RBA: Underutilisation Should Rise As Hours Worked & Jobs Growth Ease

RBA Assistant Governor for Economics Hunter has spoken on the labour market and noted that the central bank had been surprised how resilient hours worked, underemployment and the participation rate had been. She said that the labour market was tighter than implied by full employment estimates but is moving towards this point. The RBA’s assessment of the labour market is in line with its prolonged hold.

• The RBA believes that recent easing in the labour market is in line with developments in previous “mild downturns” with it concentrated in hours worked rather than employment. This is expected to continue with employment growth also likely to be lower than population growth. Thus the underutilisation rate should rise, but there are significant uncertainties.
• The RBA believes that firms are “labour hoarding” as few are operating with excess labour, so there is a risk of a sharper rise in unemployment when they begin cutting labour costs due to soft growth.
• The layoffs rate is trending higher but remains historically low but the RBA is monitoring it closely.
• The RBA doesn’t just look at the unemployment rate but also employment intentions, vacancies, underutilisation rate, and youth & medium-term unemployment rates. It uses models with wages and inflation to determine if supply and demand in the labour market is in balance.
• Full employment is defined as the “maximum level of employment that is consistent with low and stable inflation”.
• See speech here.

Australia labour market underutilisation %