Market economies require unemployment. What follows?
Full employment is suddenly the mantra of the Liberal Party of Australia. After more than a decade without a sustained period of unemployment below 5%, Treasurer Josh Frydenberg announced as part of his May 11 budget that the jobless rate will ‘need to have a four in front of it’ if the economy is going to get back to full speed. But the Australian government has no intention of driving the unemployment rate lower than that. Frydenberg has promised to stimulate the economy until only 95.5% of Australian workers have a job. The remaining 4.5% will be required to remain unemployed.
Depending on how you calculate it, about 770,000 Australians are currently out of work. Some of them started last year employed, back when the coronavirus was just a news story from China. But things change quickly; last April 594,300 Australians lost their jobs and the unemployment rate rocketed to 7.5%. We did what any fair society would do: we made sure they were looked after and significantly raised the JobSeeker payment. It was only fair.
Are there countries for which the idea of fairness is more central to the national self-conception than Australia? I don’t know. But I know that at least in our case fairness seeps into everything we say about ourselves. Mateship; the classless society; A Fair Go; egalitarianism. I’ve seen Australians in bars in Beijing and New York say the same thing: Australia’s all about fairness. It’s a good speech after a beer. A national branding exercise to the world; an internal communications strategy to ourselves.
If fairness really is core to the Australian sense of justice, we’re in luck, because an American has already done the intellectual heavy lifting for us. John Rawls, liberalism’s foremost political theorist, devoted a lifetime to the investigation of what a society devoted to fairness might look like. The whole point of political philosophy in a democracy like ours, thought Rawls, was to find a political conception of justice acceptable to everyone. But how would you even go about answering such a question?
Rawls started by pointing out that a fair society would be one everyone would agree on. But that doesn’t help much: people don’t agree. No one is impartial, everyone has skin in the game. So the trick is to ask people to imagine they’re in the original position—that is, behind the starting gun of life. In the original position, people haven’t been born yet, so they don’t know any of their personal characteristics. They don’t know where they’ll be born or what they’ll look like. They don’t know if they’ll be black or white, poor or rich, healthy or unhealthy. They’re behind a veil of ignorance. With that ignorance comes impartiality and objectivity. What type of society would a person in that position agree to?
A fair one, says Rawls. In the original position we’d see that these advantages and disadvantages—race, gender, health, talent, inheritance—are morally arbitrary, in the sense that they come about through no choice of our own. Because these things happen to us, not because of us, we aren’t responsible for them. We can’t be blamed for them. In the original position, we’d see that any society that punishes people for things they can’t control would be an unfair society.
That means that in the original position we’d all agree to the same thing. First, we’d agree that each citizen gets the same basic set of inviolable rights, no matter what. And second, we’d agree that the only reason to allow inequality in our society would be to help society’s most disadvantaged people.
For example, maybe we’d find that we need some inequality for everyone’s benefit. It’s possible. But we wouldn’t agree to that inequality if it made disadvantaged people worse off than they would be in a more equal society. That would clearly be unfair. Knowing that any of us could be born into disadvantage, we’d refuse a society that made disadvantaged people worse off than it had to. We’d choose the society that helped the disadvantaged among us the most—whichever society that one is.
J. is in Melbourne when I call him. He’s 45, on JobSeeker, and lives in the granny flat behind his parents house. I ask him to go from the beginning.
‘I got made redundant at the start of the global financial crisis. It was a restructuring of the company I worked for. It was incredibly terrible timing. Since then, I’ve barely worked. I’ve worked, let’s say, two years and nine months in the past decade – something like that—punctuated with very long periods of unemployment.’
J. had worked for over a decade as a graphic designer before he was made redundant. But he’d studied graphic design at TAFE, not university, and the job market changed in his decade in the workforce.
‘After the GFC I got two standard rejections: “you don’t have a degree” and “you have too much experience”. So I went back and got a post-grad degree in graphic design. After that, I didn’t get the “you don’t have the degree” part anymore.’
After that, he was just too experienced.
There’s a concept in economics called the NAIRU: the non-accelerating inflation rate of unemployment. That’s the rate to which unemployment can drop without prices going up faster than we would like. According to the mainstream economic consensus, if unemployment goes below that rate, we get price instability.
The Department of Treasury, which helped write Frydenberg’s budget, put the NAIRU at about 4.5%. The Reserve Bank of Australia, on the other hand, thinks it might be even lower. The disagreement isn’t surprising: the NAIRU is always changing; there’s no way to measure it except by guessing; and a global pandemic just debilitated our economy. But what we know for sure is that the Australian Government believes that if unemployment drops far below 4.5%, we’ll have runaway inflation on our hands. Here’s Assistant Governor of the RBA, Luci Ellis, describing the position in July 2019:
The exact relationship might change over time, and the uncertainty of measurement might complicate things, but across many countries and many decades, there is a level of unemployment below which wages growth starts to pick up meaningfully. You can see when an economy has reached that point. That is all that the NAIRU is—the label we give to that point.
There’s some debate among economists about how useful this concept is, but for our purposes it doesn’t really matter whether the RBA is right to believe in the NAIRU. What matters is that they do. With its control over monetary policy, the RBA has immense influence on both the inflation rate and the unemployment rate. In fact, that’s two thirds of its job right there. The Reserve Bank Act 1959 directs the RBA to achieve three things:
(a) the stability of the currency of Australia;
(b) the maintenance of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia.
The fact is that, even in the best of times, the rate of unemployment has little to do with the behaviour of individuals and everything to do with policies of governments. Between the RBA’s control over the supply of money and parliament’s control over everything else, the government could make sure everyone can get a job. But their view is that the laws of economics simply prohibit them from doing it. The significance of the NAIRU is that in a market economy you simply cannot both employ everyone and keep the currency stable: goal (a) and goal (b) are in tension. So the RBA has to lower expectations: the ‘full’ in ‘full employment’ refers to when the unemployment rate equals the non-accelerating rate of unemployment, not when everyone that can work has a job.
Consider the ramifications of that. When the unemployment rate is above the NAIRU, the bank can go about its business stimulating the economy by lowering the interest rate. The rest of the government can go about increasing spending or hiring more people. But when the unemployment rate eventually gets to that level, it’s time to stop creating new jobs. The economy demands it. For the good of the country, the Australian central bank believes, some people must not work. About one in 20 Australian workers, in fact.
When the COVID-19 pandemic drove hundreds of thousands of Australians into unemployment, the country unanimously agreed these unemployed people weren’t to blame. We immediately added $550 to the fortnightly JobSeeker Payment. But up until the day before the pandemic, the RBA was working hard to ensure that never more than 19 in 20 Australians in the labour market could find a job. The remaining one in 20 were required to be unemployed.
This is the type of fact that is so utterly core to the Australian economy that it should perplex and terrify us that it is so rarely discussed. It is the inconvenient, dirty, widely-acknowledged and yet wholly-ignored truth of market economies. If Australia’s economy demands that some people are unable to find work, the least we can do is ask what we owe these people. We might call this moral thought.
Instead, the moral ramifications of our commitment to the NAIRU are simply not mentioned in our public conversation. The raw economic facts are described in government policy, neither hidden nor smothered, but the moral consequences of those facts go ignored by our journalists and politicians. The necessity of unemployment to Australia’s economy is something like a homeless man on the streets of Sydney: ignored not despite his need for help, but because of it.
The laypeople of Australia can be forgiven: they are told that Australians should be lifters, not leaners. They are told that the unemployed are lazy and unskilled. They are told you must have a go to get a go. But no one—not our parliamentarians, nor our journalists, nor our economists—will speak to the unpopular truth: that the unemployed are our blood sacrifice to the market economy. That unemployment is a morally arbitrary fact. That—according to the Government itself—someone has to do it. That no matter how many skills they develop; no matter how hard they search; no matter how hard they try; when the economy gets back to full steam, some percentage of Australians must remain unemployed at any one time.
In the original position each of us must wonder: will I be one of them?
With his decade of experience and a new university degree in hand, J. re-entered the labour market.
‘I worked for a mail-order catalogue. I lasted six months there because the bosses were so toxic. I was miserable. After six months, my parents sat me down and said “we think you should quit your job”. If your parents are telling you to quit, that should tell you something.
‘Then I was unemployed for nine months. Got a job at an ad-agency. They had advertised for a full-time, permanent role, but pretty soon I found out they were shutting down. They had hired me to just tidy up loose ends.’
Over time, it became even harder to re-enter the job market and the psychological toll of unemployment began to build.
‘Finding a job is a Sisyphean hellworld. When I first came into the market in the 90s you’d get the newspaper, you’d print out your resume and your cover letter, you’d pop them in the post, and you’d get a call back.
‘Now you send out 20 emails a week. Back in the 90s you’d get rejection letters nine in ten times. These days, you’d get one copy-and-pasted email for every ten applications.’
On the phone, I hear J. pause.
‘It’s the most demoralising thing you can do. It all came to a head in 2019 when I had a massive mental breakdown—primarily due to unemployment and the hellworld that is the government’s unemployment system.’
Are you familiar with the difference between relative poverty and extreme poverty? Extreme poverty might be the type of poverty you have in mind. It’s the one that describes the worst types of conditions humans are subject to: hunger; deprivation; a lack of shelter.
People in relative poverty, rather than extreme poverty, may be subject to less abject suffering, but their most basic needs still are not being met. These are needs required to participate in society; to participate as a full citizen. Their experience of this country is wholly unlike the experience of someone at the median income of $49,805 a year. In rich societies, according to the OECD, you need at least 50% of the median income to escape relative poverty.
This is only relevant because for a single adult, the poverty line in Australia is $457 per week, and the JobSeeker Payment currently sits $310.40 per week. After inflation, that’s little more than what it was 25 years ago. The gap between Australia’s unemployment insurance and the poverty line might be why a survey of Australia’s unemployment insurance found more than eight in 10 recipients regularly skip meals, and why more than half have less than $15 a day left after housing costs. When the economy is going well, we require at least 4.5% of Australian workers to be unemployed at any one time, and then we keep them $146.6 per week below the poverty line.
I do not know what to tell someone who is comfortable with this fact. Instead I can only think of the philosopher Richard Rorty, who wrote that ‘there is no answer to the question “Why not be cruel?”—no noncircular theoretical back up for the belief that cruelty is horrible.’ Instead there is only the conviction, a conviction that can be neither discarded nor justified, that cruelty is the worst thing humans do.
Still—maybe you aren’t comfortable with keeping people in poverty but you think it’s necessary all the same. (After all, to ensure price stability we still need the unemployed to actively look for work. If they don’t, employed workers will have the power to demand higher wages, kicking off inflation.) The English writer Arthur Young put the thought this way in 1771: ‘Everyone but an idiot knows that the lower classes must be kept poor or they will never be industrious.’ Make the dole too high and people won’t job search.
The trouble here is that poverty drives people out of the labour market as much as it drives them into it. Because relative poverty creates conditions that make participation in society impossible, it erects barriers that impede the very act of job seeking. The result is the creation of long-term unemployment.
Can you imagine what it would be like to apply for work while $174 below the poverty line? I’m not sure I can. But I know that I, with two masters degrees and financial stability, applied for 234 jobs in 2020, and I know that those compounding rejections humiliated and then debilitated me. And I can at least imagine that the innumerable costs of job seeking—from bus fares to new suits—must crush even the most frugal jobseeker.
So I ask J. about it. The first thing he says is that as a graphic designer he uses Adobe Creative Suite, which has an annual subscription he can’t afford. Until the Coronavirus Supplement was introduced, he was using a student version from 2012—unable to keep his skills up-to-date and job-ready. If his computer broke, he couldn’t afford a new one; he can’t even afford a Netflix subscription. Unable to afford a beer, he stopped meeting friends at the pub years ago. The truth is, he says, he’s lucky. ‘I’m in a fortunate position because my parents built a granny flat for my grandmother. If it wasn’t for that I would be living under a fucking bridge.’
To talk with J. is to realise that the act of job-seeking depends on the ability to weather any number of contingent costs; costs which lurk, perennially, in all our lives; costs which go wholly unnoticed by those of us at the median income. Those of us well above the poverty line of $457/week forget the pull of contingency, the sucking gravity of bad luck.
The reality is that it takes money to get a job. If we want our unemployed to start participating in the labour market, we need them to first participate in society. To do that, we need to start paying them more. Until then, we can stop pretending that keeping our unemployed in poverty is the best thing for them. It is not. It’s just cruel.