Never a dole moment

AS TONY Abbott and Julia Gillard toss sound bites back and forth on the evening news, the issue of jobs often features in their imagery. Both leaders are fond of visiting factories in hard hats and fluorescent vests to emphasise their affinity with working people and their commitment to create jobs.

It should be a slam dunk for the Labor Party. After all, it was the Labor governments of John Curtin and Ben Chifley that brought an end to the lingering effects of the 1930s Depression and ushered in decades of full employment after the war.

Curtin and Chifley knew what full employment meant. It did not mean an unemployment rate of more than 5 per cent, which we have at the moment. It meant a rate of less than 2 per cent, so that everyone who wanted a job could get one. And not just work for a few hours a week, but a job that provided a living wage.

In these more prosperous and educated times, it should not be beyond the wit of politicians and economists to achieve full employment again. Such a commitment should certainly occupy a prominent place on the political agenda of a party purporting to represent the interests of working people. Yet it does not.

It must be galling for the hundreds of thousands of unemployed people to watch Julia Gillard, Wayne Swan and Reserve Bank governor Glenn Stevens talk up the boom that Australia is meant to be enjoying.

There is no acknowledgment that the policies of the government and the bank are leaving many Australians in the lurch. And that they are doing it deliberately.

In 1993, prime minister Paul Keating gave the Reserve Bank the task of keeping inflation within an excessively low and narrow band of 2-3 per cent over the medium term. There was no requirement for the bank to achieve full employment and maintain it, while at the same time keeping inflation down. It seems that it was just too hard for the board members of the Reserve Bank to walk and chew gum at the same time. Not surprisingly, successive Reserve Bank governors have not had too much difficulty keeping inflation within the stipulated limits. They do so by pushing unemployment up whenever economic activity begins to accelerate and inflation ticks up a point or two.

It has been left to governments to deal with the resulting unemployment. No government for decades has suggested that full employment is achievable.

In 1999, Labor's opposition leader, Kim Beazley, promised to bring unemployment down to 5 per cent. At the time it seemed to be a heroic commitment. But unemployment had been on a downward trajectory since 1992, when it had almost reached 11 per cent. By the time of Beazley's statement, it had dropped back to about 6 per cent.

It would have been more heroic of Beazley to have promised a return to conditions of full employment, so that the spectre of unemployment could be removed from the lives of working Australians.

That would have been a great commitment for a Labor leader to make, even if it had to be achieved over the life of two parliaments. It would have put the issue back on the political agenda, back in the realm of the possible.

Beazley lost his chance and John Howard remained in power, presiding over an economy that saw the unemployment rate continue to slide downwards past Beazley's heroic rate of 5 per cent to reach just 4 per cent by early 2008.

There was not far to go before Australians might once again enjoy conditions of full employment. But it was a false dawn. Unemployment soon crept back up.

Instead of celebrating the approach of full employment, economists began wringing their hands in despair.

Although Australia had prospered for three decades with unemployment less than 2 per cent, economists decided that anything lower than about 5 per cent would cause inflation to soar.

They warned darkly of capacity constraints that would cause wage inflation and lead to the inflationary spirals of the 1970s and 1980s.

Such views condemn hundreds of thousands to unemployment or under-employment, leaving them to live precarious lives on marginal incomes.

By accepting such views, and ensuring that the Reserve Bank's mandate is only concerned with inflation, the Labor government has kept the unemployed in that position.

The unwritten mandate of the Reserve Bank is to maintain sufficient unemployment to keep inflation within the narrow band set by the government.

If by some miracle every unemployed person found work tomorrow, the Reserve Bank would respond by raising interest rates to reduce economic activity and toss them back on the dole heap.

I don't know what Curtin and Chifley would make of it, if they could see a Labor government maintaining a perpetual pool of unemployed people and then punishing those who were caught in it by imposing punitive work tests and providing an allowance that has declined in value compared with other social welfare payments.

If the Labor Party is to have any hope of winning the federal election next year, it needs to tackle unemployment. Not just by rabbiting on about the absolute number of jobs the government has created, but by committing itself to a policy of full employment. It could begin by asking the members of the Reserve Bank board to chew gum and walk at the same time.

The Age, Melbourne, April 2, 2012