Thursday, August 10, 2006

Good news on unemployment

The latest Household Labour Force Survey has been released, and it shows seasonally-adjusted unemployment falling back to 3.6%. The decline was real - 7000 fewer people without work - rather than just the artefact of an expanding labour force, so its definitely good news. On the down side, the average hours worked per person rose, so it still seems that we are working harder, rather than smarter. But the longer the labour shortage keeps up (and its weird to think of "only" 3.6% unemployment and 79,000 unemployed as a "labour shortage"), then the more chance there is of out hidebound business community abandoning its "low wage, low skill" paradigm, and investing in productivity improvements.


This is indeed good news -for those of us that live in the real world and consider it great that more people can - hopefully - enjoy the dignity of work and becomer more prosperous and secure. Its also a good sign that the economy is stubbornly refusing to drop into the death spiral that tax cut now brigade keep predicting. Unfortunately however I forsee a cassandra howl from the gleeming towers, where banking analysts will bemoan the inflationary impact, the implications for interest rates, wage pressure affecting dividends, how the economy is falling behind in productivity and all the spending will push up the balance of payments deficit and the and the fact their own shadow gave them all such a fright that the sharemarket fell 3 points this morning before recovering with the growing cover this afternoon.

And anyway, what we really need is a tax cut. Tax cuts now. Oh and for Helen to pay it back. And a tax cut. And to make sure Maori lose their special privileges, which they wont need after a tax cut. And did I mention a tax cut? We really need a tax cut...............

Posted by Sanctuary : 8/10/2006 02:41:00 PM

Yes. This is good news.

But as sanctuary notes it suggests our economy is still booming - possibly a bit too much.

Remember that the aim of the Reserve Bank is the Goldilocks economy: not too hot, not too cold. The basic idea is that the natural capitalist cycle of boom-bust is really nasty and that by putting the brakes on to avoiding letting the boom get too high you can avoid the resulting inflationary spiral which then causes the bust.

Which means the Reserve Bank will almost certainly raise interest rates. They will be seeking to restrict the money supply - to make people (& businesses) feel a little bit shorter on cash so they spend a bit less. It also means that the last thing we need right now is a tax cut. The reserve bank will be trying to put the brakes on by restricting the money supply, a tax cut has the opposite affect. But likewise, the last thing we need right now is announcements of increased govt spending.

Apologies if I'm repeating the obvious: but the simple logic that goes from "overheated economy" to "so don't cut taxes now" seems to completely bypass many people.

Posted by Icehawk : 8/10/2006 04:02:00 PM

It is weird to think of it as a shortage, but you have to bear in mind that out of 100 people you could probably find 1 or 2 who are "in transit" from having had enough or being fired. And of course in particular niches there are great shortages.

Posted by stephen : 8/10/2006 04:41:00 PM

And Mapp's bill was for what purpose?

Ah, thats right, because other countries with higher unemployment do it, so we should too.

Posted by james cairney : 8/10/2006 05:18:00 PM

stephen is right - 0% unemployment would imply a dangerously "unpicky" workforce. If you spend 2% of your life looking for that perfect job and 98% doing it that is a perfectly fine ratio. that is what the UB is all about insuring is feasible so you dont have to jsut take the first mcdonalds job you are offered no matter what your training.

Posted by Anonymous : 8/10/2006 08:46:00 PM