Does the unexpected decrease in unemployment imply that the Albanese government’s aspirations for ‘full employment’ are yielding results?

The unemployment rate dropped to 3.7 percent in February, down from 4.1 percent in January, marking a notable decline. But does this signify progress toward achieving full employment as envisioned by the Albanese government?

When Treasurer Jim Chalmers introduced his Employment White Paper last year, he introduced a fresh interpretation of “full employment.” He emphasized that merely focusing on the headline unemployment rate wasn’t sufficient. According to him, in an economy operating at full employment, workers should have access to desired hours and fair compensation. Additionally, job search durations and transitions between jobs should be brief, while long-term unemployment and barriers to youth employment should be minimal. In essence, he advocated for a more comprehensive set of metrics to assess the actual extent of labor underutilization in the economy.

To facilitate this assessment, we’ve created interactive templates featuring key labor market indicators, which we’ll incorporate into our coverage of the monthly unemployment rate. These templates will aid in tracking the Albanese government’s objectives for achieving full employment and in interpreting unexpected fluctuations in individual metrics each month.

It’s worth noting that the Treasurer’s conception of full employment differs from that of the Reserve Bank of Australia (RBA), which employs a more technical and narrow definition. According to the RBA, full employment is the level of unemployment consistent with stable wage or price inflation. Currently, with the unemployment rate at 3.7 percent, the RBA perceives the economy as over-full employment, suggesting that the low unemployment rate may contribute to inflationary pressures. The RBA anticipates achieving a sustainable level of “full employment” when the unemployment rate hovers around 4.25 to 4.5 percent.

The template below illustrates how other employment indicators fluctuate alongside changes in the unemployment rate. By hovering over a line, you can observe how the figures in all four boxes correspondingly adjust.