In terms of governments employing more public servants to reduce the unemployment rate, the IMF found that: “We do not find any evidence that public employment reduces the unemployment rate in the medium to long-run. If anything we found some evidence that creation of public jobs may increase unemployment rate.”
So how are jobs created?
Jobs are created because, as the population grows, demand for goods and services grows, and demand for labour therefore essentially grows in line with population growth.
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A governments’ proper role, therefore, should be to focus on reducing the natural rate of unemployment, which quite clearly has risen since the introduction of the Fair Work Act in 2009.
The Turnbull Government must reconsider the Fair Work Act in light of the too-high youth unemployment rate. Australia should not tie itself to the mast of a ‘high-wage’ economy, rather we should be an ‘all-wage’ economy where there is a wage for every skill level.
At the state level, the Palaszczuk Government should deregulate retail trading hours, which is surely a no-brainer for a Labor Government focussed on job creation. In addition, Palaszczuk needs to carefully calibrate her regional policies, not overinvesting in thin jobs markets, and not oppose efficient FIFO operations.
And, as part of Federation tax reform, state governments need to reduce and ultimately eliminate transaction taxes, most notably stamp duty on housing that restricts labour mobility.
Our ‘jobs’ objective must be to reduce the natural rate of unemployment by 1% from around 5.5-6% to between 4.5-5%.
All governments in the Australian Federation must be focussed on the dual goals of lowering the natural rate of unemployment and increasing real income per person. Together, these two measures define the level and distribution of our living standards.
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When governments consider new regulations, they should ask: “will this increase or decrease the natural rate of unemployment?” Similarly, when governments consider new spending or taxing policies, they should ask: “will this increase or decrease income per person?”
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