Transcript of Question & Answer Session Employment and Wages (ACOSS)

Thank you so much for your speech. Comprehensive, and I feel like I've learnt quite a lot. So now to the questions, lucky you. You've explained the wages situation, it's something we've known of, but you've gone into detail. What would it take to lift wages?

So the bottom line is what we think is it takes a lower unemployment rate than what we've got at the moment, and probably … down at around 4.5%. Maybe when we'll get there it will turn out it'll be a 4.5% unemployment rate. And maybe when we get there it may turn out to be the case that it may be a bit lower. There's a fairly large amount of uncertainty around that. So what do we need to get a lower unemployment rate? Well, we need continued strong employment growth which requires the economy going along pretty well.

You mentioned in your speech that when you drill down into what jobs are being created and you actually addressed what you described as a misconception, you said it's in the private sector. So given that, do you think there is more space for public sector job creation to address what you just said?

There's been more private sector jobs than public sector jobs. There's been a decent amount of public sector jobs, too.

But do you think there's more space there?

So just to give you some context, the public sector is around about a third of the economy. Private sector is about two thirds. And again, the amount of jobs created has been about in that share: two thirds private, one third public … And at least in health and education, as I mentioned … they're private sector jobs, but with some amount of government funding behind them … so public sector support has been part of the story of the employment growth over the last few years.

You know, obviously this conference is focused particularly on lower income Australians, welfare dependent Australians. That is the focus of ACOSS and the work that they do. So under the conditions that you describe, how can policy settings be shifted or what's needed to get those who are in entrenched unemployment into work, because you've identified females and older workers as driving this. How do you get those people stuck in entrenched unemployment into the labour force?

That's a good question … So the older workers are mostly people who are already in employment, staying in employment longer. So they're not coming out of the unemployment pool.

They're just downsizing sometimes their jobs, right?

Yes, and a lot of the increase in female employment has come from females moving from outside the labour force, working at home often, into the labour force. So also not generally coming from unemployment. So on the unemployment side of things, it's really an issue of having the opportunities for those unemployed workers, having those unemployed workers having the right skills, and helping them actually find the jobs, which is obviously easy to say but …

But do you feel like those settings are right at the moment because it seems that entrenched unemployment is a huge issue in this country?

The unemployment rate has been steady at around 5% for the last couple of years. The share of long term unemployed in that has remained roughly constant. It hasn't gone up, but it hasn't gone down. It's lower than it used to be three or four years ago, but it's been going sideways basically, for the last couple of years. Some of the work we've done shows that … when employment growth is stronger and overall demand is stronger, yes, that does help reduce the amount of long term unemployed. But actually to some extent they're the last ones to benefit from that.

Yes.

It generally helps people who have been unemployed for shorter periods of time and as I showed earlier, it often gets people to come in from outside the labour force. So on the long term unemployed it's very much an issue of the targeted assistance. Yes, an overall stronger economy is going to help those people in the end but often the evidence seems to show that they need a bit more than just a strong economic environment. They need some targeted assistance to help them benefit from that.

So that brings me to the elephant in the room and you know this is going to go there to Newstart and the rate of Newstart, because I think this is a key question. A lot of the questions being asked in terms of the stimulus it will provide if there was a rise to the economy, and I'd like you to address that, but there's another question that I want you to address in relation to this. Would these long term unemployed people benefit from an increase in Newstart to make them more job ready?

Newstart has been constant in real terms for about the last five or six years, at least, I think.

25.

Twenty-five, sorry, I had a five in my head, but you're right, stick a two in front of that. Thank you.

For a long time.

I thought someone in the room would know the answer to that.

I would agree, a very long time.

Yes, so being constant in real terms for a very long time, as you say. Phil was asked this question a little while back, you know, in the context of stimulus, if those people got higher income would they spend it? Probably yes. So stimulus.

How much would it benefit the economy?

So it's one of the options the government has.

And do you see it as, it would have a …

[unclear 00:00:05:44].

In a minute, in a minute. You'll have your turn. How beneficial will it be for the economy if that were to happen?

In the end, as I said, is it a form of stimulus? Yes. The government's got it on the table. I think the other way you framed the question, rather than the stimulus question, is the degree to which it assists those people getting employment. I think that's probably a useful way to frame it. There are a number of things out there which will provide stimulus to the economy. This is one of them. I think asking the question in terms of what is it that can help these people get into the workforce and I think people in this room can probably answer that question better than I, but that's I think the right way. Well not the right way. It's a useful way to think about the question.

So let's just, if I could get it really an open question to you, an increase in Newstart, I'm not asking you to quantify it, but would prepare some of these very long term entrenched people better for work in terms of their ability to look suitable for work?

I don't know enough details about the exact nature of Newstart. I think that's again, the important point to focus on is what …

I'll educate you on that one …

Thank you, but I suppose my question is the issue as you say and for a lot of people here in this room is, what can you do to get these people most ready for work. Newstart is clearly one of the options around that.

Now I am now going to open it up. I think I was allowed around five minutes. I think we took that. I've got so many more questions. Before I do open it up I'm going to ask you a newsworthy question just on the resignation of the Westpac boss this morning. It's a huge story. You are the Deputy Governor of the Reserve Bank. I just would want your reaction to Brian Hartzer's resignation and the revelations overnight of the sorts of things he was saying.

I'm not fully across the media this morning. I've been on a plane so I haven't actually read the article beyond what you told me about it a second ago. But it's a serious allegation that AUSTRAC has got out there and I have confidence in my fellow regulators at both AUSTRAC as well as ASIC and APRA that they are going to follow this through. But the allegations are clearly incredibly disturbing and serious. It looks like to me the sort of response that you would expect given the nature of the allegations that are on the table. AUSTRAC and ASIC and APRA are clearly going to follow this through, of that I have no doubt and do what's necessary.

Okay. I'll just leave it there, but I thought it was important to ask. Okay. Questions from the floor and I think there are many. Let's start down here.

Well actually, you can't see.

No, that's because we're in the limelight here.

Yes, I know.

A chance for the limelight. Yeah, hi. My name's Gerard Thomas. I'm, I suppose, a friend of ACOSS. Thanks for the presentation and nice to see you, Patricia. I found an illuminating article from Peter Martin talking about, Guy, your history and your passion for music and that you love, are a big fan of the Pixies, Velvet Underground, and Sex Pistols and obviously The Clash, so you went up in my esteem quite a lot on that, so thank you for bringing me back to the earlier bit.

Look my question, well it's not a question, but how can you just not love statistics? However, for people who are living on Newstart, can people cover the essentials of food on Newstart and do they have the resources that they need to look for work given that two thirds of people are on it for over a year? And in terms of the economic stimulus impacts, what is your view about the impact and whether it would target regions most affected by economic downturn or sluggish growth in the economy?

Yeah, thanks. Good question. So just by way of background, by the way, I used to have a radio show here in Sydney, sorry in Canberra, I am in Canberra. When I was living in Canberra, I used to have a radio show on 2XX community radio …

You do have a broadcaster's voice; I did notice that.

Called Velvet Nights, which was very much inspired by the Velvet Underground. That's ancient history. But to your question, it's a good question. I'm going to rely on my friends, my friends at ACOSS to be able to answer the first part of your question. I think they've got the best sense of assessing the ability of people to live on Newstart or not, as the case may be. To your point about stimulus, I think that's a good … And getting stimulus out to regional areas and targeted assistance. I think that's the right way to frame it is that, stuff which is targeted tends to be more effective in addressing the system problems like long-term unemployment.

One of the other things we've been talking a bit about recently, you may have heard, is around infrastructure spending and targeted infrastructure spending. Smaller programs, which are out in the regions where there are more problems with entrenched unemployment. It is also another option which is on the table. But I think to your point, it's the targeted assistance directed at the long-term unemployed, which is probably going to be most effective.

Overall stronger economy will eventually benefit everyone, but it tends to benefit the shorter term unemployed more and faster. And it's really, if you're wanting to address long-term unemployed, you require targeted … It's really the targeted assistance, which genuinely seems to be the most effective. It's going back to my micro labour days.

Just to follow up on that. We often hear the answer from the government, which is there are the jobs there for the unemployed people. Move to the regions. Is that true? Fact check that, because that's constantly said in interviews where hear politicians. Is it correct?

There're other jobs out there at the moment.

Yeah. These long-term unemployed people, if they want these jobs or they're just there for them waiting?

The vacancy rate is actually pretty high at the moment. There are jobs out there. The issue, the longstanding one in the labour economic space, is how well-matched are the people to the jobs which are out there. And do they have the necessary skills?

Are they easy to obtain for these people in your view?

Yeah. Well at the moment, as I said, we have a fairly high vacancy rate, but we have the unemployment rate where it is. There is a mismatch. There's always a mismatch between people and jobs. But at the moment, we've got a decently large amount of vacancies and the unemployment rate is higher than we think it can be. That tells you there is a mismatch going on out there at the moment. The question is, how fast can you match it?

Hi, I'm Toni Wren from Anti-Poverty Week. One of the things we observed this year that was quite shocking is the amount of people who are actually working and is still in poverty. And we've seen a very high rate of underemployment in this country, which you didn't mention. We get told by the government that best form of welfare is a job, but already there are over a million people in Australia who want more work, in addition to unemployed people. And already, at least four out of 10 parents on Newstart are actually working. They just can't get enough work. I'd like you to comment on, do you think underemployment is going to continue to grow as a phenomenon? And secondly, ANZ, not the chief economist, but an economist in early October actually said 97% of net job growth in the last year was public sector and I'd like you to just maybe explain that to us.

There are two ways of looking at the public sector. I go into more detail on that one in the printed version of what I said. But to answer that question directly, when you ask companies where the jobs are being created and you get a different picture than when you ask workers. By and large, what the ABS thinks and what we think as well is that the companies know what sector they're in a bit better than the people are because it's sometimes hard to work it out. And that's why you get the numbers I talked about. Where yes, there's been a decent amount of public sector jobs created, but there's been actually more created in the private sector. To that point.

To underemployment, we've devoted … I didn't talk about it today but we have talked about it a reasonable amount recently. One of the issues which is going on here is, there's a much larger increase in part-time employment. And what we see is that a decently large number of people who worked part-time are comfortable with the hours that they want to work. But there's a larger share of people who want to work more hours. Generally, what they want to work, they don't want a full-time job. They generally want about an extra day or two. So they're working on average working two days a week, and by and large they want to work an extra day or two. They want more hours, they don't necessarily want … It's not an issue of lack of full-time employment. It's an issue of not enough extra hours that they would like.

The other thing around underemployment is the gap between the underemployment rate, and the unemployment rate hasn't moved that much for the last few years. It widened about three or four years ago now, so there was an increase in underemployment relative to unemployment. But going back a few years hasn't actually moved too much over the last few years. But again, as you say, it's very much an issue that … There are a few ways you can obtain higher income.

If you think about it, getting a wage rise of 3% or 4% rather than 2%. Yes, that's going to help. But if you want to work double the amount of hours that you currently work, that's going to boost your income by even more than an extra percent or two rise, in terms of wages. Our objective is to make sure that the economy is as strong as it can possibly be to generate those extra hours of work basically, for everyone out there. But you're right to highlight the issue of underemployment and it is something, which we spend a reasonable amount of time focusing on.

There's a question over here.

Peter Dwyer from Advocacy for Inclusion and the Canberra Regional Meeting of Quakers. Given that unemployment hasn't gone below 5% since the '70s, and if we don't spend the social capital, it ends up costing us a lot more at the bottom of the cliff in the health system. As an economist from the '70s from ANU, I can see that raising the rate and also building more social housing has got to the best way to solve those problems. Especially with recidivists, there's this revolving door between recidivism and homelessness. 52% of people who go to jail end up back in jail because they've got no way to live. What do you think about that?

I know ACOSS is very strong on the social housing point. One thing I think I'd point to is a former colleague of mine, we used to work at the desk next to each other back in the day in Treasury. Jon Coppel at the Productivity Commission has just put out a very interesting report around social housing, which I think it's very well worth a look at. But you're also very right to emphasise the effects of unemployment much longer than just the unemployment rate today. It creates a social environment, which can persist for a long period of time. And it comes to the question back here earlier, is that it also tends to be clustered in particular regions of the country. That also tends to create a … As you highlight, that social network around that tends to very much reinforce that. And so it's a question of how you can go about addressing that. Which I think, the targeted assistance point really comes to.

Yes, an overall stronger economic environment helps on that front. But if you want to have the maximum impact on particular parts of the population, then it's going to be the targeted assistance which is going to get there rather than … A strong environment is absolutely helpful and that benefits everyone eventually. But it also needs to be combined with some targeted assistance as well.

There's a question down here.

Just two questions. One, because you've been talking about wages. I might ask, the narrative the RBA's been using to explain its interest rate decision is basically the one where full employment rate gets to 4.5%, so on and so forth. You get wage inflation. That looks like it's not going to happen for many years, especially after your speech today saying that. I just wonder how strong is that narrative now? Is that broken, that narrative? Is that going to be hard to explain why it wouldn't get back to interest rates any other way?

The second question, I just wanted to clarify something. This is in the statement of Monetary Policy last week. You said the board was mindful that rates were already very low, and that each further cut brings closer to the point of which other policy options might come into play. Those policy options, are they monetary policy options? Is that you're talking about there or fiscal?

I'll defer that one. You can ask that question or you can get one of your colleagues to ask that question of the Governor tonight. He's talking along those issues, so I'll park that one.

That's a serious handball there.

Well, I told him I was going to do that. Although I play AFL and he comes from New South Wales, so whether he can catch a handball remains to be seen. But hospital pass is the New South Wales version of it, I think. Anyway, I'll park that one. You can ask Phil that one this evening.

On your first question. It is what I was talking about today. And I did say that the open question is, we do seem to have wage outcomes of 2% to 3% of very much entrenched in the economy today. The open question is, is that going to make it even harder to get the labour market sufficiently tight. Get more people in jobs, lower unemployment rate, to get the wage rises up. I don't think it's something to abandon, because we actually do see this happening elsewhere around the world. It's taken longer in a number of other countries to get there as well, but we've seen it in the US, in the UK, in Germany, even in Japan, that it took them a while to get there, but when their unemployment rate did get sufficiently low, more people did get jobs, that they have actually seen wages growth pick up over the last few years.

It's also, in the end, ultimately sort of fairly fundamental economics that, I do think that in the end, when with demand and supply, if you run out of supply, then the price is probably going to go up. So when the demand exhausts supply, the price is going to go up, not, I don't like talking about that in the labour market, it sounds a bit, not very personal. But when most people who want jobs have got them, and there's still more opportunity out there, that's the sort of environment where you're more likely to see wage rises. I think that's been pretty well proven through history. I don't see any particular reason to give up on that at all. It just as we've seen over the last few years in Australia, it's taken longer than we had expected. We've actually had the strong employment growth, which is good. More people are getting jobs is good. What we haven't seen is a decline in the unemployment rate for the last 18 months, and as we were talking about earlier, particularly a decline in the long-term unemployment rate.

But it is absolutely necessary to get that decline in unemployment, to have that strong employment growth. So it's great that we've had it. What has been happening so far over the last few years has been more met by people staying in the workforce longer, and by more females coming into the workforce. Both of those two things are good things. That is, both of those two things are boosting household incomes. What it does mean, though, and what I've tried to talk about today is, it's probably pushing, it's making it even slightly more challenging to achieve that reduction in unemployment, and ultimately lead to higher wage growth across the economy.

I think we can fit in one more question.

Yeah.

I'm interested, and I haven't read your paper, whether you'll be factoring in the use of some of those women are underemployed because they actually leave employment to be carers for their grandchildren, or kinship, or other issues, and also whether you'd be factoring in a lot of Newstart and other benefit recipients also do a lot of volunteerism, as well. And maybe that's someone else's job, but is it that something that you'll factor in and look at?

So one thing we are looking at, which is related to what you … so the NDIS it's obviously come in over the last while, and we're just starting to see some of the initial impact of that, in terms of the impact that's had of people moving from unpaid employment, or unpaid care, to paid employment. And what that's happening both in terms of the people who are now providing that care, but also to the people who were previously doing that care. And I've just got one point, there's one paragraph in the written version of this talk where we talk a bit about some of the preliminary evidence we see around NDIS, which very much is a start at getting to the answer to your question. And that is something we are very much focusing on trying to understand, because that's clearly going to be a pretty important development over, has been over the last year or so, and it's clearly going to be a pretty important development over the next few years in terms of understanding some of those outcomes in the labour market.

So yeah. Very good question. And it's got a little bit of a go at trying to answer your question, but I'll admit a fairly preliminary go, but it is something we are trying to get a better handle on, for sure.

We have to wrap up, but just a final question from me, because I can't help myself, as most people in this room know. Just, you talked obviously about wages, and essentially wages being stagnant, and wages growth being stagnant, and this being an entrenched issue. One thing that is on the table, and the Treasurer has kept on the table, is the potential that tax cuts could be brought forward in the budget. Would that provide sort of necessary stimulus in your view if that were to happen? Is that something that could be beneficial at this stage?

I think what mostly this is all about is getting income, household income growth higher.

That's right.

So some part of that is through what's up on the screen, employment and wages. That gets household income growth higher, tax cuts are another way of getting household income growth higher. So they're all, the government is looking at a number of options.

Well, that's right. But are you confident that that would be spent in the economy or would it just pay down debt? Because with Newstart you are confident it'll be spent straight away, right?

What we know is that different people have different willingness to spend extra income they get. People on New Start are generally people that are going to spend most of it, because they have to. I don't know enough. The Treasury, I'm sure, does as to the likelihood that people spending tax cuts. I mean one point about the spending paying down your debt faster is that once when people do that, they get to the point where they're happy to go back to spending how they used to. But in the end, I've said what I think that mostly this boils down is to, what can we do to get the income growth of households higher. Tax cuts are one way, jobs and wages certainly another.

But you are confident that with something like for welfare payments if they were to rise that would be spent immediately in the economy?

I mean most of the empirical evidence tells you that's what happens. As I said, the government's got a bunch of options on the table as to what they want to do to achieve their objectives, those two are two of them.

Well you aren't the treasurer …

That's their job.

You're the Deputy Governor of the Reserve Bank. Dr Guy Debelle, thank you so much for coming here and addressing everyone, and taking all of our questions. Thank you very much.

I'm Peter Davidson, principal advisor at ACOSS, and I've just stepped onto the stage to again thank Guy Debelle, Deputy Governor of the RBA, and Patricia Karvelas, our wonderful journalist friend. Very important institution, the RBA, and I should mention that in addition to the wellbeing of the Australian people, another of its objectives is full employment. And that's a really important one. And we just had an excellent presentation on just that. As we approach the mid-year economic and fiscal outlook, we'll be looking to government to pull some budget policy strings, which will deliver a boost to jobs and incomes. No guessing what it is we have in mind.

Raise the rate, investment in social housing, creates lots of jobs in construction, which are falling back at the moment. And thirdly, measures to improve energy efficiency in the houses in which people on low incomes live, because they're the people who are really struggling with energy bills right now. And that would provide an economic boost, as well. Now you will have received an exhibitor bingo card on arrival. To play exhibitor bingo, please visit each of the exhibition booths, not the casino next door, each of the exhibition booths, at lunch and during afternoon tea, and have your card stamped. Completed cards can be returned to the registration desk, and we'll draw a prize at the end of the day. Thank you. Time to eat.