MNI POLICY: RBA Heath: Jobless Rate Main Spare Capacity M'sure

By Sophia Rodrigues

     SYDNEY (MNI) - The domestic unemployment rate continues to be the Reserve

Bank of Australia's main measure of spare capacity in the economy, especially to

understand its effect on wages growth, the head of the economic analysis

department Alexandra Heath said Friday.

     Below are the key observations we made from the speech.

     --Heath's speech centred around the long-run trend towards more flexible

work and the implications it might have for a monetary policymaker. While Heath

talked in depth about part-time workers, underemployment, and even

overemployment, her main message was that from a monetary policy perspective,

the unemployment rate continues to be the RBA's main measure of spare capacity

in the economy, especially when it comes to understanding how spare capacity

affects wages.

     --At the same time, Heath admitted that the RBA needs to stay on top of how

things are changing because spare capacity is important to forecast the most

likely outcomes for wages and inflation. The RBA also needs to understand the

risks to these forecasts, she said.

     --Heath discussed the importance of the labour participation rate for

monetary policy, saying any increase in the sensitivity of labour force

participation would have implications for spare capacity and how the RBA

forecasts wages growth. "If it has become easier for workers to transition in

and out of the labour force, 'marginally attached' workers may represent a more

important source of spare capacity and may be placing more downward pressure on

wage outcomes than they did in the past," Heath said. 

     There are about 1.2 million marginally attached workers according to the

most recent data which compares to around 750,000 people who were officially

unemployed in the same period because they were actively looking. But focusing

on the marginally attached will miss half of the potential labour supply sitting

outside the traditional scope of the labour force, Heath said, adding, net

overseas migration is another potential source of additional labour supply.

     Heath's comments came in a speech at the Business Educators Australasia

2018 Biennial Conference in Canberra on the topic, "The evolving Australian

labor market." 

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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