The government’s economic record
Here’s a piece I did on the government’s economic record, first published at New Matilda
The Howard government’s claims to re-election rest largely on its economic management, and many assessments have been positively glowing. However, a closer examination reveals a rather less impressive record.
As a starting point, it’s useful to look at the numbers most commonly cited in assessments of the government’s record. Over eight and a half years of the Howard government, the official rate of unemployment has fallen from 8.6 per cent to 5.7 per cent. Total employment has risen from 8.3 million to 9.6 million an increase of more than a million jobs.
What can we say about this? First, we’ve had an exceptionally long period without a recession, and there’s no reason to expect one soon. This can be attributed in part to luck and in part to good judgement by the Reserve Bank. Still, the Howard government must get some credit, if only for leaving the Bank to do its job without the kind of ad hoc interference practised by Paul Keating as Treasurer.
On the other hand, given the length of the expansion, the performance of the labour market has been poor. The increase in employment during the first six years of the Hawke government, from 1983 to 1989 was much greater, and the reduction in unemployment much steeper. The unemployment rate fell from 10 per cent to a low of 5.2 per cent in a little over six years, before rising rapidly in the ‘recession we had to have’.
Even a modest recession any time in the next couple of years would wipe out all the gains realised under the current government.
Looking at the labour market figures in more detail, they are generally less impressive than at first glance. The reduction in measured unemployment is, at least in part, the result of continuous pressure to push people off unemployment benefits (although the unemployment statistics are based on surveys rather than claimant counts, people who go off unemployment benefits frequently leave the workforce altogether).
To see the effect of this, it’s useful to look at employment-population ratios. The employment-population ratio has risen slightly under the current government, from 58.3 per cent to 60 per cent, but all of this increase has been in part-time jobs. The proportion of the population engaged in full-time employment has actually declined. And for males, the decline is substantial, from 59.6 per cent to 57.8 per cent. By contrast, during the expansion of the Hawke-Keating period, full-time employment increased fairly strongly.
Some of the decline in full-time employment is due to benign developments, including increased participation in education and voluntary early retirement. But more of it is due to adverse developments in the nature of employment which began in the aftermath of the 1989-92 recession and have been exacerbated.
Traditional full-time jobs, with a work week of 35 to 40 hours per week, and standard leave conditions have virtually disappeared. Instead the workforce has been polarised into a core permanent workforce, whose members are expected to work long hours routinely, and a peripheral workforce of part-time casual and contract employees.
In the short run, the pressure created by this process has increased productivity. However, the long-run effect is to drive people out of the workforce either through burnout or through the scarring effects of job loss.
Another important influence has been the abolition of the Commonwealth Employment Service and its replacement with the privatised Job Network. The government has produced a regular series of reports claiming the Job Network as a great success, and an equally regular string of announcements that the Network is being reorganised to cope with unforeseen difficulties.
The real test is in the aggregate performance of the labour market. Not only has a fairly strong economy failed to produce much employment growth, but there is an increasing mismatch between growing job vacancies and a large pool of unemployed and underemployed workers.
Assessment of the Howard government’s record will in the end depend on macroeconomic outcomes. If a recession can be avoided for another few years, we will in effect have enjoyed a complete cycle with no downturn, and the benefits will be substantial.
On the other hand, even a modest recession would wipe out all the gains that have been achieved in one of the longest expansions on record.