Lots of jobs but no wage growth

Ross Greenwood speaks to HSBC Chief Economist Paul Bloxham about the latest unemployment figures show which show almost 51,000 new positions were created in June, with a boost in both full-time and part-time positions.

Introduction: Lots of jobs but no wage growth

Ross Greenwood: Something else also today. That is, the unemployment rate today came in at 5.4%. In actual fact, it was a tick under that, around 5.37%. That was the best unemployment rate in Australia for five years. Good news, in other words. The other point also is that the treasurer is certainly crying because it wasn’t just the overall employment numbers that look pretty good, but also in case it was the youth employment numbers that look pretty good. Let’s go now to the treasurer, Scott Morrison, today explaining how he saw the employment numbers?

Scott Morrison: With 95,200 young people getting a job in the last financial year, that is the best financial result, financial year result in 30 years. Since 1988-89. That was a year Taylor Swift was born. So it’s been 30 years and I reckon that’d be something for Taylor Swift to sing about.

Ross Greenwood:  Oh yes, let’s do it, shall we, shake it off. Shall we? Come on, Taylor.

Ross Greenwood:  Oh, there you go. That’s just the Scott Morrison, the treasurer, because that’s what he wanted. A little bit of Taylor Swift on Money News today. Let’s go to another man who no doubt was around in that year 1988-89. He maybe about the same age as Taylor Swift, maybe year or two older. The chief economist of HSBC in Australia Paul Bloxham. Hello, Paul.

Interview with: Paul Bloxham, Chief Economist, HSBC

Paul Bloxham: Good day, Ross.

Ross Greenwood:  Is the treasurer right to sing about these numbers?

Paul Bloxham: Look, they’re looking pretty good in the scheme of things. 51,000 jobs created in the month. If you want to not take too seriously the month to month numbers because they can be quite volatile. We’ve created 340,000 jobs over the past year. The employment growth numbers are running in a bit above their average rate of 2.8%. This is a pretty positive sign of what’s going on. The challenge is the unemployment rate isn’t falling very quickly. Although as you pointed out, it’s at a five-year low on the trend measure. It’s falling very, very slowly. That’s a key reason, of course, why wages growth is still being quite sluggish because we’ve still got a bit of spare capacity in the labor market.

Ross Greenwood:  One of the suggestions was that employers weren’t game to let their employees go, the good ones because they would not necessarily be guaranteed of getting them back. Therefore hours were curtailed, there wasn’t as much overtime around the place but I would suggest that the very strong aspect of these numbers, I think the treasurer is right here, is youth employment actually looking so strong over that last- well, really now we’re talking since ’88-’89. That surely has got to be a very strong message for people getting into the workplace right now.

Paul Bloxham: It is. I think it’s a feature of what happens when we get to this point in the cycle. The expansion’s been going on from the while in terms of employment growth. Last year as we know we had very strong employment growth. It’s still running it at above-trend pace. As the labor market gradually tightens up, you see particularly the youth employment numbers tend to pick up a little bit more towards that period later in the cycle. I think that’s what we’re seeing. I think the fact that the labor market is continuing to tighten up is a positive story.

Ross Greenwood:  Strange thing, Paul here, is I’ve jumped in here is, I just wonder also whether tightening up on the rules around new start, making new start more accountable, making it also go for a shorter period of time, would force some people into the workforce because the prospect of being without any income, without a new start allowance would be a very difficult thing for some.

Paul Bloxham: Certainly, setting the incentives appropriately for employment growth are very important as well, absolutely. I think we’re seeing, as I say, a positive employment rate. I think it’s really a reasonably decent and new story. The challenge is, it’s just not happening, the unemployment rates not falling quite fast enough to get wages growth to pick up yet. That’s the next thing that we need to be seeing. We need to see that the lift in employment growth starts to drive employers to have to compete a bit more for workers and for that to feed through a little bit more wages growth.

Ross Greenwood:  I tell you, it’s always great to have in the program, Paul Bloxham, the chief economist of HSBC Australia. Do bear in mind, you start to get wages growth. What comes with wages growth, the Reserve Bank has told you, is interest rate rises. This is good news. As the treasurer says, “We should sing about it.” Let’s have a little bit more Taylor.

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