- Unemployment in Australia and New Zealand is well down from its peak in 2020.
- The ‘gales of creative destruction’ in 2020 mean this year we have new and better goods and services.
- We must focus on supporting people’s incomes while re-equipping them to get back into employment.
There’s been a lot of good news on the jobs front. In Australia, the unemployment rate (5.6% at time of writing) is well down from its 7.5% peak in July 2020, and the outlook has improved markedly.
Back in May last year, in the depths of COVID, the Reserve Bank of Australia thought unemployment would peak at 10% (in June ’20) and would still be hovering about 6.5% in June ’22. But we came nowhere near the feared peak, and the bank now expects 5.5% for mid ’22.
Households have noticed, too. In the Westpac Melbourne Institute Index of Unemployment Expectations, released in February, their concerns about unemployment have fallen to the second-lowest level in almost 10 years.
The numbers have been even stronger in New Zealand. The unemployment rate came in at a wholly unexpected 4.9% in the December 2020 quarter, and previous forecasts – the Reserve Bank of New Zealand had expected a 6.1% rate in the March ’21 quarter – are being hurriedly revised.
Remarkably, so soon after COVID, a net 43% of Kiwi employers told the New Zealand Institute of Economic Research’s (NZIER) December business survey they were finding it more difficult to get skilled labour, and even unskilled hands have become harder to find.
Both national governments can take considerable credit for what’s happened. They ensured both countries experienced a low incidence of COVID cases, and they provided massive fiscal support, largely through wage subsidies to employers, to cushion the jobs hit from lockdowns. Both central banks rallied round well, too.
Yet while round one in the fight against COVID unemployment has gone well, there’s still round two. What, if anything, to do about the jobs at stake in businesses still handicapped by border closures (which on both sides of the Tasman looks like extending into 2022)?
And the jobs in businesses that are otherwise still taking some COVID flak? While we’ve had the near-term V-shaped rebound, there’s still a reckoning for some down the track.
What’s the normal business churn?
For context, it’s helpful to know that even in normal times there’s a very large churn of businesses starting and stopping every year. The net business creation numbers may look unexciting: in the latest available year (to June ’20), the number of businesses in Australia rose by 46,651 to 2.42 million. But underneath that modest 2.0% increase were a large number of business births (344,472, a 14.5% increase in businesses) offset by an also large number of deaths (297,821, or 12.5%), making a total turnover rate of 27%.
The pattern of high levels of churn is the same in New Zealand. In the year to February ’20, the total number of businesses increased by only 1.7%, to 557,685. But that again was tiny compared with the overall turnover rate of 20.6%, with births again narrowly outpacing deaths.
The statisticians’ anemometers are picking up the speed of what economist Joseph Schumpeter called the “gales of creative destruction” – very large numbers of people giving things a go, very large numbers retiring from the fray, with the whole dynamic process giving us new and better goods and services.
We need that process to work well; employer-oriented wage subsidies were good for the crisis, but risked preserving the status quo and keeping “zombies” alive.
In any event, as time goes by, the harder it is to tell which are COVID compensation candidates and which are everyday churn or longer-term decline.
“As time goes by, the harder it is to tell which are COVID compensation candidates and which are everyday churn or longer-term decline.”
David Jones, for example, is pulling the pin on its upmarket store in Wellington. Is this down to COVID? To the gradual inroads of e-commerce on bricks-and-mortar retail? To the acceleration in the e-commerce migration that happened during lockdowns? Or was it a well-designed commercial experiment that happened to go wrong?
Who knows, but it doesn’t look like it adds to a strong case for an indefinite ‘save jobs’ intervention. If office landlords miss out because people now work more from home, again – so what?
So it looks as if wage subsidies have had their day (barring any COVID resurgence). At the same time, we all know – and accountants see it up close and personal more than most – that the churn, however economically desirable in the big picture, is costly for the losers. People put love, money, effort and a little bit of themselves into their enterprises. It can be heartbreaking when it goes wrong. Sudden unemployment can be a family tragedy.
How to help people whose jobs are still at risk
So we need to do something for those still at risk this year. As it happens, there’s an answer that presses both the equity and efficiency buttons: people-oriented rather than business-oriented support, focused on supporting people’s incomes while re-equipping them to get back into employment.
So far, both governments have nibbled at the idea. Last October’s Australian Budget had a range of apprenticeship, training and education initiatives, and New Zealand has also boosted the numbers in apprenticeships and funded more places at trades academies.
But by international standards, neither Australia nor New Zealand stand out as models of ‘active’ labour market policy, and there’s still a big gap between what’s on offer here and the gold standard of Denmark’s ‘flexicurity’, which allows for high mobility in the labour market while investing heavily in income support and training for those who move (or get moved).
There’s social and economic logic behind a better workfare system. There’s a political logic, too. The market-based deal works at the ballot box so long as the winners from change – from trade liberalisation, deregulation, competition – compensate the losers. You break the political contract at your own risk. If there hadn’t been a Rust Belt, there wouldn’t have been a Trump.
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