Today, the Australian stock market and the Aussie dollar performed relatively well. Alan Kohler, the financial news commentator in ABC News gave the reason why- China and Germany?s industrial production, Australia?s job ?boom? and so on. Incidentally, this is an example of narrative fallacy and lazy induction as described in our book, How To Foolproof Yourself Against Salesmen & Media Bias. Anyway, we will leave you to follow up on the issue of media bias.
But first, we will look at this news article,
Australian employment jumped a strong 26,900 in May to extend a remarkable run of jobs gains that suggests wage pressure could build earlier than thought and require yet further action on interest rates.
That article was published just before 5 pm. Coincidentally, in the streets of Sydney, another news article reported,
Thousands of protesters marched through the streets of Sydney’s CBD today, waving colourful banners and chanting demands for equal pay for women.
This is the sort of things that the RBA fears and give them a reason to raise interest rates. However, though the falling aggregate unemployment rate looks good, it masks a hidden problem. The problem is of the same nature as we described in Overproduction or mis-configuration of production?,
This is the key insight from the Austrian School of economic thought. Over-production or over-investment is not the problem. Rather, the trouble lies in the mis-configuration of production and mal-investments
In the same way, it is not the aggregate level of unemployment that tells the whole story. Rather, if unemployment is to be a threat to the Australian economy, it will be its configuration that is the cause. Recently, we saw this article, Recovery doesn’t extend to long-term jobless,
LONG-TERM unemployment continues to rise sharply and has increased for 18 straight months, despite the better performance of the economy and the overall improvement in th1e labour market.
A Herald analysis shows that Centrelink payments to people without a job for more than a year have risen by 27 per cent, or nearly 72,000, to 334,244 people in the year to April.
While the economic stimulus package has been credited with saving Australia from a deep recession, there remain pockets of deep disadvantage.
This mis-configuration between surplus supply of unemployable labour and shortage of employed labour is what economists call ?structural unemployment.? Also, according to the ABS, the youth unemployment rate in Australia is 3 times the national average. This is another large pool of structural unemployment.
As that article continued,
A senior analyst at the University of Sydney’s Workplace Research Centre, Mike Rafferty, said it appeared that as the economy had improved it was people moving jobs or within jobs that had benefited.
”The people who are benefiting first are perhaps those that already have jobs and are able to move into better jobs or perhaps from part-time to full-time work,” he said. ”It’s not the same picture for the people not in the labour market.”
Since the official unemployment is based on a sample of surveys whereas Centrelink payments is based on the actual number of people seeking welfare, we can argue that the latter presents a more accurate picture of the unemployment situation in Australia.
A rising structural unemployment will increase the drag in the economy as government welfare payment will have to be increased. If this growing trend is not arrested, then this growing pocket of disadvantage will increase, resulting in social problems down the track. Unfortunately, these structural unemployed do not make it to the aggregate figures.