Business alarmed at Labor’s new employment goal

Business groups have raised alarm over the government’s new definition of full employment in its much-anticipated white paper.

Treasurer Jim Chalmers in Adelaide on Monday. NCA NewsWIRE / Emma Brasier

Business groups have raised alarm over the government’s new definition of full employment in its much-anticipated white paper, while economists have warned that aiming for zero unemployment is a “pipe dream” that could undermine the RBA’s pursuit to lower inflation.

The employment white paper outlined a new government goal of work for every Australian who wants it, formally distancing Labor from Reserve Bank governor Michele Bullock’s comments that unemployment would have to rise to 4.5 per to tame inflation.

Jim Chalmers said the RBA’s “technical” definition of full ­employment – the estimated lowest level of unemployment consistent with keeping inflation ­between 2-3 per cent – was distinct but complementary to the government’s objective “which is a good, secure, fairly paid job for everyone who wants one”.

The Treasurer said the government was aiming to pursue ­reforms that could help the RBA lower its unemployment target over time without affecting inflation.

Independent economist Chris Richardson said Dr Chalmers’ announcement made clear the RBA and government would start trying to do “different things” when it came to unemployment.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the goal created “dual definitions for full employment” and could undermine the RBA’s inflation fight. “This will create confusion and potentially undermine the long-settled understanding of full employment under which monetary policy has operated,” he said.

“If the government is going ahead with these definitional changes it needs to make clear that, contrary to trade union understandings, there will be zero impact on the RBA’s interest-rate setting framework, and zero ­expectation that the RBA will be more doveish on inflation.”

Business Council of Australia chief executive Bran Black said it was critical the definition of full employment remained separate from RBA’s target, known as the Non-Accelerating Inflation Rate of Unemployment (NAIRU). “This distinction should be paramount when finalising the next monetary policy agreement between the government and the new RBA governor,” he said.

Unions leapt on the move ­towards a new definition of full employment, after months of criticising Ms Bullock for her comments that the 3.7 per cent unemployment level was too low and “will have to rise” to bring inflation under control.

An RBA spokeswoman said it agreed with the government that “our approaches to measuring unemployment are complementary”. She said the government’s new definition of unemployment would not make it any harder for the RBA to contain inflation.

ACTU president Michele O’Neil said: “Full employment should be about getting to an economy where everyone who wants a job will be able to get a job and where the quality of jobs matter. We are pleased to see a government that is using every lever to achieve these goals.”

The ACTU has been pushing the government to redefine full employment as “zero involuntary unemployment” – something that George Washington University assistant professor Steve Hamilton said would be “crazy”.

“In this document … the Treasurer has made clear the treasury and RBA numbers are just a technical assumption and that we should be really focused on driving that rate lower. And I would say that concerns me a little bit,” Professor Hamilton told Sky News.

“We need to take that rate seriously and understand the economy ultimately does have a speed limit. And with inflation skyrocketing, we’ve never seen clearer evidence that that is the case.”

NAB chief economist Alan Oster said a full employment rate of near-zero was “a pipe dream”.