Jobs have to exist before search can be effective. Over the last 25 years, as unemployment has risen and persisted at high levels, orthodox economists have concentrated on the supply side of the labour market, hypothesising that full employment now occurs at much higher unemployment rates than in the past.

The related claim is that there are "plenty of jobs" that the unemployed reject because they do not "really want to work". The trends in welfare and labour market policy in recent years has reflected this fallacious construction of the unemployment problem.

However, the facts speak louder than the rhetoric. Not once since the December 1974 trough has the UV ratio been below 2.0 and it has averaged 11.1 unemployed persons per unfilled vacancy since June 1974. The current UV ratio is 5.6 which means that there are 5.6 persons for every vacant job (according to official statistics) in Australia (as at February 2004). The trend estimates of UV shhow a ratio of 6.3.

Notwithstanding sectoral variations, at first blush, we are dealing with a heavily demand-constrained economy. The critics will claim that there are plenty of jobs that would be "instantly" available if the unemployed would take them. "Telling the story" about "lazy workers" appears to be more important than attending to anomalies arising from the data. Many issues are sidestepped to avoid "getting in the way of the story". For example, to really sustain an argument that there are jobs available but they are not "advertised" because employers know the unemployed will not take them, supply-side theories of unemployment must also explain the rationality of the implied unmet demand for goods. Logically there must be queues of consumers who want to buy items but cannot because labour supply is not sufficient to produce them. Apparently reducing welfare payments would resolve the unmet demand by increasing production. None of this is believable and similar questions are consistently avoided by NAIRU proponents.

Until there are more vacancies than unemployed, then we will continue to state that the unemployed cannot find jobs that are not there!

Historical Chart

The bottom chart plots the history of the U-V relationship since September 1966 and the top graph shows the history of unemployment (U) and vacancies (V) separately. They both show that the major cyclical movements associated with the downturns in the early 1980s and the 1990s. Note that during the period of full employment prior to 1975 the UV ratio was very low and began to rise after the first wave of budget deficit fetishism in the mid-1970s. The lesson is that the economy has to produce more jobs before we will solve unemployment.

The data is sourced from the ABS Ausstats series available at http://www.abs.gov.au.

Other information

For another view on the U-V relationship go to The tale of 100 dogs and 94 bones

For more detailed analysis of labour market underutilisation go to CofFEE Labour Market Indicators