MYEFO Briefing
December 2014
Unemployment: higher for longer This briefing provides an overview of the outlook for the labour market depicted in the Budget update released on 15 December.
6
5
Jobs growth falling well short of Prime Minister Abbott’s 1 million new jobs pledge.
MYEFO forecast
Actual rate
Unemployment expected to stay higher for longer, not falling below 6% until late 2017.
Unemployment rate Per cent 7
Unemployment rate forecast to rise to 6.5%, the highest since early 2002.
Figure 1: Unemployment rate including forecast
Our unemployment rate set to be higher than
4
Canada, New Zealand, the UK and the US.
Real wage stagnation to continue, with a new record low 2.5% WPI growth forecast for 2015.
3 Jun 02
Jun 06
Jun 10
Jun 14
Jun 18
Source: ABS 6202 and MYEFO 2014-15.
The expected trajectory for unemployment has now
Soft labour market to endure for years
been revised up on several occasions, as shown in
The most important number in the Mid-Year
Figure 2. Figure 2: Comparison of unemployment rate forecasts/projections
Economic and Fiscal Outlook (MYEFO), the annual Budget update, is 6.5%. That’s the unemployment rate the Government now expects to see in June
Unemployment rate Per cent 7.0 MYEFO (Dec 13)
next year, and the year after that, rather than the 6.25% it forecast in the Budget. The unemployment
6.5
rate is already the highest since 2002, and now we have confirmation that the Government expects it to drift higher still. Not only is unemployment
Budget (May 2014)
6.0
5.5
Actual rate
PEFO (Aug 13)
expected to go higher than was previously anticipated, but it is now forecast to stay higher for
5.0
longer – the unemployment rate is not expected to have a 5 in front of it until three years from now, in late 2018.
4.5 Jun 13
Dec 13
Jun 14
Dec 14
Jun 15
Dec 15
Jun 16
Source: ABS 6202, PEFO 2013, Budget 2014-15, MYEFO 2014-15.
Employment is expected to grow by just 1% this financial year. That won’t be enough to keep up with population growth, which is forecast to be ACTU MYEFO Briefing – December 2014 – Page 1
1.85% this year.1 As a result, the employment-to-
Figure 4: Unemployment rates in key OECD countries
population ratio is expected to fall to 60.3%, down
Unemployment rate Per cent 10
from 60.8% in June this year, the lowest fraction of the adult population in work since mid-2004.
United States
Forecasts
Total OECD 8
Employment growth of 1% also won’t be strong enough to put Australia on track to reach the Prime
6
United Canada Kingdom New Zealand
Minister’s pledge of 1 million new jobs by September 2018. We’re currently around 64 000
Australia 4
jobs short of the Prime Minister’s pledge; this is expected to grow to around 120 000 jobs short of the pledged total by mid-2016, as shown in Figure
2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: OECD 2014 Economic Outlook, Annex Table 13. Australia’s forecast is from MYEFO and pertains to the June quarter of each year. Other forecasts are from the OECD and pertain to an annual average.
3. Figure 3: Employment growth
The Government forecasts that the unemployment
Jobs added since election Thousands 550
rate will be 0.9 percentage points higher in 2016 than it was in 2013. That’s the second highest
450
expected rise in the unemployment rate of any
Employment growth needed to fulfill Abbott's jobs pledge
350
OECD country over that three year period, behind MYEFO forecast
250
Actual jobs growth
50 -50 Jun 13
Jun 14
Figure 5: Change in unemployment rate: 2013 to 2016 (forecast)
Jun 15
Jun 16
Source: ABS 6202, MYEFO 2014-15. Jobs pledge from Real Solutions for All Australians, p5.
2013,
Australia
had
the
ninth
lowest
unemployment rate out of 35 OECD countries, lower than New Zealand, Canada, the UK, and the US.2 If the MYEFO forecasts come to pass, Australia’s unemployment rate in 2016 will be the 17th highest out of the 35 OECD countries, higher than those of the other English-speaking countries with which we usually compare ourselves.
Calculated based on the MYEFO 2014-15 forecast for the participation rate, unemployment rate, and employment growth. 2 OECD 2014, Economic Outlook, Annex Table 13. 1
off a relatively low base, but unemployment is expected to fall in most other advanced economies.
150
In
only Turkey. Australia’s unemployment rate is rising
Turkey Australia (MYEFO) Chile Luxembourg Finland Korea France Austria Switzerland Israel Norway Italy Germany Mexico1 Belgium Netherlands Japan Sweden Iceland Canada Slovenia Denmark Czech Republic Euro area Total OECD New Zealand Slovak Republic United States Estonia Poland United Kingdom Hungary Ireland Greece Portugal Spain
0.9
-5
ACTU MYEFO Briefing – December 2014 – Page 2
-4
-3
-2 -1 0 1 Percentage points
2
Source: OECD 2014 Economic Outlook, Annex Table 13. Australia’s forecast is from MYEFO and pertains to the June quarter of each year. Other forecasts are from the OECD and pertain to an annual average.
The outgoing Treasury Secretary, Martin Parkinson,
Growth over rolling three-year period Per cent 5%
recently warned of the danger of allowing cyclical unemployment
to
harden
into
structural
unemployment. The longer the unemployment rate remains elevated, the greater this risk.
Forecast 4% 3% 2%
Wage stagnation to continue
1%
Over the past year, wages rose by 2.6%, the lowest growth recorded since the creation of the Wage Price Index in 1997. The Government now forecasts
0%
that wages growth will fall even further, to 2.5%
-1% Jun 98
over the year to June 2015. This will be a new
Source: WPI from ABS 6345. CPI excluding interest and tax changes of 1999-2000 from RBA table G1. ACTU calculations.
Jun 03
record low for WPI growth. Price inflation (as measured by the CPI) is expected to also be 2.5% over the year, which means that real wages are not expected to grow at all this year. Wages growth is forecast to pick up a little, to 3%, in 2015-16. Figure 6: Wage Price Index growth with forecast Per cent 4.5
4.0
3.5 Actual WPI growth 3.0
2.5 MYEFO 14 forecast 2.0 Jun 97
Jun 01
Jun 05
Jun 09
Jun 13
Jun 17
Source: ABS 6345 and MYEFO 2014-15.
The stagnation in real wages envisaged in MYEFO is unprecedented in recent times in Australia. Wages are forecast to be slightly lower in real (inflationadjusted) terms in 2016 than they were in 2013. Ove ACTU MYEFO Briefing – December 2014 – Page 3
Jun 08
Jun 13
Jun 18