animals, sea level and landscape have changed over a far longer period than since the building of the pyramids.

It has images of what we called the Tasmanian tiger in the Australian mainland’s far north-west. It includes what may be the world’s oldest image of a human face. It even has an image of a tall ship.

How much natural gas would it take to persuade the French to let some company screw around with the 20,000-year-old paintings in the Lascaux Cave? What about the Poms letting miners have a go at Stonehenge?

But that’s not the way we value our ancient carvings. They may be important to First Australians, but the rest of us don’t see them as our heritage, valuable beyond price. The miners want them? Oh, fair enough.

Speaking of price, how valuable is that gas off the coast of WA? To Woodside’s foreign partners – BP, Shell and Chevron – hugely so. To us, not so much. The foreign companies pay only a fraction of their earnings in royalties to the WA government.

They pay as little as possible in company tax and next to nothing under the federal petroleum resource rent tax. In principle, it’s a beautiful tax on the companies’ super profits; in practice, they pay chicken feed. The Albanese government moved early in its first term to fix up the tax. Now the fossil fuel giants are being hit with two feathers, not one.

Ah yes, but what about all the jobs being generated? About 330 of them. Oil and gas are capital-intensive. We’re destroying our Lascaux Cave to save 330 jobs?

But apart from this decision’s effect on the climate and our pre-settler heritage, what does it say about how we’ll be governed over the next three years? Albo must think he’s laughing. His policy of doing as little as possible has received a ringing endorsement from the voters. So much so that the Liberals have been decimated, while the minors promising to act a lot faster on climate – the Greens and the teals – slipped back a bit.

But if I were Albanese, I wouldn’t be quite so certain that another three years of doing as little as possible – of never rocking the boat or frightening the horses – will see him easily re-elected in 2028.

In all the Libs’ agonising over what they must do to attract more votes, old hands are advising them not to become Labor Lite. Good advice. Albo has already bagsed that position.

I suspect that if Albanese wants to be the Labor government you have when you’re not having Labor, he’d better expect a fair bit of buyer’s remorse, starting with Labor’s true believers.

Just because Albo looked better than the scary Peter Dutton doesn’t mean voters opted for a do-nothing government.

Labor did well – and the Libs did badly – because it attracted more female and young voters. We know both groups are strong believers in climate action. Next time, they may decide the Greens and teals are the only politicians left to vote for.

If most voters expect their government to do something about their growing problems, Albo may attract a lot more critics than he bargained for. But admittedly, he will be kept busy shaking hands with the victims of droughts and 500-year floods.

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After 50 years, we're back to the glory days of full employment

I promise I’ll stop talking about the surprising election result if you let me make one last point. There was a hidden factor that helps explain why Labor did so well despite all our grumbling about the cost-of-living crisis.

It’s a factor for which the Morrison government, the Albanese government and even the Reserve Bank deserve more thanks than they’ve received. A factor without which it’s highly likely Labor would have been tossed out.

Long before most of us were born – even I am only just old enough to remember it – Australia enjoyed something called “full employment”. In the years between the end of World War II in 1945 and the early 1970s, the rate of unemployment rarely got above 2 per cent of the labour force.

When it did rise above 2 per cent for some months, it was called a recession. For the long period in which it was rarely above 2 per cent, it was called “full employment”.

Full employment has never meant an unemployment rate of zero. Why not? Because at any time there will always be many thousands of workers moving from one job to the next, and education leavers taking a month or so to find their first proper job. So, that’s nothing to worry about.

But the unemployment rate started edging up from the beginning of the 1970s, and by the time the Whitlam government was dismissed in November 1975, it had reached 5.4 per cent. For reasons far more complicated than the various mistakes of Gough Whitlam, the era of full employment was over.

And although economists kept a return to full employment as their ultimate objective – as did the Reserve Bank – it was never seen again. Well, not until August 2022, when unemployment got down to a low of 3.5 per cent for several months. That was its lowest in “almost 50 years”.

That’s higher than 2 per cent, but the labour market has changed a lot in half a century, and these days there’s probably a lot more “structural” unemployment – where the unemployed live in different cities to the job vacancies.

There’s general agreement among economists that 3.5 per cent is now a good level to regard as full employment. Remember that, over the past 50 years, unemployment has averaged about 6.5 per cent.

So how, after all this time, did the rate of unemployment suddenly drop to the level of full employment? It was perhaps the only benefit from all the trouble we had using lockdowns to restrict the spread of COVID-19.

Federal and state governments spent hugely to hold the economy together during the lockdowns and so, when they ended and people were let loose in the shops, restaurants and live entertainment venues with all the money they’d been unable to spend, the economy boomed.

Employment grew enormously and unemployment fell, with most of the new jobs being full-time. It helped that, at the time, our borders were still closed, so none of the new jobs went to people who’d come to Australia just to take the job.

All this happened under the Morrison government, with unemployment bottoming out at 3.5 per cent just three months after the May 2022 election. So then-treasurer Josh Frydenberg gets the credit for our return to full employment.

By then, however, the booming economy had caused consumer prices to take off. So the Reserve Bank did what it always does to slow the rate at which prices are inflating: it starts jacking up interest rates to force people with mortgages to cut their spend on other things. As people spend less, businesses don’t raise their prices as much.

But here’s the trick. Normally, the Reserve loses little time in pushing interest rates way up. Spending takes a big hit, businesses lay off workers, unemployment shoots up and the rate of price inflation quickly falls back to normal, after which the Reserve soon cuts interest rates back to normal.

Normally, but not this time. Treasurer Jim Chalmers and the Reserve agreed that this time care would be taken to limit the rise in unemployment and thus not stray far from full employment. To this end, the Reserve would raise interest rates slowly and no higher than absolutely necessary.

We can now see this softly, softly approach has worked. As interest rates have risen, employment has continued growing, with the rate of unemployment rising only to about 4 per cent, where it’s stayed for 14 months.

By now, however, the rate of inflation has fallen back to the Reserve’s target range of 2 to 3 per cent, so it’s slowly cutting interest rates back to a more normal level.

So how did this effort to hang on to full employment affect the election? Had the cost-of-living crisis been accompanied by many people losing their jobs, the pain would have been much greater, and the likelihood of Labor itself being shown the door would have been high.

Instead, almost everyone kept their job, while some were able to move to a full-time job or a second job to help make ends meet.

Our avoidance of recession – unlike other countries, starting with New Zealand – has come at a price, however. Although our smaller and slower increase in interest rates didn’t hurt so acutely, the period of high rates – about three years – kept homebuyers in pain for longer.

But I think it was well worth it. If you think coping with of the cost of living is tough, try doing it on the dole. A well-functioning economy is one that provides jobs for (almost) everyone who wants one. And that’s what our fully employed economy has provided us with for the past three years.

The proportion of all working-age people with a job is 64 per cent, its highest ever. That’s the solid proof we’re fully employed. Women have done best in gaining jobs in recent years. Fifty years ago, only 36 per cent of women were participating in the paid labour force. Today it’s 63 per cent.

It’s strange we could have passed judgment on the performance of the Albanese government this month without most people realising how well the jobs market has done on its watch.

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The fine print costing Australians a pay rise

By MILLIE MUROI, Economics Writer

Hidden in the job contracts of about one in five Australians are little clauses weighing down their chances of landing a pay rise or a better-fitting role.

They might, for instance, ban you from working for any of your employer’s competitors for a set amount of time – even after leaving your job. Or, they can prevent you from setting up your own business in the same industry. These are called “non-compete” clauses, and they’ve been on the rise for the past five years.

From 2027, non-compete clauses on workers earning less than $175,000 a year could be banned by a Labor government. But why are these clauses so bad? And will banning them make much of a difference for workers or the economy?

Non-competes are mostly in place to protect business interests, but in some roles, they can be reasonable. For example, they might stop a big bank employee from sharing timely and confidential information or business secrets with a competitor or prevent them from taking client relationships they’ve developed through the bank to another bank.

But in some cases, these clauses simply handcuff low-paid workers to their jobs, stopping them from seeking better jobs. Roughly 3 million Australians are affected by these clauses, including childcare workers, construction workers and hairdressers. Who knew childcare was so full of sensitive trade secrets?

Non-competes are generally not enforceable – unless a court rules that it’s “reasonably required” to protect a “legitimate interest”. But as former Fair Work Commission president Iain Ross points out, these “interests” have expanded to concepts such as a “stable workforce”.

The open-endedness also tends to benefit employers because they usually have more resources to back them up, and workers aren’t often willing to foot the legal costs and spend time arguing their case in court. A 2013 study, for example, put the cost of legally challenging the validity of a non-compete at between $20,000 and $100,000 – a year’s worth of salary or more for some employees.

Another 2020 study in the US found that non-competes tended to discourage workers from leaving for a competitor by roughly the same degree regardless of whether it was enforceable or not.

That means workers tend to just suck it up and stay in their jobs – even if it means missing out on a pay rise. And it’s often the lower-skilled and lower-paid workers with weaker bargaining power who are hit hardest.

Economic research institute e61 found people who work for companies that use these clauses are paid 4 per cent less on average than similar workers at similar firms that don’t use them. Lower-skilled workers bound by non-competes were even harder hit, earning about 10 per cent less after five years than those who weren’t bound by these clauses.

For a worker on a median wage, banning non-compete clauses could lead to a wage increase of up to $2500 a year.

But non-competes aren’t just an issue for workers. They are also a drag on the economy.

Lower job mobility – that is, less ability for workers to switch jobs – can be a downer for productivity. Why? Because they’re less able to move to jobs they might be a better fit for, and because it dampens the incentive for businesses to better themselves in order to attract and retain their workers.

Ross also points out that some of the key barriers to Australia improving its productivity include weak business investment and a slowdown in business dynamism: meaning fewer new firms, less movement of workers between firms and weak adoption of new technologies.

Banning non-competes will boost productivity because it allows workers to move to jobs they may be better at. It also forces businesses to innovate and find ways to improve the way they do things – including investing in training and support they provide to their workers – in order to stay ahead of their competition and stay in business.

Research from the Productivity Commission suggests the proposed ban on non-compete clauses could fast-track productivity and add $5 billion – or 0.2 per cent – to Australia’s GDP.

Neither major party has been game to tackle the big issues such as tax reform (which are crucial to improving our productivity and living standards), but banning non-compete clauses for those earning less than $175,000 a year is a start.

Of course, the details of this change are yet to be ironed out. And business groups have been quick to leap out against it.

The Victorian Chamber of Commerce, for example, called it “workplace overreach” while the Council of Small Business of Australia said it made life harder for small businesses already struggling with skills shortages.

There’s valid criticism that banning non-compete clauses puts some confidential information at risk. But this could be covered by non-disclosure agreements, which are less of a drag on job mobility and wages – and, in any case, the positive impacts for the economy will outweigh the negatives.

Critics also claim non-compete clauses encourage businesses to invest in areas such training and upskilling their workforces because they can be less worried about losing their workers and wasting resources if those employees decide to leave the job.

But stronger competition could also drive businesses to offer better training opportunities and foster more productive work environments to maintain their edge over competitors.

The Coalition is on the fence about the proposed change, saying it believes employees shouldn’t be “unreasonably restrained” from changing employers or starting their own business, but that small businesses shouldn’t face having their sensitive commercial or customer information “taken by an employee and given to one of their competitors”.

It’s worth noting large businesses are twice as likely to use non-compete clauses as small businesses and that non-competes tend to favour large, existing businesses over small and new firms.

There are certainly limitations in the government’s proposed policy, and details yet to be ironed out. For instance, would the change apply only to new contracts drawn up from 2027 onwards, meaning it would have no effect for the millions of Australians currently bound by them? These questions won’t be answered until the government completes its consultation process.

There’s also evidence that a full ban on non-competes – not just for those earning under a certain threshold – can have widespread benefits. Evidence from California – home to the Silicon Valley – for instance, suggests a complete ban could foster a more dynamic labour market where workers can move around more freely and share knowledge.

It’s taken a long time for the government to care enough to pursue this change – most likely because of the backlash it knew would come from business owners. But if we want agile and innovative businesses, productive workers and a stronger economy, a ban on non-competes is a no-brainer.

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Our jobs market is booming, but the RBA needn't be so worried

Despite the economy only just popping its head up after 21 months of “per-person recession”, our jobs market has been going gangbusters. How can it possibly be so strong? It’s this strength that has made the Reserve Bank so reluctant to cut interest rates.

This week we learnt from the “national accounts” that the economy – real gross domestic product – grew by a princely 0.6 per cent during the three months to the end of December. This caused its annual rate of growth to jump from a very weak 0.8 per cent to a not-quite-so-weak 1.3 per cent.

Trouble is, until now, the economy’s growth hasn’t been enough to keep up with the growth in our population. So real GDP per person fell by 1.7 per cent over the seven quarters to last September, but – thank heavens! – rose by 0.1 per cent during the December quarter.

If we’re lucky, GDP per person will now keep going forward rather than backward in 2025.

But the weakness in economic growth – caused by the Reserve keeping its foot on the interest-rate brakes since May 2022, as it fought to get inflation down – simply doesn’t fit with our roaring jobs market.

Professor Jeff Borland, of the University of Melbourne, is probably the nation’s top expert on the labour market. So I asked him to explain this paradox.

To show just how strong the jobs market has been, Borland notes that, although the total number of people in Australia with jobs grew at a rate averaging about 2 per cent a year over the previous two decades, it grew by 3.5 per cent over the year to this January. It grew almost as fast over the past two years.

Of course, the rate at which the number of jobs increases is normally closely related to the rate at which the economy’s growing. Borland calculates that, had the usual relationship between the two held, you’d expect employment to have grown by 3.4 per cent since the end of 2021. Get this: the actual growth is 9.5 per cent. That’s gangbusters.

But why has employment been growing at such an extraordinary rate? Borland says it’s all to do with growth in the “non-market” part of the economy, which covers public administration and safety; healthcare and social assistance; and education and training.

Now, if you were Donald Trump or Elon Musk, you’d think this meant a massive increase in public servants sitting round drinking tea and not doing anything of any use to anyone.

If you had more sense, you’d know it’s mainly the growth in the “care economy” we keep hearing about. More people being employed in aged care, disability care and childcare. You’d know these women work their butts off helping our oldies, our kiddies and our disabled cousin.

The care economy’s growing because of the ageing of the population, because we need our women in the paid workforce not at home minding kids, and because we’ve decided the disabled should no longer be hidden away being looked after by some poor rello.

You’d remember the various royal commissions exposing the scandalously poor treatment of people in care, how neglected they were by the previous Liberal federal government, and how much the Albanese government has had to spend trying to catch up. (Note, “non-market” means many of these workers deliver a service you don’t pay for over the counter. But most of the extra workers would be working for private sector providers.)

Borland calculates that, had non-market sector employment grown at the same rate as the market sector, total employment would be almost 700,000 lower than it is.

But why hasn’t this massive growth in the workforce led to higher wage rates as workers were bid away from other employers? Borland says one reason is that there’s been a downward shift in the level of wage inflation for any given degree of tightness in the labour market. (Reserve Bank please note.)

He says workers in the non-market sector don’t push for pay rises the way workers in mining or the utilities or construction did in earlier times.

But for so much growth in employment to be possible, there has to be a supply of extra workers available. This extra supply means workers don’t need to be bid away from their present employer.

Guess what? Since the pandemic, we’ve had strong growth in the population due to high immigration. Borland calculates that population growth explains about half the employment growth from late 2021 to late 2022, all the employment growth from late 2022 to early last year, and since then, it’s been about three-quarters of the story.

What can’t be explained by population growth is explained by people already in Australia who didn’t have paid employment deciding that, since so many new jobs were available, they’d take one and make some money.

It’s no surprise that many of these extra workers are women. What’s surprising is there are now more blokes working in the care economy.

Further delving by Boland finds that a lot of the extra jobs have gone to people under 24, suggesting many education-leavers have been finding it easier to find work.

Cost-of-living pressures may have prompted people to take a job. And the rise of working from home seems to have enabled more people to take a paid job or work more hours.

And get this: older people have been more inclined to keep working or even return to the workforce from retirement. Since the early noughties, the proportion of people over 64 who are still working has risen from 6 per cent to 15 per cent (don’t look at me).

The Reserve Bank has made no secret of its reluctance to cut interest rates when the jobs market is so “tight”. It worries that, if the economy starts growing more strongly, we might soon run out of workers, which would set inflation off again.

But I think you could just as easily conclude from our recent experience that the economy has shown its ability to find all the extra workers it needs.

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How can jobs and joblessness both be going up?

By MILLIE MUROI, Economics Writer

Despite more than two years of higher interest rates, meant to slow down spending and activity in the economy, unemployment in Australia remains unusually low.

The nation’s chief number-crunchers, the Australian Bureau of Statistics (ABS), said there were 16,000 more people employed in October, while the number of unemployed climbed by 8000. The unemployment rate stayed at 4.1 per cent for the third month in a row – still very low by the standards of the past 50 years as well as earlier slowdowns.

You might think when employment rises, unemployment has to fall by the same amount – and vice versa. But here’s the thing: they can both rise or fall at the same time.

How is this possible? Because there’s a third factor: the proportion of people who choose to be in the labour force – either by having a job or actively looking for one. If someone is looking for work and doesn’t have any, it means they’re unemployed, but they’re still counted as part of the labour force.

Usually, more people start seeking a job if the economy and the jobs market are both thriving. Why? Because they believe there’s a better chance of finding a job. By the same logic, if the economy is slowing and the jobs market is worsening, people are less likely to even try searching for a job. The labour force can also grow if the population blossoms, but generally, the better the economy and jobs market, the more people will choose to “participate” in the labour force, helping to fatten it up.

So if the Reserve Bank has pumped the brakes on the economy, and consumer spending is still weak, how has the participation rate increased?

Partly, it’s because overall spending in the economy – including spending by the government – is fuelling demand and keeping it above the level the economy can supply without pushing its limited resources, and therefore price pressures. It’s a good thing that people who want a job still have a good chance of finding one, but the relatively low unemployment rate will discourage the bank from starting to cut interest rates too soon.

That’s because a low unemployment rate is one of the signs of an economy running hot, and therefore at risk of facing inflationary pressures. The bank will be worried demand for goods and services hasn’t weakened enough, and that it might even start soaring. That would throw a spanner in the works for their crusade against inflation.

But what exactly is unemployment? It’s measured as the proportion of unemployed people in the labour force. Or, put another way: the proportion of unemployed people out of all the employed and unemployed people in the economy.

Then there’s the participation rate, which we can calculate by looking at all our “working age” people (in Australia, this is everyone over the age of 15 – including those who, really, are probably too old to work) and the proportion who are in the labour force (working or looking for a job). In most other places, working age is defined as those aged 15 to 64.

If more working-age people decide to start looking for work, it’s possible to have both more people unemployed (the jobseekers who don’t find a job) and more people employed (those who do), as well as a higher participation rate: more working age people, well, working – or looking for a job.

We can also look at the split between full-time and part-time workers. If there are more full-time workers, that’s a sign of a strong labour market. A growing share of part-time workers, meanwhile, is usually a warning that the market for labour is weakening. Over the past year, the share of part-time workers has fallen from about 42 per cent to 31 per cent. More people, and a greater proportion, are working full-time than they were a year ago.

Part-time jobs aren’t necessarily worse than full-time jobs. For some people – such as students, semi-retired people and parents of young children – a part-time job aligns perfectly with their life stage or preferences. It’s only a problem for those who want a full-time job but can only find a part-time one.

Anyone who does at least an hour of work every week is counted as employed. That’s been the case for decades and conforms with the international statistics conventions set down by the United Nations' International Labour Organisation in Geneva.

But it does mean we tend to understate the full extent of joblessness. Our measure of unemployment ignores the people who have had to settle for a part-time job when they’d much rather have a full-time job. This is especially the case as part-time employment has risen since the 1960s.

It’s why the bureau has, in recent decades, been calculating the rate of under-employment: the proportion of people in the labour force who have been working, but would have preferred to work more hours a week than they were able to find.

By adding together the underemployment rate and the unemployment rate, we get the underutilisation rate. This gives us a broader measure of unemployment and the health of our labour market. In October, the underutilisation rate was 10.4 per cent: a touch higher than at the same time last year.

How do we know all these numbers? The ABS conducts a monthly survey. It has a very big sample of households across Australia – usually about 26,000 – and someone from each of these households is asked about the labour force status of each person over the age of 15 under their roof.

The survey sample is split into eight groups, with each group staying in the survey for eight months. One group rotates out every month and is replaced by a new group rotating in. The ABS collects the information through trained interviewers who survey households either face to face or over the phone, and sometimes via an online self-completion form, asking about 70 questions.

While these measures aren’t perfect, and can be confusing, they act as a thermometer for our jobs market. There’s no doubt the pulse is weakening, but so far, there’s enough sign of strength to keep most of us from getting worked up.

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Get this into your head: we are now short of workers, not jobs

Last week, something strange happened without anyone noticing. We got the best monthly report on the jobs market we’ve ever had, and it was greeted with dismay. The message we’ve yet to get is that, when it comes to the need for jobs, our world has been turned on its head.

Every month, the Australian Bureau of Statistics gives us the latest figures for what’s happening to employment and unemployment, based on a huge sample survey of Australia’s 10.5 million households. The figures we got last week, for September, showed that the number of Australians with jobs increased by more than 64,000 during the month, to 14.5 million. The number of people unemployed – wanting a job, but unable to find one – fell by 9000 to a bit under 620,000.

Why was this the best jobs report we’ve had? Because the proportion of the working-age population with a job reached an all-time high of 64.4 per cent. During September, the number of full-time jobs grew by 51,000, to reach 10 million for the first time. So, more than 80 per cent of the extra jobs were full-time.

If the economy was booming, this strong growth in employment wouldn’t be so surprising. But the Reserve Bank has been applying the interest-rate brakes since May 2022, and the economy’s growth has been very weak for the past year or more.

The only thing that’s been growing strongly is the population – which makes the limited worsening in unemployment all the more surprising.

The new Minister for Employment, Murray Watt, boasted that more than a million extra jobs had been created since the Albanese government came to office in May 2022. “This is the most jobs ever created in a single parliamentary term by any Australian government,” he said immodestly.

So why was last week’s good news greeted with dismay? Because it was taken to mean the Reserve Bank will be in no hurry to start cutting interest rates. You know the media: always look on the dark side of life.

Rates will come down in due course, of course. And with the jobs market holding up as well as it has, it gets ever harder to fear the economy will drop into recession. Silly people judge recession by whether the economy’s production of goods and services – gross domestic product – starts going backwards.

But what makes recessions something to be feared is not what happens to production, but what happens to employers’ demand for workers. To the rate of unemployment, in other words. It’s when people can’t find work that they feel pain even greater than the pain people with big mortgages are feeling at present.

When the pandemic lockdowns ended and people were finally able to get out and spend the money they’d earned, businesses started hiring more workers and unemployment fell sharply. By the end of 2022, the rate of unemployment got down to 3.5 per cent – the lowest it had been in about 50 years.

But here’s the surprise: despite the big rise in interest rates designed to slow the economy and stop prices rising so fast – despite consumer spending becoming so weak – 28 months after the brakes were first applied the rate of unemployment has risen only to 4.1 per cent.

That’s still much lower than we’ve seen during most of the past five decades. After the recessions of the early 1980s and early 1990s, unemployment got up to about 10 per cent. In the 2000s, we got used to a rate that started with a 5.

For about the first 30 years after World War II, our problem was finding enough workers to do all the work needing to be done. Since the mid-1970s, however, we’ve learnt to live with the opposite: not enough jobs for all the people – including married women – wanting to work.

By now it’s become deeply ingrained in our thinking that there can never been enough jobs. Every politician and businessperson knows that, if you want to get your way, you promise to create more jobs.

But here’s the surprising news: the unusually low rates of unemployment we’ve experienced this decade aren’t the temporary product of the ups and downs of the pandemic and its inflationary aftermath. They’re here to stay. That’s why the jobs figures are holding up so well.

The half century in which jobs were always scarce has ended, and we’re back to the opposite problem: not enough workers to do all the work that needs doing.

Why? In five words: the ageing of the population. Because the proportion of people too old to work is growing, while families are having fewer children. Old people don’t stop consuming. They need more spending on services such as healthcare and aged care, which requires more workers.

For years we’ve made up for our low fertility rate by allowing high rates of immigration. And we’ll keep seeking from abroad the many doctors and nurses and aged-care workers we need.

Trouble is, all the rich countries have the same population-ageing problem we do. For different reasons, even China has a big ageing problem. So, the world competition for young skilled workers is likely to get a lot more intense.

But isn’t that a problem off into the future sometime, like climate change? Don’t be so sure – like climate change.

With the high cost of home ownership and a shortage of rental housing, right now we ought to be building a lot more additional housing than we are. What’s the problem? A shortage of skilled workers, with many people who could be building homes off working on the state governments’ big infrastructure projects.

And now that the Albanese government has approved the expansion of many coal mines, this will further reduce the number of skilled workers available to build homes.

A shortage of jobs is no longer our problem. It’s a shortage of workers.

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What goes on in the Reserve Bank's mind

By MILLIE MUROI, Economics Writer

So far, the Reserve Bank is winning. Every time we’ve had a new inflation read or jobs data, the country has held its breath … and exhaled a sigh of relief. Things are a little tougher for a lot of people, and a lot harder for some. But inflation, our public enemy number one, is gradually slinking away, and a historically high bunch of us have jobs.

The Reserve Bank might not be high-fiving itself yet, but it’ll be cautiously relieved that things are going (mostly) the way it planned. As the bank gets closer to the finish line, though, the balancing act will get harder. The reserve has been laser-focused on shrinking inflation, which it has. But the labour market is weakening, and there’s a risk we won’t feel or see the full impact on jobs of keeping interest rates on hold until after we’ve gone too far.

What is “too far”? Well, it’s tricky to say, because there’s no exact number to guide us on how many job losses we’d be OK with. And because – until we’ve locked inflation well within the 2 to 3 per cent target range – a strong jobs market is also a sign the economy might be pushing too hard to keep up with demand, and therefore that inflation might be here for a bit longer.

As one of the country’s leading labour economists, Jeff Borland, has pointed out, while recent data points to the Reserve Bank’s success so far, there probably needs to be a turning point in the bank’s thinking soon if we’re to avoid a big round of lay-offs.

Underlying inflation, the measure the bank cares about – and which doesn’t count items with especially large price changes – fell to 3.4 per cent over the year to August. Gross domestic product (a measure of how many goods and services the economy is producing), while crawling along, is still growing. And at 4.1 per cent in August, the unemployment rate shows we’ve managed to hold on to a lot of the gains in our labour market.

Compared with the US, UK and Canada, Australia seems to be the Goldilocks country. Partly because of Australia’s responsiveness to interest rate changes (we have one of the highest shares of mortgage-holders on variable rate loans, which means interest rate changes are felt pretty much immediately), the central bank has been less aggressive in ramping up interest rates to curb inflation.

While the US Federal Reserve jacked up rates by 5.3 percentage points from 2022 to its peak, Australian interest rates rose only 4.3 per cent (that’s also lower than in Canada and the UK). Despite this, the increase in Australia’s inflation rate since the first interest rate rise hasn’t strayed far from its peers. In fact, the 2.7 percentage point increase in inflation since the first rate rise is a lot lower than in the UK, where inflation surged 4.8 percentage points from its first rise.

The downward journey in inflation has also been fairly even across the countries. From its peak, Australia’s inflation rate has fallen about 0.7 percentage points every quarter, the same as in Canada and only a touch slower than the 0.8 percentage points in the US. The UK, with a high inflation peak, has had the fastest decline at 1 percentage point every quarter.

Australia’s approach has also limited damage to the jobs market. While unemployment increased 1.6 percentage points in Canada since the first rate rise and 0.8 percentage points in the US, the UK and Australia have managed to keep the lift in unemployment to just 0.6 percentage points.

At the same time, Australia’s participation rate has climbed 0.7 percentage points – the highest of its peers – since unemployment started rising. The participation rate is the proportion of working-age people (those aged over 16) who either have a job – full-time or part-time – or are actively seeking one (we call all these people “the labour force”) in the wider working-age population.

All this, together with high inflation, signals to the Reserve Bank that the Australian economy is still “running hot” as the Reserve’s chief economist Sarah Hunter has put it.

We tend to focus on the rate at which the economy is growing rather than the level it is sitting at. That’s why, when we see weak figures such as 0.2 per cent GDP growth for the most recent quarter (and for the quarter before that, and the one before that), we hear warning bells ringing about recession: commonly defined as two back-to-back quarters of falling growth.

So, why isn’t the bank in a rush to ease up on interest rates?

For as long as employment is growing and unemployment has risen only a bit, the bank won’t be living in fear, as many of its critics are, that the economy could drop into recession at any moment.

While the movement in GDP and household consumption has been very weak, the levels they’re at are still high – especially when compared with how much production capacity we have in the economy.

A strong labour market (one where most people who want a job can find one), means there’s still a lot of demand from businesses for workers. Why? Because there’s strong demand for their goods or services, and they need people to help produce or provide them. In August, for example, the Australian economy added more than 47,000 jobs.

But there are some signs the labour market is weaker than the headlines might tell us.

Some of the additional jobs and additional hours worked are a result of a big boost in immigration and therefore our population. In August, our population grew by 50,000 – but this growth won’t last forever, especially with the government’s cap on international students.

A lot of the growth in hours has also been in industries such as education, healthcare and social assistance. As Borland points out, about 40 per cent of the extra hours worked in recent months were in these largely government-funded industries – which, once again, cannot last forever.

We also know businesses are likely to be hoarding workers (firms tend to cling onto their workers when the economy starts to slow, until the very last minute, because it can be a pain to rehire them), and that interest rates take up to 12 to 18 months to impact the economy, meaning we may be yet to see the full impact of our rate rises.

Until underlying inflation sits comfortably within the target zone, GDP turns negative, or the jobs market deteriorates more noticeably, the Reserve Bank won’t be in a rush to dust off its bias towards reining in inflation.

But we know job loss has life-altering and long-lasting consequences for those affected. For the bank to keep Australia on the “narrow path” and continue to kill it (its job, that is, not the economy), it might need to start shifting its focus towards keeping us all in our jobs.

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Economists have a glaring problem: themselves

By MILLIE MUROI, Economics Writer

Economists don’t often get the chance to look at themselves. They spend their lives keeping a close eye on the actions, behaviours and motivations of others: people like you and me. But the self-reflection they have done recently points to a glaring issue.

When I was first getting my bearings in economics nearly 10 years ago, there were four giant posters at the front of my classroom. The heads of four economists, including Adam Smith, Milton Friedman and John Maynard Keynes, stared smugly down at me as I took notes on all the important things: demand, supply and how to pass my economics exams.

The profession looks a little different now, although maybe not as different as we would like to think. It remains disproportionately pursued by one gender – and those who are relatively well-off.

It’s a sentiment shared by Treasurer Jim Chalmers who said in a speech to high school students last week that we still need to strike a better gender balance, starting with school and university enrolments.

“The economics profession will need to reflect the diversity of our country – I’m thinking especially of attracting more women into these roles,” he said.

Why does this matter? Because the people who study economics are the ones who go on to make some of our most important economic decisions: the governor of the Reserve Bank, the chair of the Productivity Commission, and the head of the Department of Finance to name a few.

All three of these positions are now occupied by women for the first time: Michele Bullock, Danielle Wood and Jenny Wilkinson.

Gender is just one of the diversity metrics we need to monitor. But it has a big impact.

A survey of professional economists in the US showed that while there wasn’t much difference in the perspective of women and men when it came to economic methodology, there were notable ones on policy. Women, for example, were 32 percentage points more likely to agree that income should be distributed more equally.

As Wood wrote in 2018, teams of people who are too similar – in terms of gender, race, age and class – perform poorly because of their narrow range of perspectives and because they are more likely to lapse into “group think” where bad ideas go unchallenged.

“Study after study has demonstrated that more diverse teams make better decisions,” she wrote.

So, what is the state of the economics profession? It’s a question that Jacqui Dwyer, head of the Reserve Bank’s information department, has probed – and it starts at high school.

First, there has been a dramatic fall in the size of the economics student population. Over the past decade, year 12 economics enrolments have been sitting about 70 per cent lower than in the early 1990s.

“Most of the fall occurred during the mid-1990s, with enrolments then drifting down before persisting at relatively low levels for the past decade,” Dwyer said. Part of this is because of the introduction of business studies in the early 1990s, which has become a substitute for economics that students see as easier to learn with clearer career prospects – and which teachers see as easier to teach.

This has, in turn, led to fewer schools offering economics as a discipline. Government schools in particular have dropped off. While almost every school in NSW across the government and non-government sectors offered economics in the 1990s, only about 30 per cent of government schools now offer the subject.

This has led to less uptake of economics by students from less advantaged backgrounds, while the share of advantaged students picking up the subject has grown.

There’s also been a stark fall in female participation. Male and female students accounted for roughly equal shares of year 12 economics enrolments in the early 1990s. Since then, female participation has fallen off: males now outnumber females, two to one.

These numbers are crucial because they feed into the economics student populations at universities. While enrolments have grown in fields such as management and commerce, STEM and banking and finance since the 1990s, the number of economics students has flat lined.

Another factor weighing on economics enrolments at university is the perception that economics is a “riskier” subject to study with a less well-defined career path than other disciplines.

That’s despite economics graduates having among the highest average earnings (only beaten by engineering graduates) and one of the widest array of employment options, in terms of industry and occupation.

Economics students do, however, face some challenges in landing their first job out of uni. The unemployment rate of economics graduates is higher than disciplines such as health, education and business, especially just after graduation (although, as Dwyer notes, it’s a similar rate to those in science and information technology).

The fall in the number of economics students also impacts economic literacy in the broader population. This is important because those who are economically literate make more informed economic choices, better understand the world around them and can influence public discussions and government action.

They can also make public policy more effective by aligning their expectations or behaviour with its intended purpose.

Unfortunately, diversity issues continue into university. Unlike at high school, the gap between female and male participation has always existed, recently sitting at a similar ratio to what we see in high schools.

Even worse, there’s been a sharp worsening of diversity in socioeconomic status. “Economics has become a socially exclusive subject, with a higher share of students from advantaged backgrounds than is the case for most other disciplines,” Dwyer said.

More than half of university economics students are from high socioeconomic backgrounds, whereas only about 7 out of 100 were from the bottom 25 per cent.

The economics discipline is often criticised for its shortcomings: flawed predictions, incorrect assumptions and policy blunders.

While it will always be an imprecise science, If we want to improve public policy and the questions and discussions shaping them, the state of the economics discipline must change, reflecting the diversity of the people it studies.

As Chalmers has pointed out: “numbers are very important. But the main reason we study economics is not numbers, it’s people.”

If we want economics to serve people, we need the faces at the front of that classroom, and in the classroom, to reflect a wider set of perspectives that better mirror how our economy – and its people – work. That’s step one of improving the state of the discipline.

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How full employment has changed the economy

This may be the first time you’ve watched the managers of the economy using high interest rates and a tighter budget to throttle demand to get inflation down. But if it isn’t your first, have you noticed how much harder they’re finding it to catch the raging bull?

It explains why both the previous and the new Reserve Bank governor have been so twitchy. How, after they seem to have made as many interest rate rises as they thought they needed, they keep coming back for another one.

The economy isn’t working the way it used to. Have you noticed that, although consumer spending stopped dead in the September quarter, and overall growth in the economy slowed to a microscopic 0.2 per cent, there’s been so little weakness in the jobs market?

Although there’s no doubt about how hard most households have been squeezed over the course of this year, how come the rate of unemployment has risen only marginally from 3.5 per cent to a still-far-below-average 3.9 per cent in November?

And if the economy’s been slowing for the whole of this year, how come the budget balance is getting better rather than worse, with Treasurer Jim Chalmers achieving a surplus last financial year and hoping for another in the year to next June?

There are lots of particular things that help explain these surprising results – world commodity prices have stayed high; some parts of the economy change earlier than others – but there’s one, more fundamental factor that towers over all the others: this is the first time in 50 years that we’ve been trying to slow a runaway economy that’s reached anything like full employment.

It turns out that throttling an economy that’s fully employed is much harder to do. Households are more resilient and, after a period when it’s been hard to get hold of all the workers they need, businesses have been far less inclined to add to the slowdown by shedding staff.

Remember that we reached full employment by happy accident. Between the unco-ordinated stimulus of state as well as federal governments, plus the Reserve cutting rates to near-zero, we (like many other rich economies) hit the accelerator far too hard during the pandemic.

This was apparent after the pandemic had eased and before the Morrison government’s final budget in March last year. But there was no way Scott Morrison was going to hit the budget brakes just before an election.

So the econocrats in the Reserve and Treasury resigned themselves to second prize: an unemployment rate much lower than what they were used to and felt comfortable with.

Because the pandemic had also caused us to close our borders and thus block employers’ access to skilled and unskilled immigrant labour, the econocrats got far more than they expected: unemployment so low we hit full employment.

The jobs market is getting less tight, with the number of job vacancies having fallen a long way, but last week’s figures for November showed how strong the labour market remains.

Sure, unemployment rose a fraction to 3.9 per cent, but this is no higher than it was in May last year. And the month saw total employment actually grow, by more than a remarkable 61,000 jobs during the month.

After all this slowing and all this pain, the rate at which people of working age are participating in the labour force by either having a job or actively seeking one has reached a record high.

And almost 65 per cent of the working-age population has a job – a proportion that’s never been higher in Australia’s history.

Employment is still growing strongly, partly because of the rebound in immigration, with foreign students in particular filling part-time job vacancies.

But also, it seems, because more hard-pressed families are trying to make ends meet by taking second jobs. In past downturns, those jobs wouldn’t have been there to be taken.

To force households to spend less, they’re being hit with three sticks. Obviously, by raising mortgage interest rates. Also by employers, taken as a group, raising the wages they pay by less than they’ve raised their prices (have you noticed how Chalmers avoids referring to the cut in real wages by just blaming “inflation”?).

And, third, by the government allowing bracket creep to take a bigger bite out of what pay rises the workers do manage to get.

But there’s another factor that’s been working in the opposite direction, adding to households’ ability to keep spending: over the year to November, the number of people with jobs rose by more than 440,000. That’s a full-employment economy.

All the extra people with jobs pay income tax. All the part-time workers able to get more hours pay more tax. All the people getting second jobs pay more tax. Add the bigger bite out of pay rises, and you see why Chalmers’ budget’s so flush.

But note this: the many benefits of full employment come at a cost – “opportunity cost”. As a coming paper by Matt Saunders and Dr Richard Denniss of the Australia Institute will remind us, “opportunity cost makes it clear that when resources are used for one purpose, they become unavailable for other purposes”.

So when we’re at or close to full employment, any developer, business executive or politician seeking our support for any project because “it will create jobs” should be laughed at. Where will the workers come from to fill the jobs? You’ll have to pinch them from some other employer.

This is especially true when the jobs you want to create are for workers with specialist skills.

According to a federal government report, in October last year there were 83 major resource and energy projects at the committed stage, worth $83 billion. But about two thirds of these were for the development of fossil fuels, including the expansion of nearby ports.

Really? And this at a time when the electricity grid needs urgent reconfiguration as part of our move to a low-carbon economy, but projects are being deferred because you can’t get the workers?

As Saunders and Denniss conclude, “With rapid population growth and the stated need to transform our energy system, the real cost of spending tens of billions of dollars building new gas and coal projects is the lost opportunity to invest in the infrastructure and energy transformation the Australian economy needs.”

I think Jim Chalmers needs to explain the iron law of opportunity cost to his boss. And make sure Climate Change and Energy Minister Chris Bowen’s in the meeting.

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Albanese wants to put full employment back on its throne

Something really important to the management of the economy happened this week: the Albanese government released its white paper on employment. If the government achieves the vision it has laid out, it could be a turning point in how our economy works, one that begins a lasting reduction in the rates of unemployment and underemployment.

This is Labor’s decision to put “full employment” back on its throne as a central objective of macroeconomic policy. Or, as the paper puts it, “placing full employment at the heart of our institutions and policy frameworks”.

For the first 30 years after World War II, the achievement of full employment was the overriding objective for the managers of the economy. This era began in 1945, with the Curtin Labor government issuing a white paper on full employment in Australia. Notice a pattern?

It worked well for 30 years, but fell apart with the arrival of high inflation in the mid-1970s. Since then, the primary concern of macroeconomic management has been to keep inflation low, with the goal of achieving full employment usually given not much more than lip service.

What’s changed has been the way the ups and downs of the pandemic have suddenly returned us to the lowest rate of unemployment in almost 50 years, about 3.5 per cent. But also the lowest rate of underemployment – part-timers who can’t get as many hours of work as they want – in several decades.

At present, we have about the highest proportion of the working-age population participating in the labour market – by having a job or actively seeking one.

This unexpected return to something close to full employment has prompted many people to think we should be trying at lot harder than we have been to keep employment high and unemployment low.

And that’s why the Albanese government has decided to put the goal of full employment back on its throne in the halls of macroeconomic management.

“Macro” means focusing on the economy as a whole. “Micro” means looking at particular bits of the economy, or at particular mechanisms within the economy.

Since World War II, governments have sought to use “fiscal policy” (the budget) and “monetary policy” (interest rates) to “manage” the macroeconomy by smoothing out the ups and downs in demand for (spending on) goods and services – and thus employers’ demand for workers.

If the goal of full employment is now back on centre stage, what does full employment actually mean?

The white paper defines it as where “everyone who wants a job is able to find one without having to search for too long”. But it adds a qualification: the jobs we create should be “decent jobs that are secure and fairly paid”, a requirement many employers won’t like the sound of.

The paper says it wants “sustained” full employment, which means “minimising volatility in economic cycles and keeping employment as close as possible to current maximum level consistent with low and stable inflation”.

So restoring the priority of full employment doesn’t mean ceasing to care about inflation, but does mean that getting serious about full employment will affect the day-to-day management of the macroeconomy.

The paper also says full employment must be “inclusive”: broadening the opportunities for people to take up paid work and lowering the barriers to work created by various forms of discrimination.

But how will the government go about achieving this more inclusive view full employment? Well, one way to answer this is to take the economists’ standard list of the types or causes of unemployment.

“Frictional” unemployment occurs because, at any time, there’ll always be some people moving between jobs or seeking their first job. So frictional employment is inevitable and nothing to worry about.

It occurs because it takes time for someone wanting a job to find someone wanting to give them one. You’d think that with so much advertising of job vacancies, and so much looking for jobs, occurring online, frictional unemployment ought to be lower than it used to be.

“Cyclical” unemployment is caused by downturns in the economy, which reduce employers’ demand for workers with little reduction in the people seeking work. As the paper says, it can be lessened through “effective macroeconomic policy settings”.

That is, to get the economy moving quickly out of a recession and, better, managing to stop it getting into recession in the first place. It’s when people lose their jobs during a prolonged recession – and education-leavers take months to find their first job – that you get a build-up in “long-term” unemployment.

These are the people who needed special, personalised help from the government because the longer they go unemployed, the less an employer wants to take them on. This role used to be played (not particularly well) by the Commonwealth Employment Service, which was replaced by what’s now called Workforce Australia, using often for-profit providers of “employment services” to people with problems.

If you’ve heard anything about robo-debt, it won’t surprise you that it’s become a travesty of what it was supposed to be, with providers gaming the system and gaining the impression the government wants them to punish people rather than help them.

The Albanese government has instituted an inquiry into the present system of government-funded employment services. How seriously it reforms this shemozzle will be a key test of how committed the government is to achieving sustained full employment.

The final type of unemployment is “structural”, caused by a mismatch between the skills a worker possesses and the skills employers are seeking. Sometimes the mismatch is geographic; often it’s caused by the ever-changing structure of industry, as some industries decline and others expand.

This is the hardest cause of unemployment to reduce. But it involves reforming every level of education and committing to retraining and lifelong learning. Again, this will be a key test of whether the government is committed to achieving sustained full employment, not just dreaming about it.

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Big business should serve us, not enslave us

When my brain was switching to idle on my recent break, I thought of two central questions. First, for whose benefit is the economy being run – a handful of company executives at the top, or all the rest of us? Second, despite all the hand-wringing over our lack of productivity improvement, would it be so terrible if the economy stopped growing?

Then the whole Qantas affair reached boiling point. So we’ll save the economy’s growth for another day.

You’ve probably heard as much as you want to know about Qantas and its departed chief executive Alan Joyce. But Qantas’ domination of our air travel industry makes its performance of great importance to our lives. And Qantas is just the latest and most egregious case of Big Business Behaving Badly.

We’ve seen all the misconduct revealed by the banking royal commission, with the Morrison government accepting all the commission’s recommendations before the 2019 election, then quietly dropping many of them after the election.

We’ve seen consulting firm PwC caught abusing the trust of the Tax Office, with further inquiry revealing the huge sums governments are paying the big four accounting firms for underwhelming advice on myriad routine matters.

We’ve seen Rio Tinto “accidentally” destroying a sacred site that stood in its way and, it seems, almost every big company “accidentally” paying their staff less than their legal entitlement.

Now, let’s be clear. I’m a believer in the capitalist system – the “market economy” as economists prefer to call it. I accept that the “profit motive” is the best way to motivate an economy. And that the exploitation of economies of scale means we benefit from having big companies.

But that doesn’t mean companies can’t get too big, nor that all the jobs and income big businesses bring us mean governments should manage the economy to please the nation’s chief executives.

It should go without argument that governments should manage the economy for the benefit of the many, not the few. The profit motive, big companies and their bosses should be seen as just means to the end of providing satisfying lives for all Australians, including the disabled and disadvantaged.

We allow the pursuit of profit, and the chosen treatment of employees and customers, only to the extent that the benefits to us come without unreasonable cost to us. Business serves us; we don’t serve it.

In other words, we need a fair bit of the benefit to “trickle down” from the bosses and shareholders at the top to the customers and workers at the bottom. That’s the unwritten social contract between us and big business. And for many years, enough of the benefit did trickle down. But in recent years the trickle down has become more trickle-like.

This is partly explained by the way the “micro-economic reform” of the Hawke-Keating government degenerated into “neoliberalism” – the belief that what’s good for BHP is good for Australia. This would have been encouraged by the way election campaigns have become an advertising arms race, with both sides of politics seeking donations from big business.

Another cause was explained by a former Reserve Bank governor, Ian Macfarlane, in his Boyer Lectures of 2006: “The combination of performance-based pay and short job tenure is becoming increasingly common throughout the business sector ... It can have the effect of encouraging managers to chase short-term profits, even if long-term risks are being incurred, because if the risks eventuate, they will show up ‘on someone else’s shift’.”

The upshot of neoliberalism’s assumption that business always knows best is to leave the nation’s chief executives – and their boardroom cheer squads – believing they’re part of a commercial Brahmin caste, fully entitled to be paid many multiples of what their fellow employees get, to retire with more bags of money than they can carry, and to have politicians never do anything that hampers their money-grubbing proclivities.

Their Brahminisation has reached the point where they think they can break the law with impunity. They’re confident that corporate watchdogs and competition and consumer watchdogs won’t come after them – or won’t be able to afford the lawyers they can.

Chief executives for years have used multiple devices – casualisation, pseudo contracting, labour hire companies, franchising and more – to chisel away at workers’ wages. And that’s before you get to the ways they quietly chisel their customers.

The fact is that the error and era of neoliberalism are over, but the Business Council and its members have yet to get the memo. They’re continuing to claim that cutting the rate of company tax would do wonders for the economy (not to mention their bonuses) and that the Albanese government’s latest efforts to protect employees from mistreatment would make their working arrangements impossibly “inflexible”.

But the more Qantases and Alan Joyces we call out while they amass their millions, the more the public wakes up, and the more governments see we want them to get the suits back under control.

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What a future: impossible climate, a life of renting and a crappy job

The older I get, the more I worry about the nightmare we oldies are leaving for our children and grandchildren. The obvious, in-your-face problem is climate change, but other difficulties are everywhere you look.

Now the northern hemisphere has been introduced to the joys of bushfires and heatwaves with, I imagine, a cleanser of flooding to come, global warming has become global boiling. Climate change is now — and will get a lot worse even before we oldies have popped off.

We wasted decades worrying about the economic cost of doing something about climate change, now we’re facing the daunting economic costs of not having done anything about climate change.

We’ve exchanged a government of closet climate-change deniers for a government that knows what it should do, but is dragging its feet under the influence of two powerful unions representing the interests of a relative handful of mine workers who don’t want to look for jobs elsewhere.

Then there’s the way the older generation of home owners has allowed the lure of ever-rising house prices to permit successive governments to turn housing into an inheritance lottery.

Australia is dividing into two distant tribes: the owners and the renters. If you have the good fortune to be born to home-owning parents (perhaps with an investment property or two on the side), the Bank of Mum and Dad will ensure you too eventually become a home owner, able to pass your good fortune on to your own kids.

But pick renters as your parents — or have too many siblings — and you, like them, will be a life-long renter. As will your kids.

And, naturally, governments couldn’t possibly oblige landlords to give their tenants more security and better maintenance without the landlords giving up and leaving thousands homeless on the streets. (Yeah, sure.)

HECS HELP debt is adding to the difficulty of making it onto the home ownership merry-go-round. The scheme was designed to have people who benefit from a university education contribute towards its cost without discouraging kids from poor families from seeking to better themselves.

But incessant tinkering by successive governments has turned HECS into a millstone.

And all that’s before you get to the gig economy, better thought of as the rise of insecure employment. The security of having a full-time, permanent job is something the older generation has been able to take for granted. Not so the youngsters.

In the latest surge of inflation, businesses haven’t hesitated to pass on to customers the higher cost of imported inputs, often seeming to add a bit extra for luck.

But in the decade or two before then, price rises were modest, sometimes even falling below 2 per cent a year, despite healthy growth in profits.

One way that businesses kept prices low was to find new ways of holding down labour costs. With the gig economy, people seeking to earn a living from digital sites are treated as contractors rather than employees.

They thus get no guaranteed work, no paid sick or holiday leave, no workers’ compensation cover and no employer contributions to their superannuation. Their work is precarious.

But that’s just the bit that gets the publicity. Less talked about are the various devices businesses have used to minimise labour costs, shift risks onto workers, and weaken the legal link with their workers by using labour-hire companies, setting up franchise arrangements and disposable subsidiaries.

Above all, workers have been hired as casuals. Casual employment is meant for cases where work is intermittent, short-term or unpredictable. But these days many casuals work full-time, most work the same hours from week to week, more than half can’t choose the days on which they work, and most have been with their employer for more than a year.

Casual workers get no sick or holiday pay, meaning if they’re too sick to work they earn no income. If they take a break, they have to live on their savings.

In principle, they get a 25 per cent loading instead. But get this: as best we can tell from official statistics, less than half actually receive it.

And because they’re casuals, they get no job security. Permanent employees can’t be sacked without due cause. If they’re laid off, they get redundancy money. Casuals don’t have to be sacked and don’t get redundancy. They just don’t get rostered on.

Some companies avoid union wage rates and conditions by using workers actually employed by labour-hire companies.

Last week, workplace relations minister Tony Burke announced further details of the government’s plan to make it easier for casual workers to apply to become permanent. Earlier he’d announced plans to require labour-hire workers to be paid the same as the regular employees doing the same work beside them.

Naturally, the employer groups cried that this would “increase business costs and risks” – which I take as a tacit admission that causal workers have been underpaid.

It’s not much, but it’s a step towards giving the younger generation a better future.

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Another rise in interest rates is enough already

Whatever decision the Reserve Bank board makes about interest rates at its meeting tomorrow morning – departing governor Dr Philip Lowe’s second-last – the stronger case is for no increase. Indeed, I agree with those business economists saying we’ve probably had too many increases already.

If so – and I hope I’m wrong – we’ll miss the “narrow path” to the sought-after “soft landing” and hit the ground with a bang. We’ll have the recession we didn’t have to have. (That’s where recession is measured not the lazy, mindless way – two successive quarters of “negative growth” – but the sensible way: a big rise in unemployment over just a year or so.)

For those too young to know why recessions are dreaded, it’s not what happens to gross domestic product that matters (it’s just a sign of the looming disaster) but what happens to people: lots of them lose their jobs, those leaving education can’t find decent jobs, and some businesses collapse.

Market economists usually focus on guessing what the Reserve will do, not saying what it should do. (That’s because they’re paid to advise their bank’s money-market traders, who are paid to lay bets on what the Reserve will do.)

That’s why it’s so notable to see people such as Deloitte Access Economics’ Stephen Smith and AMP’s Dr Shane Oliver saying the Reserve has already increased interest rates too far.

Last week’s consumer price index for the June quarter gave us strong evidence that the rate of inflation is well on the way down. After peaking at 7.8 per cent over the year to December, it’s down to 6 per cent over the year to June.

As we’ve been told repeatedly, this was “less than expected”. Yes, but by whom? Usually, the answer is: by economists in the money markets. Here’s a tip: what money-market economists were forecasting is of little interest to anyone but them.

That almost always proves what we already know: economists are hopeless at forecasting the economy. Even after the fact, and just a week before we all know the truth. No, the only expectation that matters is what the Reserve was expecting. Why? Because it’s the economist with its hand on the interest-rate lever.

So, it does matter that the Reserve was expecting annual inflation of 6.3 per cent. That is, inflation’s coming down faster than it thought. Back to the drawing board.

The Reserve takes much notice of its preferred measure of “underlying” inflation. It’s down to 5.9 per cent. But when the economy’s speeding up or slowing down, the latest annual change contains a lot of historical baggage.

This is why the Americans focus not on the annual rate of change, but the “annualised” (made annual) rate, which you get by compounding the quarterly change (or, if you can’t remember the compounding formula, by multiplying the number by four).

Have you heard all the people saying, “oh, but 6 per cent is still way above the target of 2 to 3 per cent”? Well, if you annualise the most recent information we have, that prices rose by 0.8 per cent in the June quarter, you get 3.3 per cent. Clearly, we’re making big progress.

But the next time someone tells you we’re still way above the target, ask them if they’ve ever heard of “lags”. Central Banking 101 says that monetary policy (fiddling with interest rates) takes a year or more to have its full effect, first on economic activity (growth in gross domestic product and, particularly, consumer spending), then on the rate at which prices are rising. What’s more, the length of the lag (delay) can vary.

This is why central bankers are supposed to remember that, if you keep raising rates until you’re certain you’ve done enough to get inflation down where you want it, you can be certain you’ve done too much. Expect a hard landing, not a soft one.

Since the road to lower inflation runs via slower growth in economic activity, remember this: the national accounts show real GDP slowing to growth of 0.2 per cent in the March quarter, with growth in consumer spending also slowing to 0.2 per cent.

How much slower would you like it to get?

The next weak argument for a further rate rise is: “the labour market’s still tight”. The figures for the month of June showed the rate of unemployment still stuck at a 50-year low of 3.5 per cent, with employment growing by 32,600.

But the nation’s top expert on the jobs figures is Melbourne University’s Professor Jeff Borland. He notes that, in the nine months to August last year, employment grew by an average of 55,000 a month – about double the rate pre-pandemic.

Since August, however, it’s grown by an average of 35,600 a month. Sounds like a less-tight labour market to me.

And Borland makes a further point. Whereas the employment figures measure filled jobs, the actual number of jobs can be thought of as filled jobs plus vacant jobs – which tells us how much work employers want done.

This is a better indicator of how “tight” the labour market is. And, because vacancies are falling, the growth in total jobs has slowed much faster. Since the middle of last year, part of the growth in employment has come from reducing the stock of vacancies.

Another thing the Reserve (and its money-market urgers) need to remember is that, when it comes to slowing economic activity to slow the rise in prices, interest rates (aka monetary policy) aren’t the only game in town.

Professor Ross Garnaut, also of Melbourne University, wants to remind us that “fiscal policy” (alias the budget) is doing more to help than we thought. The now-expected budget surplus of at least $20 billion means that, over the year to June 30, the federal budget pulled $20 billion more out of the economy than it put back in.

Garnaut says he likes the $20 billion surplus because, among other reasons, “we can run lower interest rates”.

One last thing the Reserve board needs to remember. Usually, when it’s jamming on the interest-rate brakes to get inflation down, the problem’s been caused by excessive growth in wages. Not this time.

Since prices took off late in 2021, wages have fallen well behind those prices. Indeed, wages haven’t got much ahead of prices for about the past decade. And while consumer prices rose by 7 per cent over the year to March, the wage price index rose by only 3.7 per cent.

This has really put the squeeze on household incomes and households’ ability to keep increasing their spending. And that’s before you get to what rising interest rates are doing.

Dear Reserve Bank board members, please remember all this tomorrow morning.

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