NAIRU for Reserve Bank – 5% unemployment = full employment

Marx’s concept of the reserve army of labour is applied under a different name in current management of capitalism. It’s the NAIRU, acronym for Non Accelerating Inflation Rate of Unemployment. It means the lowest unemployment can fall before there is a danger of workers being able get higher wages because they have more bargaining power. The main controversy about NAIRU is whether a precise number for the rate of unemployment can be determined. But what the NAIRU debaters do not dispute is that economic policy makers do make decisions based on balancing growth, inflation and unemployment, aiming to keep unemployment high enough to hold wages down.

Read more about it here – http://www.businessspectator.com.au/bs.nsf/Article/RBA-sees-flexibility-in-labour-supply-AW9SH?OpenDocument

“The Reserve Bank of Australia (RBA) has an open mind about how much more the labour market has to give to the current upswing – at least that’s what its latest monetary policy statement implies.

In its latest monetary policy statement, the RBA makes numerous references to “spare capacity”.

Even when it is not spelled out explicitly, this is generally a reference to spare capacity in the labour market – the pool of workers available to satisfy industry’s demand for labour as output expands.”

It is generally thought that “full employment” is reached when unemployment falls to about five per cent.

If it falls below that, the story goes, the mismatch between supply and demand will drive wages upward, feeding into a vicious cycle of wage-driven inflation.”

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