ACTU MYEFO Briefing - December 2014

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.

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