Flexible Phil works it out

Ian Rogers Finance regulation

“The supply side of the labour market is turning out to be more flexible than we had earlier expected,” Phillip Lowe told an RBA board dinner in Sydney last night.

“The recent evidence is that when jobs are there, more people join the labour force and other Australians stay in work longer.”

Lowe cast a light on details sidelined during the recent federal election.

“The participation rate is currently at a record high, despite demographic shifts that we anticipated would reduce participation.

“It is also the case that people are prepared to work extra hours when there is strong demand for their labour.

“Together, these observations support the conclusion that there is still spare capacity in the labour market and this is likely to remain the case for a while yet. The recent data have given us more confidence in this assessment and we have responded to this.”

Spare capacity in the labour market is central bank business and Lowe turned to a rethink on the NAIRU, a hostile topic.

“For some years, most estimates of full employment, including our own, equated to an unemployment rate of around 5 per cent,” Lowe said.
“It was thought that if unemployment went below that for too long, inflation would rise and become a problem. But, given the combination of the labour market and inflation outcomes we have seen of late, our judgement now is that we can do better than this – that we can sustain an unemployment rate of 4 point something.”

Two to three per cent, Anthony Albanese, make that the RBA target for unemployment and if you stabilised the currency you’d be in a Marvel movie too.