Australians who lose their job suffer large falls in their income that persist well after they find another job. Workers who otherwise have good work histories will still have an 11 per cent lower labour income five years after a three-month spell of unemployment. The cumulative effect over five years is equivalent to nearly a year of lost pay.

Low-wealth and low-wage workers are more than twice as likely to lose their jobs when unemployment rises. Younger, less-educated workers and those in routine manual jobs are also hit harder. Sustained low unemployment and under-employment are among the best ways to improve the lives of the most vulnerable workers.

But high unemployment also hurts those who keep their jobs. A larger pool of unemployed workers reduces the bargaining power of all workers. High unemployment in the years leading into the COVID crisis accounts for at least one-third of the slowdown in wage growth in Australia since 2013.

Australia’s economy was sluggish in the years immediately before the COVID recession: inflation had been below its target for more than half a decade, unemployment and under-employment were persistently higher than they could have been, and many Australians had not had a decent pay rise in years.

But Australia has recovered much faster than after previous recessions. The unemployment rate is now at a near 50-year low of just 4 per cent, and the labour market is the strongest it has been for decades. This will benefit Australia’s most vulnerable workers the most. We should learn the policy lessons.

Australia’s rapid economic recovery from the COVID recession did not occur by accident. It is a macroeconomic success story, the result of unprecedented monetary policy – record low interest rates – and unprecedented fiscal policy – hundreds of billions of dollars of government spending to keep households and businesses afloat and stimulate economic activity.

The report authors argue that Australia should not lose sight of the prize of full employment. Whoever wins the 2022 federal election should make sustaining full employment a baked-in national priority. This report shows why Australians should not settle for anything less.