Carbon tax won't hurt jobs: OECD

Australias carbon tax is expected to have at most a moderate effect on employment within the country, the Organisation for Economic Co-operation and Development (OECD), predicts.

According to the OECDs Employment Outlook 2012, environmental taxes were predicted to have a modest overall effect on employment and little impact on the demand for skills.

Fossil-fuel industries will experience the steepest employment declines and renewable energy industries the sharpest increases, the report reads. Nevertheless, the resulting labour market changes will be modest compared with underlying rates of labour reallocation generally observed in OECD countries.

The OECDs modelling also suggests that any potentially negative effects of environmental taxes on employment can be offset if the revenue from higher environmental taxes is used to lower tax rates on labour income, rather than to make transfers directly to households.

The report also noted that Australias labour market continued to perform well in comparison with other major developed countries with the countrys 5.1% unemployment rate in May 2012 being among the lowest in the OECD.

By contrast, nine OECD countries had double-digit unemployment rates, including Greece and Spain where more than one in five of the labour force are unemployed, the report reads. There is also little evidence of growing mismatch between available job vacancies and the number of unemployed looking for work.

These are promising signs that Australia seems to have weathered the global financial crisis without significant long-term labour market consequences.

Despite the positive news , the report notes that underemployment in Australia is a problem, especially for women with more than 12 per cent of the labour force now either unemployed or working part-time and would like to work longer hours up two per cent since 2007.

At 7.2 per cent in the fourth quarter of 2011, Australias rate of underemployment is much higher than the OECD average of 5.0%, so that total labour underutilisation in Australia is close to the OECD average, despite much lower unemployment, the report reads.

While underemployment is not as potentially damaging to workers as unemployment, it can have long-term consequences for career progression, earnings potential and retirement income.

This is of particular concern as the majority of Australias underemployed workers are women, who already suffer from lower earnings and retirement income than men.

In May the OECD delivered a positive outlook for Australia during the next two years, predicting the country will continue to continue reading the benefits of the mining boom.

Delivering the verdict in its current OECD Economic Outlook report, which provides twice-yearly analysis of the major economic trends and prospects for the next two years, the international economic body said growth would come despite sharp sectoral disparities within the Australian economy.

Mining expansion will continue, but some other sectors are having to adjust to the high level of the exchange rate and raise their productivity, which can be expected to weight on the labour market, the report reads. Faster fiscal consolidation will also weigh somewhat on demand.