Tim Wilson’s inflation cure: Unemployment as collateral damage

A proposal to prioritise inflation over employment would make higher joblessness the deliberate cost of economic stability, with working Australians carrying the burden, writes Rob Powell.

SHADOW TREASURER Tim Wilson’s proposal that the Reserve Bank of Australia (RBA) focus more heavily on tackling inflation over unemployment sounds reasonable on the surface. But it never really spells out in plain and simple terms the social and economic effects this will have, nor who he wants to bear the brunt of taming inflation.

Wilson's argument assumes that higher unemployment is a tolerable or even necessary price for price stability, an assumption that collapses the moment the real-world costs are examined.

The idea that the RBA should prioritise inflation above all else is rooted in a simplistic, old-fashioned economic view in which workers become the primary “adjustment tool” of monetary policy. When inflation is high, this approach essentially says: raise interest rates until enough people lose their jobs that spending slows and prices ease. It is a theory tidy enough for a textbook, but deeply messy in the lives of the people it affects.

RBA’s labour market call risks overtightening the economy

If the RBA has misjudged labour market tightness, current rates could unnecessarily weaken growth and jobs.

What Wilson does not explain is that his proposal would make workers carry the weight of the correction. Aggressive tightening doesn’t fall on corporations, nor wealthy investors with diversified assets. It falls on the everyday wage earner whose job is suddenly made precarious.

The victims of this model are not abstract economic units. They are mortgage holders in outer-suburban Australia, young people in insecure work, and regional employees who have fewer employment alternatives.

Inflation unquestionably hurts households. But forced unemployment can devastate them. Losing a job means an immediate and dramatic drop in income when people are already struggling with cost-of-living pressures. It triggers mortgage stress, rising defaults, deteriorating health, family breakdown and, too often, long-term poverty.

Wilson frames the trade-off as if higher unemployment is simply an unfortunate but manageable “lever” to pull. In reality, unemployment is one of the most destructive economic shocks a person can endure, and it cascades through families and communities long after inflation is gone.

The consequences of deliberately raising unemployment don’t disappear when inflation stabilises. There is substantial evidence that long-term unemployment erodes skills, reduces future earnings and pushes people permanently out of the labour market. This “scarring” effect weakens Australia’s productive capacity, hardly a smart economic strategy during a period when the country faces worker shortages and a rapidly ageing population.

A policy that intentionally sacrifices labour force participation today undermines national prosperity tomorrow.

Wilson’s logic also hinges on an outdated view of why inflation is rising. The price pressures of recent years have come overwhelmingly from global supply shocks: the war in Ukraine, pandemic-related disruptions, shipping bottlenecks, corporate price-setting behaviour and weather-driven spikes in energy and food costs. None of these is corrected by throwing Australians out of work.

Getting to the bottom of inflation in Australia — and it’s not a problem

A closer look at the data suggests Australia’s recent inflation scare was less an economic relapse than a statistical hiccup — and one the RBA risks misreading at its peril.

If a flood wipes out crops or a multinational gas exporter lifts its margins, firing workers in Brisbane or Ballarat does nothing to solve the problem. Yet this is the consequence of the austerity-first orthodoxy Wilson promotes.

Even if the theory were sound, the practical risk is enormous. Once unemployment begins to rise, it can accelerate: lower spending reduces business revenue, which triggers further layoffs, which depresses spending again. Central banks often overshoot. Recessions, historically, are rarely intentional, but they are frequently caused by policymakers who thought they could “nudge” unemployment up by just enough.

Wilson’s approach toys with recession risk at precisely the time households can least afford it.

Not all Australians bear unemployment equally. Those who lose their jobs when rates rise are overwhelmingly the most vulnerable: young workers, casual employees, the less educated and those in outer or regional areas where labour markets are thin.

Inflation affects everyone, but engineered unemployment punishes those with the fewest resources and the smallest safety nets. Wilson’s proposal effectively asks the working poor to solve a problem they did not create.

Most strikingly, Wilson fails to consider the many alternatives available. Policymakers can address supply bottlenecks, improve competition policy to combat price gouging, support productivity enhancement, regulate essential energy pricing and use targeted fiscal interventions to ease pressure without punishing workers. Deliberately raising unemployment is the bluntest, laziest and most socially costly tool on the shelf.

Tim Wilson may believe he is promoting responsible economic management, but his plan amounts to a call for higher joblessness as a primary anti-inflation tool. It is narrow economics masquerading as prudence. What it really represents is a willingness to let ordinary Australians pay for a problem whose origins lie far beyond them.

If Australia is to navigate inflation wisely, it must do so without sacrificing the very workers who keep the economy functioning. We must lift people out of unemployment so they have the means to deal with the cost of living and inflationary pressures, not sacrifice others to unemployment to protect our own wealth from inflation.

Rob Powell is a retired mature-aged student currently studying politics and philosophy, focusing on how ethical frameworks shape public policy and political behaviour.