Ross Greenwood speaks to HSBC Chief Economist, Paul Bloxham, about why economists are not worried about the latest jobs figures.
Introduction: 1 million jobs created but unemployment on the rise?
Ross Greenwood: Let’s go to the employment numbers out today. Really, they show, again, more jobs being created but the unemployment rate jumped. Now, if you think about all of the things we heard last week in the budget, the most important of those things was that the government is getting more money through the door because of the numbers of Australians who have found jobs.
At the same time, also, with the expectation that wages would continue to rise. We saw the wage numbers out yesterday. They were weaker than anticipated, but the government and treasury have got very optimistic forecast about what wages will do and that will deliver the government more money which will help to fund those tax cuts.
Today, when you actually saw the unemployment rate jump to 5.6%, and indeed, the number of new jobs created. perhaps not as big as expected, then you start to raise some questions about some of those assumptions in the budget for now at least anyway. One man who has been watching it pretty closely is the chief economist of HSBC in Australia, Paul Bloxham, who’s on the line now. Many thanks for your time, Paul.
Interview with: Paul Bloxham, Chief Economist, HSBC
Paul Bloxham: Good day, Russ.
Ross Greenwood: One of the issues here, and you might explain this, is that the labor force participation rate is at the highest it’s been since unemployment numbers were basically taken in this form in 1978. Can you explain exactly what that means and why would that participation rate right now be as high as it is?
Paul Bloxham: Well, the starting point is it’s a pretty good story. Because we’ve got strong labor demand, we’re creating quite a few jobs. Over the past year, we’ve created 332,000 jobs. But a lot of that labor demand is being met sufficiently by people entering the labor force, new people entering the labor force. In large part, if you look at the participation rate and break it down by types, we find that the female participation rate has risen very strongly. All the workers have re-entered the labor force or stayed in the labor force for longer.
Ross Greenwood: Hang on Paul, can I just pick you up there? That makes some sense to me because if families are feeling a squeeze on their cost of living, then you’d have more women going into the workforce to try and earn that family extra income to cope with the electricity bills, the private health insurance bills, the kids’ education bills.
All the workers finding work in the workforce, if it’s there for them, would be all about them trying to, basically, understand they’re not getting enough return out of their superannuation or the money that they’ve got in the bank. So, they’re going back into the workforce to basically stave off having to live off an age pension.
Paul Bloxham: I think it’s certainly possible that those forces are at work as well. What we also know is a lot of the jobs that are being created in recent times have been health-related jobs. We know that the female participation rate in those sorts of jobs is much higher than in other sorts of jobs, so that’s part of the story, too.
It’s partly the sorts of jobs that are being created in the economy that are seeing the trends that we’re seeing in the participation rate. As you say, the participation rate is near a record high at the moment. That’s a reasonably positive story in the scheme of things.
But it does present a challenge for the wages’ story and it does help to explain why wages’ growth has been so sluggish recently. Even though we’ve been creating all these jobs and
we have this demand, it’s been sufficiently met by new supply in terms of the new entrants into the labor market, which has kept wages’ growth rate quite suppressed. That is going to be a challenge for the government. Certainly, it’s going to be a challenge for the very optimistic wage growth forecast that they’ve got factored into the budget.
Ross Greenwood: If these new net migration into the country, and last year, that was pretty much at the high 300s. Sorry, that wasn’t the net migration; the total migration. But the fact of the matter is, if the net migration is getting up towards 200,000 people, then quite clearly, most of those people would be employed. That means of the 400,000 jobs created last year, many of those jobs would’ve been migrants coming into the country.
Paul Bloxham: This is true, but the migrants’ story hasn’t really changed in recent years. What we’ve seen is the fairly strong migrants’ story that’s been playing out for a number of years. Population growth’s been supported by that story. We’ve gone through cycles in wages’ growth that haven’t necessarily been related to that particular aspect of the story. Wages’ growth was running very strongly back in 2011, and it’s slowed down from 4% to now running at 2%. So I think there are other stories that work as well.
I think one of the key ones has been, of course, the weakness we’ve seen in national income from the resources cycle. We had a mining boom, we’ve created a lot of high-paid jobs back then. That’s obviously been running off the boil in recent years, and we’ve been shifting to more jobs being created in the services sectors, where wages tend to be lower. I think that compositional shift is part of the story as well.
Ross Greenwood: Okay, Paul, there’s one other aspect of this that’s kind of interesting. Because until you start to get genuine demand for labor– There’s even some anecdotal evidence in the oil industry in Western Australia, that wages are starting to rise and they’re starting to chase skills as they did in the old days. That comes with oil prices going beyond $70 a barrell.
But for the rest of the country, until you basically take up its extra slack, in other words, the number of people who are out there and available to work, whether they’re working or not doesn’t really matter, but they’re available to work. Until they’re pretty much taken in and the skills are all used up, the wages really aren’t going to start to rise to any demonstrable fashion.
Paul Bloxham: That’s normally the way it works. If you look at previous cycles, the way wages pick up is just corporate start needing particular types of skills and they have to start paying higher wages in order to attract them. We are seeing signs, as you say, in oil and gas to a degree. We’re seeing signs in the construction industry, reportages reporting of skills shortages in that industry.
Some IT skills as well, I’ve seen some skill shortages. What we haven’t seen yet is a real connection between the skill shortages driving up faster growth in wages, growth in any sort of meaningful way.
The question, of course, is when will that arrive, will that arrive, and so on? That’s the big debate economists are having. The treasury’s obviously taken a view that it will arrive. The RBA has a view that it will take a bit longer and they’re saying everything’s going to be very gradual. Our view is somewhere between those stories. We do think wages’ growth will start to pick up as the labor market tightens. But of course, the labor market at the moment, well, the rate’s been pretty steady now for about a year.
Ross Greenwood: Okay, Paul Bloxham, chief economist of HSBC Australia. Many thanks as always with your time, Paul.
Paul Bloxham: Thank you.
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