![Truefitt & Hill managing director Khushwant Dhanoa, centre, with barbers Aras Sobooti and Affy Zulkifli. Picture by Sitthixay Ditthavong Truefitt & Hill managing director Khushwant Dhanoa, centre, with barbers Aras Sobooti and Affy Zulkifli. Picture by Sitthixay Ditthavong](/images/transform/v1/crop/frm/202296158/9faf3a23-fd26-42be-aef2-466c4eec9509.jpg/r0_532_5200_3467_w1200_h678_fmax.jpg)
Khushwant Dhanoa knows first-hand what full employment means.
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A year ago the managing director of Truefitt & Hill barbershop was at the store seven days a week to fill workforce gaps, forcing him to fit in the myriad other tasks involved in running a business whenever he could.
It was a busy time.
Mr Dhanoa is thankful things have improved since. "I haven't had to do that for the last couple of months," he said.
The return of international students and faster visa processing for foreign workers has made it easier to find the staff he needs.
But Mr Dhanoa admits things are still tight. Currently each of his stores has three barbers, but there is easily enough work for five.
"I am quite sure I would be able to fill my chairs," he says.
"It is not to say that it is impossible to get staff, but to get the right staff. The biggest hindrance to growth and business sustainability has been consistency of manpower. It is definitely holding us back."
The business owner's experience is not unique.
Business Council of Australia research indicates a majority of Australians have experienced the effects of labour shortages in their everyday lives, including service delays, difficulty obtaining products or higher costs.
And across the economy, employers report hiring and retaining staff is one of their biggest headaches.
It is not hard to see why.
Unemployment is historically low
For the past year the unemployment rate has hovered at or around 3.5 per cent, close to a 50-year low.
The high demand for labour has drawn record numbers into the workforce and they are working more hours than even before.
The participation rate, which measures the proportion of adults with a job or who are actively seeking work, is at 66.8 per cent, while hours worked hit 1.94 million in June, only a little below the all-time high reached two months earlier. Workforce participation among women has been particularly strong, topping a record 62 per cent since the start of 2022.
The tight labour market has given the central bank the jitters.
For much of this year it has been anxious workers will use their new-found bargaining power to push for big pay increases, which they will then splurge in the shops, pushing up inflation.
So far, that has not been the case.
The wage price index, which the Reserve Bank watches closely, has grown by a solid but steady 0.8 per cent in each of the last three quarters and its annual rate actually eased lower to 3.6 per cent in the June quarter.
![Truefitt & Hill managing director Khushwant Dhanoa, centre, with barbers Aras Sobooti and Affy Zulkifli. Picture by Sitthixay Ditthavong Truefitt & Hill managing director Khushwant Dhanoa, centre, with barbers Aras Sobooti and Affy Zulkifli. Picture by Sitthixay Ditthavong](/images/transform/v1/crop/frm/202296158/5612eb8e-5c36-486e-8d61-9845c3b8ff88.jpg/r0_0_5200_2924_w1200_h678_fmax.jpg)
While the central bank has been reassured by the moderate pace of pay gains to date, it still thinks the unemployment rate needs to go higher.
In a speech in June, incoming RBA governor Michele Bullock said it was likely joblessness would need to reach around 4.5 per cent before labour demand and supply came into balance.
This point, referred to in economist parlance as the non accelerating inflation rate of unemployment (NAIRU), is considered to equate to full employment.
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It shifts around and where it lies is subject to significant debate and conjecture.
For many years it was considered to be about 5 per cent but in the aftermath of the pandemic it is thought to have drifted lower.
Currently, the official view of the Reserve Bank and Treasury is it lies around 4.5 per cent.
Does unemployment really need to go up?
An increasing number of economists think that is too high, and put it below 4 per cent. Some even think it may be as low as the current jobless rate of 3.5 per cent.
This is not just a dry economic debate. There are significant potential real-world consequences.
The central bank is set to implement a recommendation of the recent RBA review and formally adopt full employment as one of its objectives, alongside price stability.
Federal Treasurer Jim Chalmers has said the goal of full employment will be included in the Employment White Paper due out soon.
These developments mean achieving and maintaining full employment will soon be an explicit goal of both fiscal and monetary policy.
For Melbourne University economist Jeff Borland, this is welcome.
Achieving full employment, Professor Borland says, brings with it big benefits. It means the nation is making the most of its human resources and it makes the country more equitable by increasing the incomes of those would otherwise be unemployed, underemployed or on income support.
Setting the full employment objective is a balancing act, he says.
Set it too high and people who want a job, or want more hours, will miss out on work. Set it too low and the risk is an unsustainable acceleration in wages.
"The critical decision is what rate of unemployment achieves that balance," he says.
Professor Borland is one of those who thinks the RBA's current thinking that the balance sits at 4.5 per cent is wrong, and says the aim should be close to the current 3.5 per cent.
Prominent independent economist Chris Richardson agrees any rate above 4 per cent is too high and estimates the NAIRU is probably around 3.75 per cent.
"That is magnificent news," Mr Richardson says.
"If you are judging a society in part by what it does for its least well-off, the more people we can get into a job [the better]. It's not just the financial benefit, it's health benefits, wellbeing, self-respect, a range of things."
So why might the balance point in the labour market be so much lower than where it was thought to be even three years ago?
Wages: nothing to fear here
Professor Borland says fears low unemployment will trigger the same sort of wage-price spiral that drove inflation above 17 per cent during the 1970s are ill-founded.
He says changes in the industrial relations system since then, particularly the shift to enterprise bargaining, mean the labour market "is a different place today".
Just as important as the change in how wages are set has been the rise in different kinds of employment.
While the great majority of jobs are full-time, the proportion of people in part-time work has been rising for decades, from around 10 per cent in the early 1970s to almost one in every three employees.
Some choose to work less than full-time, frequently to fulfil other commitments like parenting or caring.
But there are also many who would like to work more and are officially measured as underemployed.
The underemployment rate is currently 6.4 per cent and, according to Professor Borland, represents a large pool of underutilised labour employers are able to draw upon in addition to those who are fully unemployed.
"Wage pressures are therefore not as great [and] holding down the unemployment rate poses less of a risk for wage inflation," he says.
Making a similar point, Australia Institute senior economist Matt Grudnoff argues the official unemployment rate represents just "the tip of the iceberg of people looking for work".
Mr Grudnoff says the definitions used by the Australian Bureau of Statistics, under which performing just one day of work a week counts as being employed are based on "1950s-era assumptions that bear little resemblance to the workforce today".
The Australia Institute says the majority of people gaining and losing jobs "completely bypass" the ABS's definition of who would be considered unemployed and instead move into and out of the group the statistician categorises as not in the labour force.
Of 629,500 people who left their jobs in December 2022, just 17 per cent became what is considered unemployed, while the rest were counted as leaving the labour force altogether, the institute said.
It means decisions based on the unemployment rate miss a huge proportion of people who are in fact looking for work, Mr Grudnoff says.
Be that as it may, employers are still finding it hard to get the staff they need, and Canberra Business Chamber chief executive Greg Harford says it is having real consequences.
"The current tight labour market is acting as a handbrake on business and is limiting the economic potential of the ACT," Mr Harford said.
"There just aren't enough workers here to fill the roles available, and this is stopping businesses meeting demand and helping drive up prices."
Employer groups are urging the government to improve the nation's ability to attract international talent, including by streamlining the migration system.
Too many people, or not enough?
Migration is essential to help fill critical skills and labour shortages, boost innovation and slow the ageing of the population, the Business Council of Australia says.
For every 1000 migrants there is an extra $124 million of economic output, an additional $59 million of investment and $38 million more in government revenue, the lobby group says.
The current surge in net overseas migration, which will see an estimated 715,000 net arrivals over two years, has fuelled debate about population growth and strain on infrastructure, including concerns the new arrivals will deepen the housing shortage, add to road congestion and demand for essential services like healthcare and education and potentially take jobs from locals.
Senior economist Callum Pickering said the concern about the impact of high migration on housing was "genuine, and they need to be sorted out at state and federal levels".
"We should be concerned about housing the people we bring in. In the past decade there has not been the housing and infrastructure works that has been needed," Mr Pickering said.
There are also concerns an influx of migrants will increase unemployment, but Mr Richardson says these are misplaced.
"Jobs aren't a Game of Thrones episode where everybody dies until you've got the right number of people to occupy the throne," he said.
"You get a job, you earn income from it, and you spend that money and that helps create the next job."
Mr Richardson said the current supply of housing was "God-awful" but the solution was not to stop immigration, but to reduce the barriers to construction like planning restrictions.
In the meantime Mr Dhanoa, like many employers, would prefer to recruit locally but labour shortages mean he has to look abroad for staff.
With Australia fully-employed, that is likely to remain the case.