Coronavirus: Strong jobs recovery but wage pain remains

Opposition Leader Anthony Albanese visits electric vehicle chargers manufacturer Tritium in Brisbane on Wednesday ahead of an announcement on IR policy. Picture: Dan Peled

Recovery in the labour market has been the good news story of the pandemic, surprising seasoned watchers and putting a smile on the dial of Josh Frydenberg and his economics brains trust.

Fiscal and monetary stimulus has worked wonders, but you’d expect that, given Canberra has thrown $251bn in direct support at the economy and the Reserve Bank has cut rates to 0.1 per cent.

People are getting back to work, especially in industries hit hardest by trading restrictions, such as retail and hospitality, although the latter is 100,000 jobs below its level of a year ago. As well, jobseekers haven’t been discouraged in their search, with the participation rate at a record high.

The RBA says this quick rebound in participation suggests there’s been less “scarring” in the labour market and fewer “search frictions” than is typically seen in downturns and recoveries.

“It also implies that there are fewer workers still out of the ­labour force waiting to rejoin, which reduces the likelihood of a material increase in the unemployment rate being driven by people returning to the labour force,” the RBA said in its statement on monetary policy last week.

The end of JobKeeper next month will be disruptive and the headline jobless rate may even rise for a time, although the number of advertised vacancies has soared, particularly in Tasmania, Western Australia, South Australia and Queensland.

Still, there are huge structural forces in play hitting the most vulnerable workers and holding down wage growth across the economy for the next few years.

In new research, EY economists Jo Masters and Johnathan McMenamin point to the growing casualisation of work and an economy underdelivering by about 35 million hours of work a week or almost $700m in lost income at the minimum wage.

“Driving wage growth higher requires policies designed to generate jobs but also boost aggregate demand to increase hours worked and lower underemployment,” they write, adding we need more “good jobs” through productivity-enhancing reforms.

Labor leader Anthony Albanese is trying to carve out a workplace agenda to combat wage stagnation and insecure work, an issue close to his heart.

Official labour force figures reveal most of the new hires in the revival are low-skilled part-­timers, who’d like to work more hours. Jobactive exit data shows the unemployed are taking up roles as labourers, cleaners, sales assistants, wait staff, factory hands, carers and drivers.

Crucially, the number of full-time jobs is around 125,000 below pre-pandemic levels and JobKeeper has masked the number of idle workers.

Young people (15 to 24) not in full-time study are the most at risk of getting stuck in a rut, so naturally they are the focus of the Morrison government’s new wage-subsidy scheme.

According to University of Melbourne economist Jeff Borland, after adjusting for population composition changes, by December employment for full-time students was about 10 per cent higher than its pre-pandemic level, but 5 per cent lower for those aged 15 to 24 not in full-time study

Spare capacity in the labour market, with under-utilisation above pre-pandemic levels, will persist and keep a lid on wages and suppress living standards.

Right now, 40 per cent of firms the RBA is in regular contact with have a wage freeze in place and 25 per cent intend to implement one this year.

RBA governor Philip Lowe said last week it would take years to get the unemployment rate down below its pre-pandemic low to achieve the tight labour market that would generate decent wage rises. For now, the bank’s guidance is near-zero interest rates for at least the next three years, unless wages growth is “materially higher”. Full employment is the dim light at the end of a long tunnel.