Australia is about to set its first full employment target – and it will define people's lives for decades

• That decision is to commit future governments and the Reserve Bank to full employment, and, more importantly, spell out what that means.
• Tuesday’s Reserve Bank decision not to increase interest rates further makes it more likely we could end up with a more ambitious target.

Australia’s daunting post-war challenge

• In the 20 years leading up to the war, more than 10% of workforce had been out of work, climbing to 25% during the depression.
• Their challenge was to find jobs for the 1 million defence staff who would be returning to civilian life.
• It was also one Coombs himself adopted as the first head of the Reserve Bank of Australia from 1960.

Finally setting a jobs target

• That final report pointed out the bank’s target for inflation is specific – defined in a written agreement with the treasurer as “2-3% on average, over time”.
• In contrast, the bank’s target for employment has no numbers attached – resulting in inflation getting prioritised.
• While it is true that putting a number on a target doesn’t guarantee an outcome, the number put on the inflation target does seem to have helped bring it down.

Moving unofficial targets of the past

• And it’s worth clarifying that the target can’t be an unemployment rate of zero.
• There will always be some temporary unemployment as people move between jobs.
• That was its estimate of the “non-accelerating inflation rate of unemployment” (also known as NAIRU), the rate needed to stop shortages of useful workers pushing up inflation.

The lower our target, the more secure we will be

• A lower target of 3% (not too far above the 2% Australia achieved from 1940 to 1974) would do much more than put people into jobs and better use our resources.
• It would help us adapt to change in the way we are going to need to.

Creating confidence to face change

• Hawke agreed with him that the economy would have to change and some industries would have to die.
• When people knew they could get another job, they would accept change.
• If Chalmers and the Reserve Bank adopt an ambitious target, they’ll create it and set us up for the challenges ahead.