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Our worst policy failure

January 23rd, 2003

As I mentioned, my last AFR piece on unemployment has been reproduced at australian policy online. Stephen Kirchner criticises me and says

The unemployment rate in NZ has already posted a low of 5.1% and could well push sub-5%. The NZ case demonstrates that a more liberal approach to labour market institutions can be successful in lowering unemployment.

I think this is drawing a pretty long bow. The National Party government in NZ passed the Employment Contracts Act in 1991. When the Nationals lost office in 1999 the unemployment rate was close to 7 per cent, above that in Australia. The incoming Labour government (which Kirchner criticises pretty regularly) repealed key aspects of the Act. The subsequent decline in unemployment (latest rate 5.4 per cent) may not be a consequence of Labor’s reforms but it certainly doesn’t help Kirchner’s case in the slightest.

Oddly enough, Kirchner goes on to endorse the ‘characteristically intelligent’ comments of John Edwards who begins by pointing out the failure of the radical free-market model in the US. Edwards goes on to respond to a number of the points that I raised in my piece (though he doesn’t mention names on either side), and concludes

If the Australian economy continues to grow over the next few years at the rate I expect, it won’t be long before we are more worried about finding workers than finding jobs.

Of course, a few more years of growth would imply a 15-year expansion, which would certainly be good for unemployment. This may happen, but I see no reason to suppose that Australia is any more immune to the business cycle than the US where similarly rosy predictions held sway until very recently.

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