RBA push for more unemployment to curb inflation comes with suicide risk: new study
The incoming Reserve Bank chief has explained the economic benefits of creating more job seekers, but a new study has exposed the stark cost of such a policy, and it is measured in human lives.
Michele Bullock, deputy governor of the RBA and chief-to-be, told a Newcastle forum last month that the current low unemployment rate is keeping inflation high as workers are able to negotiate higher wages.
The Reserve Bank, which will lead them from Sept. 18, has quickly raised interest rates to curb borrowing, spending and thus inflation, predicting that 138,000 people will lose their jobs as a direct result.
“If unemployment remains too low for too long, inflation expectations will rise, making it much more difficult for monetary authorities to curb inflation,” she told the Australian Industry Group, which represents employers.
“If inflation expectations become ingrained and wages respond to them and wage demands respond to them, there is a risk that we will end up in a situation where inflation is very difficult to control.”
Unemployment has been linked to higher suicide rates just weeks after the next Reserve Bank governor declared the unemployment rate would need to rise to curb inflation (pictured is a Centrelink row on the Gold Coast in March 2020, at the start of the pandemic)
While that economic analysis may be valid, it fails to take into account the personal misery and sense of worthlessness that unemployment can cause.
New research published this month by Science Advances linked 9.5 percent of Australia’s 32,000 suicides over a 12-year period to underemployment.
The peer-reviewed journal linked 1,575 suicides to unemployment between 2004 and 2016 and another 1,496 suicides to insufficient work hours.
“We conclude that economic policies that prioritize full employment should be considered an integral part of any comprehensive national suicide prevention strategy,” it said.
The unemployment rate of 3.6 percent in May was near a 48-year low, but the Reserve Bank expects it to rise to 4.5 percent by the end of 2024 as spending slows due to higher mortgage payments.
That percentage translated into raw numbers means that 137,846 Australians would lose their jobs to keep inflation low.
That would mean 653,746 people would be unemployed, up from 515,900 now in a labor force of 14.5 million people.
Michele Bullock, the RBA’s deputy governor, told a forum in Newcastle last month that a low unemployment rate would keep inflation high as workers would have more power to negotiate higher wages
An unemployment rate of 4.5-5.0 percent is considered by economists to be the level at which competition for jobs denies people pushing for higher wages, thereby curbing inflation.
Inflation in the year to May grew by 5.6 percent, lower than the annual rate of 6.8 percent in April, but still well above the Reserve Bank’s target of 2 to 3 percent.
In her speech titled Achieving Full Employment, Ms. Bullock linked higher wages due to low unemployment to higher inflation, leading the RBA to raise rates 12 times since May 2022.
“If demand for labor exceeds supply, there will be upward pressure on wage growth and inflation,” she said.
The wage price index grew by 3.7 percent in the year to March, the fastest pace in a decade.
But lower-paid workers fared even better: The minimum wage rose 8.6 percent on July 1, while compensation wages rose 5.75 percent to keep pace with inflation.
As higher interest rates cause an economic slowdown, bosses traditionally fire employees.
Just under a quarter – or 22.1 per cent – of the working population were in temporary employment in February 2023, with this group having the least job security (pictured is Melbourne’s Bourke Street Mall, where retail work is more common)
The article published by the American Association for the Advancement of Science journal, Science Advances, found a link between poor mental health, suicide and unemployment.
“Mental disorders, in particular, are an important predictor of both suicide mortality and labor market outcome,” the report said.
“Unemployment and suicide can simply be linked because having a mental disorder simultaneously increases the likelihood of suicidal behavior and unemployment.”
Right now, the job market is so strong that 58 percent of employers have hired a retiree in the past year, which equates to 40,600 more people over the age of 65, recruiting firm Robert Half has revealed.
This data is based on an online survey of 300 hiring managers.
Andrew Brushfield, a director of Robert Half, said such experienced workers provide benefits to employers.
‘They can share the knowledge and skills they have gained over their careers with current staff, they have a network of people in many fields and they are often highly skilled and knowledgeable, enabling them to provide a wide range of assistance to any business ,’ he said.
But when unemployment rises, it is traditionally the young who are out of work, with less work history and fewer contacts to draw on to sell their labor.
Just under a quarter – or 22.1 percent – of the working population had a temporary job in February 2023, with this group having the least job security.
Australia’s 2.5 million casual workers are mostly young, with 38.9 percent aged between 15 and 24, an analysis of official data from the Australian Industry Group found.
Suicide is the second leading cause of death for people aged 15 to 29 after traffic accidents.
Treasurer Jim Chalmers announced on Friday that Mrs. Bullock would replace Philip Lowe as RBA governor, not renewing his seven-year term.
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