One of my themes is that the NAIRU has probably moved up because of the re-regulation of the workplace. This may be part of the reason we’re generating more inflation than expected, given the unemployment rate.
If this is the case, the RBA has little scope to ease monetary policy to boost the economy.
Regardless of if you think the labour or capital has too little or too much power, I think most people can agree that increasing the power of labour tends to raise the NAIRU. A direct measure of the balance of power in the labour market is industrial disputes – and these support my hypothesis that the NAIRU has risen.
Today, the ABS released the Q2 Industrial Disputes data. The working days lost series showed a ~300% increase (+46.5k to 66.2k) over Q1. Only a small part of this is seasonal — the YoY pace is a whopping +175% (+42.2k).
Seasonal adjustment takes out a bit of the noise, and reveals an uptick in industrial disputes: +13%q/q and +59%y/y. That’s a hefty increase in industrial action, but the level is a long way from the bad old days.
A potential issue with the seasonal adjustment process is that the large number of outliers may be mucking things up. To control for this I used a (Baysean) algorithm to remove outliers. This process increases some of the end point problems – however in this case it also reduces apparent increase (it’s now +6%q/q, and +30%y/y). What it does reveal, however, is that industrial disputes have been trending up for some time. According to this method, the series minimum was ~3k working days lost in both of the quarters of H1’07 … despite the fact we had ~4% unemployment.
Of course, what happened in H2’07 is that the a Labor Government was elected, with a mandate to swing the pendulum back toward workers.
The transmission path from a lower to a higher NAIRU is higher inflation, higher interest rates, and higher unemployment — and that’s also political kryptonite. I doubt that the ALP will have much humour as they reap what they have sewed.