The unemployment rate will be announced today. It’s expected to be low and the message that we’ll need to swallow the bitter pill of increased unemployment is ramping up, writes Anna Rawhiti-Connell in this excerpt from The Bulletin. To receive The Bulletin in full each weekday morning, sign up here.
“A wet weekend’s bit of work”
That’s how Bill Phillips, the New Zealand economist after whom the Phillips curve is named, described his theory. It’s now economic orthodoxy. The curve hypothesised a correlation between reduction in unemployment and increased rates of wage rises. I was driven to it after comments by Cameron Bagrie yesterday about unemployment needing to go up in order for inflation to come down. He’s not the first to say it and it won’t be the last time we hear it. Bagrie’s segment was headlined “Economist Cameron Bagrie warns Kiwis need to lose jobs to get inflation under control”. That’s emotive framing or about as blunt as you can get, but the comments are essentially the same as those made by Reserve Bank governor, Adrian Orr last week.
The fairness of what we’re being told is necessary
It sounds perverse, not least of all because we’ve been talking about labour shortages all year. Every time jobless numbers hit the media, it sets off talkback calls about the “lazy, who just don’t want to work”. Meanwhile, minister for social development Carmel Sepuloni has asked MSD to prepare for higher unemployment next year. It’s not the job of economists to sugar coat things, but you wonder if economists can hear themselves sometimes when what they’re essentially saying is that people will need to suffer to tame a beast that isn’t really of their own making. Bernard Hickey has questioned the fairness of the prescription of this bitter pill, in light of those who benefitted from the loosening of monetary policy in 2020 and 2021 and those who did not.
Unemployment and wage data out today
The unemployment rate is expected to remain low. Again, perversely, this will be bad news. Finance minister Grant Robertson will no doubt front after the data is released. When last asked about the cost of living a couple of weeks ago, Robertson essentially said people will be supported through tough times but admitted those already struggling were unlikely to get a 7.2% increase in benefit or pension payments to match inflation. I do wonder whether all this talk of unemployment as necessary medicine might bolster support for the income insurance scheme. Good piece from Stuff’s Thomas Manch here on how vulnerable that, and some of Labour’s other “legacy” policies are right now.
Is Robert MacCulloch still waiting for a call?
Unemployment as a necessary trade-off to tame inflation is a global conversation. Unlike the bad medicine Bon Jovi said he needed, people are not only questioning whether it’s fair or necessary but whether the cure is worse than the disease. This new piece from The Verge breaks down the double whammy of high inflation and high unemployment on low income families. L.A. Times columnist Michael Hiltzik cites labour economists who dispute the idea that higher wages drive inflation. Stuff’s Susan Edmunds looked at the impact of rising inflation and tax bracket creep on real wages yesterday. In hindsight, maybe we went too early (July) with this piece from our business newsletter editor, Chris Schulz, on research that showed high unemployment was worse for people’s well being than high inflation. I wonder if the researcher, Robert MacCulloch, is still waiting for his call from the Reserve Bank.
