Unemployment: The Coming Crisis

By Quiggin, John | Impact, Winter 2009 | Go to article overview

Unemployment: The Coming Crisis


Quiggin, John, Impact


Recovery from the global recession requires substantial expenditure on active labour market policies directly targeted at unemployment. Action is needed now to prevent a re-emergence of sustained mass unemployment. This paper was presented to the ACTU Jobs Summit, 20 July 2009.

Employment and output in the crisis

Employment and unemployment move in line with cyclical fluctuations in economic activity.

However, there is a generally a time lag between movements in economic activity and changes in employment and unemployment. The current global recession is no exception. Increases in unemployment did not emerge until the global crisis was well underway. The typical lag from the onset of recession to the beginning of an increase in unemployment is between two and four quarters. Global unemployment is still rising rapidly, even though many commentators expect a recovery in economic activity in the second half of 2009.

Recent recessions have exhibited a troubling pattern, referred to as jobless recovery. The lag between employment and output is much longer in the recovery phase of the cycle than in the downturn. In the 1989-91 recession, unemployment kept rising for several years after output had begun to recovery.

The Australian Government's response to the crisis has so far focused mainly on measures designed to stimulate output, such as cash handouts targeted at sustaining retail sales and infrastructure projects aimed at maintaining activity in the construction sector. Although such measures have some beneficial effects on employment, they are not, in general, as effective in this respect as more directly targeted measures.

The budget response to unemployment

The limited response to unemployment was evident in the May Federal budget. The budget projects that, despite the effects of the stimulus package, unemployment in Australia will reach 8.5 per cent next year. It's striking then, how little the budget contains in terms of measures specifically directed at improving the lot of the unemployed.

Most obviously, unemployment benefits have not been increased, further widening the gap between these benefits and other pensions. In an environment where suggestions that unemployment is partially or wholly voluntary can no longer be sustained (if they ever could), it is hard to avoid a feeling of injustice here.

The direct response to unemployment in the budget amounts to $1.5 billion for the Jobs and Training Compact, much of which has already been announced or foreshadowed. The main focus is on training, which is good long term policy, but may not be all that helpful in a recession. In addition to existing infrastructure projects the government is offering a $650 million Jobs Fund, designed to 'support local jobs in areas hardest hit by the downturn'.

The need for a new stimulus package

While welcome, the measures announced by the government so far represent a small fraction of the expenditure allocated to the Keating Government's Working Nation program. As with other responses to the 1989-91 recession, Working

Nation was not introduced until high unemployment was firmly entrenched. …

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