The best story of the economy over the past 3 years has been the resilience of the labour market – and with it the total destruction of the view that unemployment below 4.5% is unstainable.
We really need to just stop and marvel at the current situation. For most people, an unemployment rate with a 3 in front during their working life was akin to a sighting of the Yeti. In the past 600 months since December 1974, Australia’s unemployment rate has been below 4% only 24 times – and every month has been in the past 3 years.
This was not expected.
Coming out to the pandemic and the enforced lockdowns both within Australia and of migration from overseas, a common belief was that Australia’s low unemployment was due to a lack of labour supply, and thus in effect the rate was artificially low. And yet despite strong migration growth over the past 18 months, unemployment has remained low – surely delivering a massive body blow to those who espouse the lump of labour fallacy that somehow a job gained by a migrant is one taken from a local worker.
But more surprising is that despite the Reserve Bank raising interest rates 13 times since May 2022, the unemployment rate in that time has risen only from 3.6% to the current rate in November of 3.9%.
The Reserve Bank has been trying to raise unemployment to a level of around 4.5% because it believes that is the level at which unemployment needs to be to keep wage growth steady and inflation below 3%.