Reality check for jobs summit

Friday’s Reserve Bank quarterly statement on economic policy offers a vital insight into the challenges and opportunities for the Albanese government’s upcoming Jobs and Skills Summit. In one sense it seems odd that Jim Chalmers has identified boosting wages, improving job security and tackling barriers to employment as priorities at a time when unemployment is at a decades low and falling, and the RBA is signalling a wage-price spiral as the biggest threat to economic stability. But the Treasurer says while our unemployment rate is at historic lows, access to job opportunities remains unequal, wages growth is weak and the labour market is struggling to respond quickly to acute skills shortages.

The government has made the right decision inviting Peter Dutton or his representative to attend the summit next month as well as ensuring that crossbench MPs can have input. But the real potential lies in getting business, unions, community services and local governments in the room to find a common purpose. This is by no means assured.

They must be guided by the RBA’s latest outlook, which found that across the course of this year inflation in Australia has been higher than was previously expected and the labour market has tightened faster than was thought likely, with the unemployment rate now standing at 3.5 per cent and expected to fall further to 3.25 per cent by the end of this year. The domestic labour market is the tightest it has been in five decades. Underemployment also has declined and the employment-to-population ratio and participation rate are both at record highs. Leading indicators of demand for labour remain strong. Job vacancies and advertisements are at exceptionally high levels. Many employers are having difficulty finding new workers.

After falling to 3.25 per cent, unemployment is expected to increase gradually as economic growth slows. The tight labour market is expected to result in stronger wages growth across the period ahead, but growth in labour costs is expected to be below the rate of inflation for a time. Dr Chalmers already has moved to dampen expectations for a real rise in wages across the next two years, despite real wage growth being a key message of the Albanese election campaign. The RBA has warned of the dangers of letting wage demands get out of control.

“In this environment, there is a risk that expectations of high inflation might be built into price and wage settings behaviour, making the higher inflation more persistent,” the RBA said. At the same time, the outlook for both the global and the Australian economies has been downgraded as central banks raise interest rates and household budgets come under pressure because of higher inflation.

The RBA says it is committed to doing what is necessary to ensure that inflation in Australia returns to the 2 to 3 per cent target range over time. It says the path to achieve this balance is a narrow one and subject to considerable uncertainty. The jobs summit must do all it can to make the RBA’s task more manageable.