While much of the media attention has been on the RBA targeting a return to the midpoint of the 2-3% (2.5%) target, rather than being happy to sit anywhere within the range, the paragraphs that immediately follow are very important. also.
Although its focus over the past three decades has been firmly on inflation, the RBA has had a dual legislative mandate since its inception – inflation and full employment.
(In fact there was a third element, which the review wanted to delete from the legislation, which was “the economic prosperity and well-being of the people of Australia” – I mean, who is the economic policymaker who should care about that?!)
the new Statement on the conduct of monetary policy It has a lot More details about the full employment mandate It is the last agreement agreed between Philip Lowe and then Treasurer Scott Morrison as of September 2016.
In fact, this agreement did not really talk about full employment beyond being a legislative goal, before returning to a precise focus on controlling inflation.
“These objectives allow the Reserve Bank Board to focus on (currency) price stability, a critical precondition for long-term economic growth and employment, while taking into account the effects of monetary policy on activity and employment levels in the short term.”
In stark contrast, under Albanian Workers’ GovernmentThe complete employment is given in two full paragraphs in the hadith statement.
However, the Treasurer and the RBA Board appear to have agreed to disagree on what full employment actually means.
“The government’s goal is full, sustainable and universal employment where everyone who wants a job can find it without searching for a long time.
“The Reserve Bank Board and the Government agree that the role of the Reserve Bank Board in this framework is to focus on achieving sustainable full employment, the current maximum level of employment that is compatible with low and stable inflation.”
Basically, The government adopts the layman’s definition of full employmentwhich is that everyone who is able to work and wants a job can get it, while The Reserve Bank of Australia adopts the neoclassical economists’ definition, based on the NAIRU – Unemployment inflation rate does not accelerate.
The non-accelerating inflation rate is a constantly changing, and ultimately unknown, estimate of the unemployment rate needed to keep inflation under control.
Long before neoclassical economics, Karl Marx called the same concept a “reserve army of labour.”
Under both theories, the basic concept is that capitalist economies need a certain proportion of unemployed workers to keep wages (and thus prices/inflation) under control. You can look at this from a supply and demand perspective for workers (neoclassical) or as a form of capitalist discipline on the working class (Marxist perspective).
While the government has agreed to let the RBA manage monetary policy based on the NAIRU definition of full employment, it is also asking the bank to properly justify itself around these unemployment figures.
“The Reserve Bank Board is committed to regularly publishing its assessment of how labor market conditions stand for sustainable full employment, drawing on a range of indicators and recognizing that full employment cannot be measured directly and changes over time.
“The Reserve Bank Board is committed to clearly articulating how it will balance inflation and full employment targets.”
The net result is that Not much will change in the way the RBA actually sets interest ratesInflation remains the main priority, with jobs continuing to take a somewhat back seat.
my colleague Gareth Hutchins I wrote about the government’s full employment dilemma when it released its white paper on the subject earlier this year. Do you accept real full employment, where everyone who wants a job gets it, or not?