No one left behind: Why Australia should lock in full employment

This can be difficult to The mandate of Australia’s independent Reserve Bank, as set out in address with monetary policy, because interest rates primarily affect the Reserve Bank Act (1959), is to contribute to: the stability of the currency (that is, low and stable inflation); the maintenance of full employment; and the economic prosperity and welfare of the people of Australia. [...] Over the past few decades, the Federal Government has adopted fiscal 1.2 We can have ‘too much’ employment rules that generally aimed to balance the budget over the business Full employment occurs when the supply and demand for labour are cycle and constrain the overall size of government as a share of the balanced – when all of the available pool of labour is used to produce economy. [...] For example, shocks that increase the price of oil will lead to higher inflation, but that allowed inflation to spiral – from the hyperinflation of the German raising interest rates to counter inflation does not target the source of the shock Weimar Republic during the early 1920s to the ‘stagflation’ of the and instead affects demand across the whole economy. [...] the long run.20 In practice, full employment is when supply and demand are 1.3 Demand for labour was weak in the decade before COVID balanced in the labour market, and in the markets for goods and services. [...] Since the end of the early-1990s recession, the under-employment rate 1.4 But we are now on the brink of full employment – the share of the labour force who are employed but would prefer to work more hours – had been stable at 6-to-7 per cent, but after the Heading into the pandemic, economists feared the worst.