In a new report from the Grattan Institute, ‘No one left behind: Why Australia should lock in full employment’, it’s argued that full employment should be a “national priority”.

According to the report, full employment occurs when the supply and demand for labour are balanced – “when all of the available pool of labour is used to produce the goods and services that people want to buy”.

With the report coming off the back of a steady stream of complex economic woes such as the pandemic, soaring inflation and the cost of living, the Reserve Bank of Australia (RBA) has been tasked with alleviating the problems with interest rate hikes, which come with their own set of economic risks.

And with the post-COVID recovery leading to a historically low unemployment rate of only 4 per cent, the Grattan Institute’s calls for full employment may inch closer to reality if ideal economic conditions are nurtured.

“Heading into the pandemic, economists feared the worst. Two years later, the state of the labour market is surely better than any had dreamed. The recovery has been much faster than any previous downturn,” the report said.

“Unemployment had fallen to 4 per cent by early 2022, a rate not seen since just before the GFC, or before that, nearly 50 years ago.”

Under-employment has also fallen, from about 8.5 per cent before COVID to 6.3 per cent in early 2022.

“Yet wage growth has been slow to pick up, so far only returning to pre-pandemic rates.”

It also said estimates of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) have been revised lower still.

The report illustrated that the recovery will benefit all households through higher wage growth and stable employment.

“But achieving full employment helps vulnerable workers the most, including younger, and lower-income Australians with fewer skills,” the report said.

“Putting these workers in stable jobs could help to reverse the recent trend towards rising inequality in Australia. A rapid return to full employment after a recession also avoids the long-term scarring effects that permanently reduce living standards.”

But the report also warned that full employment isn’t always a benefit to the economy, noting that “we can have too much of a good thing”.

“When the labour market is overly tight, demand will outstrip the supply of goods and services, generating inflation. When inflation exceeds wage growth, this will erode people’s standard of living by reducing the amount they can buy. Poorer households tend to be hit harder by inflation,” the report said.

Throwing in some metaphorical analysis, the report said “a little bit of inflation can ‘grease the wheels’, but too much can throw ‘sand in the gears’”.

“History is littered with examples of policy failures that allowed inflation to spiral – from the hyperinflation of the German Weimar Republic during the early 1920s to the ‘stagflation’ of the 1970s across many advanced economies – with dire consequences.”

Hoping to catch the eye of whichever major party is able to form government after the upcoming May 2022 federal election, this isn’t the first controversial recommendation the Grattan Institute has put towards the Commonwealth.

Previously in 2014, the Grattan Institute called on the newly elected Abbott government to lift the age at which people would qualify for age pension and superannuation, calling it the “most important economic and budgetary reform of our time”.