The RBA minutes show it's thinking differently about the labour market


The Reserve Bank of Australia (RBA) released the minutes from its May meeting today, revealing no major changes to its positions on economic growth or financial stability.

The bank placed extra focus on the composition of the labour market, with a more detailed discussion centred around the rise of part-time work.

While maintaining its assertion that wage growth remained subdued and was likely to only increase gradually, the bank said that part-time work is now a central part of the modern Australian economy.

It noted that part-time work had increased from around 10% of the workforce in the 1970’s to more than one-third now

Citing the Household, Income and Labour Dynamics in Australia Survey, the bank said that working part-time was often a choice based on life circumstances. Younger students, mothers with young families and older workers transitioning to retirement were more likely to choose part-time work.

The bank also noted a shift in labour market dynamics, observing that businesses were now more able to respond to demand by adjusting hours worked by employees, rather than the actual number of employees.

“This increase in labour market flexibility had been enabled by a range of factors including labour market deregulation, technological change and the shift towards a more service-based economy,” the bank said.

The result of that, according to the RBA, is that “the distinction between full-time and part-time work had become less important in assessing labour market conditions”.

That could be interpreted as a message to the market, which expressed concern about the level of under-utilisation in the labour market, saying don’t be so quick to critique the roll of part-time work in the modern economy.

That bank added that in order to properly understand the actual nature of labour market slack, there needed to be an assessment of how many people currently working part-time would prefer to work full-time.

In other words, the amount of extra slack in the labour market at any one time is very difficult to measure precisely.

“An increase in labour demand could, in the first instance, be met partly by increasing hours worked by part-time employees, which would reduce measures of underemployment but represent an upside risk to the unemployment rate forecasts,” the bank said.

Elsewhere, the minutes show the RBA is sticking to its forecast for economic growth to reach 3% by the first half of 2018.

While measures of business confidence have remained strong since the RBA’s announcement in early May, there was notably a material decline in retail sales and consumer confidence took a dive this morning.

It noted that headline inflation had crept within its 2-3% target in March, but it still expects wages growth to remain sluggish as the economy continues to transition from the mining boom.

There were no changes to comments on housing stability, as the market waits to assess the affect of the latest round of macro-prudential measures.

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