Listener Lew asks: This might be a stupid question but can unemployment ever get close to 0%? Wouldn’t that be classed as ‘full employment’? Would appreciate a simplified explanation, if there is one.
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Welcome to Ask Fear and Greed, where we take your questions and do our best to answer them. I'm Michael Thompson, and good afternoon, Sean Aylmer. Good afternoon, Michael, Sean. Today's question has come from Lou on LinkedIn. Very illiterative. You can obviously send it in via LinkedIn or Facebook or Instagram, or head to our website Fearangreed dot com dot au if you've got a question to ask. And I think Lou has been inspired by last week's unemployment numbers coming in at a shock three point nine percent. He says, Hi, gents, this might be a stupid question, Lou. There are no stupid questions never on this show. But can unemployment ever get close to zero percent? Wouldn't that be classed as full employment? Which is a term that we hear quite a bit. I would appreciate a simplified explanation, if there is one. I mean, the first part of that question is a challenge. That last part short.
That means that is the realm explanation. Yea, it is a great It is a great question, Lou, because it makes sense what you're saying. However, it's kind of not how the economy works, there's a thing called frictional unemployment. People are always changing jobs, and even if there was a job for every single person, one hundred people, hundred jobs, people got to be jumping around because they'd be chasing higher pay that I want to do something different. I mean, there's always someone out there without a job because they're just shifting between jobs. That's called frictional unemployment. Then there's a thing called structural unemployment. Now you never really get a total match in Like a skilled worker demands a wage of twelve bucks, the business wants to give them ten bucks. Maybe they agree at eleven bucks, but maybe the skilled worker says no, I'll just keep looking around, thanks very much much. Or maybe a business wants to pay less than the minimum wages, so might say, hey, i'll give you twelve bucks an hour if you mode my lawn, and the minimum wage is fifteen. So they just don't agree. So this sort of structural unemployment kicks in. So when you got frictional unemployment structural unemployment, it kind of makes it impossible to actually get to zero because people are always changing jobs, the demand and supply never quite matches in terms of wage levels and stuff. Like that. Now, if you put them together, you're always going to have an unemployment rate. But this comes down to this concept of full employment which Lou's talking about, or the natural rate of unemployment or the non accelerating inflationary rate of unemployment, otherwise known as NEHRU. They're all kind of the same thing. So the natural rate, the full employment rate, the NAHRU. It's the state of bliss for labor markets. Full employment NAHRU, et cetera. It's basically where everyone who wants a job can pretty much get one, but there's not pressure on wages and hence inflation. If you look at this economy right now, we talk about the NAHRU at four point five percent or full employment at four point five percent, we're at three point nine percent. Therefore it's less. You think, oh, that's good. It is good, but it probably puts pressure on wages because people can chop around and get more wages, and that puts pressure on inflation. So but this this is a really interesting concept, the NHRU, because it's probably changed over the years. The knowledge economy has probably given a total shift to it. So, Michael, when earlier the New Year, we decide that you're no longer for fear and greed or did I say that out loud? Anyway, let's pretend. Let's pretend.
Okay, all right, so far I'm very heavily invested in this hypothetical scenario, Sean, so that.
You were, you know, let's say you weren one hundred dollars a week. Now, you've got a mortgage, you've got kids, you're going to school, if you've got if you lost your job on Friday, specific a hypothetical data Friday, all right, so if you did, what would you do? I would have made it. I mean, you'll met it, look for another job. But it's Christmas, it's time that you need money. You're in media, so you're probably not really going to get a job till February or March. If you don't have savings, you probably become an uber driver or you do deliveries or stuff like that just to get some cash coming in. And so there's this big discussion in Australia now that the full employment rate, the natural rate, the nay room Reserve banksys four and a half percent, it may actually be a lot less than that because people like you and me, if we lost our job, would actually become employed off around bat because we can couldn't have done that ten years ago. So maybe Nayru is three percent three and a half percent, not four and a half percent. So louke the upshot of all this, right, you might have. I thought that was a stupid question. I thought that was a cracking question because there's so much to it.
Okay, So the rise of like the gig economy and all of these creates more opportunities for more people to get the work, Like it might not be full time work, but it might just be enough work to me that they are not classified as unemployed.
So you and I four or five years almost five years ago, we both found ourselves looking for work, and so we started fear and Great Now. We did that because you and I had some skill base. We had technology, because we have a software platform that we can use. We could do it from homing back then and start a job and kind of build an audience and sell ads into it and doing partnerships and stuff like that. Like fifteen years ago, we probably couldn't have done that because it wasn't the software.
To do it, like, so we would be out there looking for another formal job that would take us into an office working full time, and for that might have had to wait three months or something to find that right job.
Might have been a bit longer.
Yeah, indeed, especially when you're getting on a bit.
Yeah, thanks very much, mate.
Thanks indeed, there we go. That's the hypothetical situation, lose it by job on Friday, get back.
Yeah.
Indeed, I feel like we are even and I feel like we have answered the question that that was a really good question. Thank you Lou for sending it in, and thank you Sean for answering it. And I would argue in a way that was simple. Did what did Lu want? He wanted a simplified explanation. I love the fact that you use me to simplify things. Yeah, yeah, jeers, thanks a lot, Thank you Sean.
Thank you Michael, thank you loom.
If you have your own question that you would like us to answer, you can send it on through via LinkedIn as Lou did, or Instagram, Facebook, or Fearangreed dot com dot au and we will pop it on the list. I'm Michael Thompson and this is past Fear and Greed