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Prime Minister welcomes fall in unemployment rate; economists discuss significance of rate.

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Thursday 8 June 2006

Prime Minister welcomes fall in unemployment rate; economists discuss significance of rate


MARK COLVIN: There was historic news on the jobs front toda y. Australia's official unemployment rate fell to just 4.9 per cent, its lowest level in 30 years. 


But some economists are warning there could be an unfortunate trade-off with the jobs boom making another interest rate rise more likely. 


Economics Correspondent Stephen Long prepared this report. 


STEPHEN LONG: The last time unemployment was under five per cent, Malcolm Fraser was prime minister. 


MALCOLM FRASER (archival): Is there a man here who would say they would sooner put Australia into hock to the tune of $1,000 million, rather than devalue? 


STEPHEN LONG: Blue Hills was having its final fling on ABC radio. 


EXCERPT FROM BLUE HILLS BROADCAST: The ABC presents the final episode of Blue Hills by Gwen Meredith.  


STEPHEN LONG: And, yes, ABBA was top of the pops. 


(Excerpt from Dancing Queen) 


John Howard was one of the few current MPs in Parliament way back then, and naturally, he's crowing. 


JOHN HOWARD: For the first time since 1976, the unemployment rate in Australia has fallen below five per cent. Today's figures show the unemployment rate at 4.9 per cent and this is a wonderful symbol of the success of the Government's economic policies.  


As my friend Tony Blair, the British Labour Prime Minister has famously said, fairness in the workplace starts with the chance of a job.  


STEPHEN LONG: Of course China might have had a little bit to do with it as well. With cheap Chinese imports and exports to China underpinning the jobs boom.  


Fifty-six thousand new jobs were added in May, nearly all of them full time, some 47,200 of those jobs in New South Wales, confounding the tale of a booming west and a failing east.  


Chris Richardson of Access Economics says it's a beautiful set of numbers.  


CHRIS RICHARDSON: They are magnificent. Australia has gone through a very long economic expansion, finally allowing us to break through that psychological barrier of five per cent unemployment. Haven't obviously seen this for a very long period of time.  


STEPHEN LONG: A view echoed by Stephen Walters, Senior Economist at JP Morgan. 


STEPHEN WALTERS: Well clearly the employment growth was very impressive at 56,000. That was about four or five times what the market expected. Over the last year or so there's been 170,000-odd jobs created in Australia and employment growth is still growing at around one and a half, two per cent.  


Also very encouraging is the fact that the unemployment rate now has dropped to the lowest rate ever that we've had in the history of this survey and that goes back to the mid 1970s.  


STEPHEN LONG: But some experts say a 4.9 per cent unemployment rate doesn't mean what it did 30 years ago, because the world of work is very different and for some, less secure. 


JOHN BUCHANAN: If you were an oil tanker driver back in the 70s, chances were you were an employed, full time employee. Today you'll probably either be a contractor or you'll be engaged to a labour hire company or a casual employee.  


These are the kind of changes that have occurred.  


STEPHEN LONG: John Buchanan is the Director of the Workplace Research Centre at Sydney University. 


JOHN BUCHANAN: Around 25 per cent of part-time workers want more hours of work and there is a large number of people who are outside of the official statistics who've basically given up looking for work. 


On our estimates, when you combine under-employed part-timers and those discouraged job seekers, the unemployment rate doubles. So instead of talking around 4.9 per cent we should be talking more like 10 per cent is the real unemployment rate.  


STEPHEN LONG: Nonetheless, it's remarkable that Australia has an unemployment rate below five per cent with no wages breakout. 


But the question is, how long can it go on? And with skills shortages and a central bank ever hawkish about wage inflation, the good news on jobs might just come with a sting. 


Stephen Walters. 


STEPHEN WALTERS: While we're getting a very good, very low unemployment rate, the down side of that is that the Reserve Bank is more likely to raise interest rates.  


STEPHEN LONG: Chris Richardson at Access Economics says imminent tax cuts will add to the inflation worries. 


CHRIS RICHARDSON: The amount of money that the Government is pouring into people's pockets is three or four times what the Reserve Bank took out of their pockets with the rate rise just a couple of months ago.  


The key driver at any given moment of inflation is wage pressures, and those are clearly building in Australia given how low unemployment is, given how rapidly the economy has been growing.  


That doesn't necessarily mean that another interest rate rise in Australia is a done deal, but throw in the tax cuts that are imminent and the pressures are clearly there.  


STEPHEN LONG: Another prominent economist, Paul Keating's former economic adviser, John Edwards, today called on the Treasurer to delay the tax cuts, but that's far from likely. 


It may seem perverse, but the share-market dived after the strong job figures, partly because of worries about a further rates rise. 


MARK COLVIN: Stephen Long.