Australia can sustain unemployment rate at 3.75pc

SYDNEY, Aug 13 (Reuters): Australia's leading economists believe Australia can sustain an unemployment rate as low as 3.75 per cent - much lower than the latest Reserve Bank estimate of 4.25 per cent and the Treasury's latest estimate of 4.5 per cent.
This finding, in an Economic Society of Australia poll of 51 leading economists selected by their peers, comes ahead of next month's release of a government employment white paper, and an expected direction from Treasurer Jim Chalmers that the Reserve Bank quantify its official employment target.
Asked what unemployment rate was most consistent with "full employment" under present policy settings, the 46 respondents who were prepared to pick a number or range picked an average rate of 3.75 per cent.
The median (middle) response was higher, but still below official estimates - an unemployment rate of 4 per cent. Significantly, only two of the economists surveyed picked an unemployment rate of 5 per cent or higher, which is where Australia's unemployment rate has been for most of the past five decades.
The 3.75 per cent average implies either that the Reserve Bank and government have lacked ambition on employment for much of the past half-century, or that the sustainable unemployment rate has fallen.
Australia's unemployment rate dived to 3.5 per cent in mid-2022 and has remained close to that long-term low since.
The survey result suggests the government can lock in the present historic low and need not - and should not - allow unemployment to climb too far from its present rate.
Many of the experts surveyed questioned the idea of a "magic number"  or non-accelerating inflation rate of unemployment (NAIRU) used by the Treasury and the Reserve Bank as a guide to how low unemployment can go without feeding inflation.
Former OECD official Adrian Blundell-Wignall said the concept was not helpful "even in the short run, and certainly not the long run" because NAIRU kept changing depending on what else was going on in the domestic and global economy.
Any rate of unemployment would have a different implication for inflation depending on what the government was doing with tax and spending policy.
Geopolitical events and climate change have probably pushed up the rate of inflation to be expected from any given domestic unemployment rate.
Craig Emerson, a former minister in the Rudd and Gillard governments, said NAIRU was best described as the lowest unemployment rate consistent with inflation not taking off. Given Australia's inflation rate is now coming down, NAIRU is clearly below the present unemployment rate of 3.5 per cent, he argued.
The University of Queensland's John Quiggin said Australia can be considered to have full employment when the number of job vacancies matches the number of unemployed people. This is the case at present, suggesting "full employment" means an unemployment rate of 3.5 per cent.
Alison Preston from the University of Western Australia said industrial relations changes have given workers much less power to obtain higher wages than before, suggesting the "non-inflation accelerating rate of unemployment" was either lower than before or an irrelevant concept.