Henry has
been hearing lots of stories from employers of labour about the impact of the
new IR legislation. In essence these amount to a greater willingness to hire
people (since it is easier to fire them) but also a greater commitment to
working hard by workers. An economist friend points out that, logically, the
new legislation must be biting as there is such an apparent impact on the public opinion polls.

We also
know that the official ABS unemployment
data is too low, in part
because it does not account for people who would like to work but are not actively
seeking work
according to the official definition. The Roy Morgan Unemployment estimate
is broader than the ABS mainly due to its inclusion of the disenchanted unemployed
peoplewho have not looked for work in the past four weeks, as well as those
who are unemployed but are unable to begin work in the reference
week.

Neither
estimate includes those people who want to work but are
unable due to the high cost of childcare, those
disabled people who might be retrained to work in a new field or those people on
disability or other pensions for whom the move to paid employment would involve
such a high effective tax rate that they cannot be bothered.

Another ABS
survey comes closer to revealing what the numbers may be. From 2004/5, the Multi-Purpose Household Survey
found that there were 977,300 people not in the labour force who would like to
work more hours. This substantial number could be deemed the ‘hidden unemployed’. The ABS also calculates figures
on those people working less than full-time who would prefer full-time work –
the
underemployed. As of September 2005, the survey
claimed a total of 566,600 were “underemployed”.

Therefore,
adding unemployed,
underemployed and the
hidden unemployed, the total
amount of labour capacity that remains unutilised or underutilised is closer to
15% than 5%.

While
neither the ABS nor the Roy Morgan measures tell the whole story, the recent
downward movement in both series is telling us clearly that the labour market is
stronger than it has been for many years. Other things equal, strong demand for
labour would strengthen the case for further hikes in interest rates. But if
labour productivity has risen sufficiently strongly, as is expected post-IR
legislation, this would be an incorrect conclusion.

More
reading at Henry Thornton.