Pressure off RBA as unemployment rate falls to 5.7%Link to article
Australia’s unemployment rate fell from 5.8% in February to 5.7% in March, its lowest mark since September 2013. A majority of the newly-employed filled part-time positions within tourism, hospitality and healthcare rather than mining and manufacturing. The participation rate remained steady at 64.9%. Given the stronger unemployment figures released, there is less pressure on the RBA to reduce the cash rate to further stimulate the economy in May.
How does this relate to the HSC syllabus?
- A reduction in the unemployment rate on some occasions can be merely caused by a reduction in the participation rate which signals an uncertain economy as people are withdrawing from the labour force (HSC Topic 3 – Economic Issues). However, in this case, Australia’s participation rate remained steady at 64.9% while unemployment decreased. This can be an indicator for a strengthening economy as economic growth is producing increased demand for jobs (recall that labour is a derived demand) resulting in the creation of new positions.
- All of new jobs that were filled were part-time positions with almost 9000 full time jobs lost. Given that an employed person is someone who works at least an hour per week, part time workers are categorised as employed. The reduction of full time workers in favour for part-time workers reveals the trend towards the casualisation of labour within Australia (Preliminary Topic 4 – Labour Markets; HSC Topic 3 – Economic Issues). However, this can also reflect a growing trend of underemployment as more people are likely to want to work more hours than their part-time jobs require (Preliminary Topic 4 – Labour Markets; HSC Topic 3 – Economic Issues). Underemployment is a relevant issue that is not captured within the unemployment rate as a result of the current definition of unemployment.
- An unemployed person is one who is not currently employed but is actively searching for employment. A person is counted as employed when they perform at least 1 hour of work per week which makes most, if not all, part time workers employed. The unemployment rate operates under this definition and has no regard as to whether newly employed would like to work more.
- Underemployment is an issue because it reflects under-utilisation of the available human capital within the economy. This means that there is additional capacity for the economy to grow on the supply side which is not yet being used.
- A majority of the jobs added to the labour force during March was within the tourism, hospitality and healthcare sectors as opposed to the mining and manufacturing sectors. This reallocation of resources demonstrates Australia’s transition away from the slowing mining and manufacturing sectors and towards the services sectors which are expected to drive the economy’s growth in the future (HSC Topic 3 – Economic Issues).
- One of the goals of macroeconomic policy is to help the economy reach full employment (HSC Topic 4 – Economic Policies and Management). A reduction in unemployment decreases the pressure on the RBA to lower the cash rate in the near term as the economy is nearing full employment. However, the economy is still facing risk of low inflation, a flat housing market and an arguably uncompetitive Australian dollar which may later justify a rate decrease.
China’s stimulus driving strong pick-up in ‘old economy’
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China released better than expected construction, manufacturing and housing sales data this month underpinned by easier access to credit from loosened capital requirements for banks (see Economics Update 6 March 2016) and increased public spending. The Chinese economy grew by 6.7% year on year. While it is the slowest growth China has recorded since 2009, it was still above expectations. China’s steel sector recorded strong growth in particular with production increasing by 3% in March which will benefit Australia’s iron ore exports. However, growth in the steel sector has been criticised as ‘not sustainable’ as growth was only driven by Chinese traders and steel mills rebuilding their inventories this month. Growth in investment rose by 10.7% as property investment increased in line with an improved outlook for the real estate sector.
How does this relate to the HSC syllabus?
- China’s growth can be considered a result of loosened monetary and fiscal policy. China has loosened its capital requirements for banks, meaning that there is more money flowing in the Chinese economy, making it easier for consumers and businesses to access credit. This means that money is cheaper to access to fund consumption and investment, therefore leading to an increase in aggregate demand (AD = C + I + G + X – M) (HSC Topic 3 – Economic Issues). Expansionary fiscal policy which involved 20.1% more government spending which will further increase aggregate demand, leading to increased economic growth.
- Both import and export figures from China were better than expected. Given that exports are an injection, increased exports will contribute to economic growth. This is balanced by an increase in imports which is a leakage (Preliminary Topic 1 – Introduction to Economics).
- The steel sector was one of the largest growing sectors as demand from both the domestic and foreign markets. Increased steel production in China has positive impacts on Australian iron ore businesses as iron ore is a raw input to steel (Preliminary Topic 2 – Consumers and Businesss). However, growth in this industry is expected to be short term as last month’s demand can mostly be attributed to increased domestic demand to restock inventories. If production continues, most likely without this demand, China is likely to face an oversupply issue which will see the price of steel decrease.
- Growth was mostly in the manufacturing and construction sectors. Given that China is attempting to transition away from manufacturing and towards services and consumption, expansionary policy to encourage growth can be viewed to hinder this process.
- Increased access to credit which is stimulating growth in the short term may have damaging ramifications in the long term. China’s household debt is rapidly rising and consumers are taking longer to pay businesses for the provision of goods and services which is leading to an increase in bad debt (Preliminary Topic 2 – Consumers and Business). Essentially, this means that businesses are not receiving payments for the goods that they sell resulting in a loss. This exposes China to considerable risk. Most economists expect China to tighten its credit policies and reduce its rising debt levels which may put a dampener on growth in the long term as credit is less easily accessible.
- China is being criticised for delaying economic reform in the pursuit of economic growth. The government is currently employing expansionary macroeconomic policy to stimulate growth to keep China’s growth above its 6.5% target this year. However, given the severe credit problems China faces, what is required for long term economic growth is better credit policies via microeconomic reform so that a credit crisis does not ensue (HSC Topic 4 – Economic Policies and Management). However, given that macroeconomic policy has a shorter time lag than microeconomic policy, the government is pursuing macroeconomic policy to realise higher growth sooner which is likely to be unsustainable.
ASIC backs project aimed at encouraging corporate whistleblowers
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The Australian Securities and Investment Commission is looking to improve Australia’s corporate culture through a national project which will make it easier to for whistleblowers in the private sector to reveal illegal or unethical behaviour. The Senate Committee recommended to strengthen protections for whistleblowers in 2014 by protecting anonymous disclosures and making it a criminal offence to take or threaten to take reprisal against a whistleblower. One of the important features of the whistleblower project is to involve psychologists to examine the mental trauma that is triggered from exposing unethical or illegal behaviour.
How does this relate to the HSC syllabus?
- ASIC is an independent Australian government body that enforces and regulates company and financial services laws to protect Australian consumers, investors and creditors (Preliminary Topic 5 – Financial Markets).
- ASIC’s involvement in the whistleblower project is relevant given that whistleblowers notify the public on illegal or unethical behaviour occurring in the workplace. Furthermore it is suggested that ASIC’s involvement is warranted given that it failed to act on whistleblower warnings about a financial planning incident within Commonwealth Bank eight years ago. Recent examples of unethical behaviour requiring enforcement of regulation by ASIC include:
- Target case: A person in the accounts department notified management of the use of supplier rebates to create about $20m additional profits in the half year to December.
- CommInsure case: Some claimants were denied their policy payouts as doctors were pressured to change medical reports, patient files were deleted and claims were delayed.
- Whistleblowers require protection because they usually face dismissal or punishment for revealing issues to the public. It was recommended that the scope of information reveal by the whistleblower be expanded so that ASIC may investigate misconduct further. Other recommendations include making reprisals or threats to take reprisals against whistleblowers a criminal offence. This recommendations are in additional to measures such as anonymous hotlines in place to support whistleblowers.
Theresa Dang is an economics mentor at Keystone Education. She attended Sydney Girls High and achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm and a mutual fund.
Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of four scholarships.