How Do Macroeconomic Variables Affect Which Issues Voters Care About?

Business cycles are often assumed to affect political cycles (which issues voters care about). This paper quantifies the impact of macroeconomic conditions (unemployment and inflation) on households’ policy priorities via political polling. Voter anxiety about unemployment is highly sensitive to national unemployment rates, while cost-of-living anxiety is more sensitive to underlying than headline inflation, and to accelerating inflation than disinflation. Elevated price levels and underlying inflation could explain “sticky” cost-of-living anxiety amid headline disinflation, suggesting alleviation of cost-of-living anxiety may require prolonged low inflation. Falling unemployment and rising inflation collapsed voter anxiety about unemployment in 2021-22 (a “political crowding out effect”). Unemployment anxiety is positively correlated with anxiety about the economy and negatively correlated with cost-of-living anxiety, the latter resembling a “Political Phillips Curve”. Regression models are used to predict voter responses under official forecasts. Unemployment anxiety rises to 12 per cent by June 2025 under Treasury’s 4.5 per cent unemployment rate forecast, and to 11 per cent under the Reserve Bank of Australia’s 4.4 per cent unemployment rate forecast. I find evidence of greater household sensitivity to the as-yet-unannounced unemployment rate (of the reference month in which they are surveyed) than to the latest announced unemployment rate (of two months prior), suggesting a) households are responding more to their own observations of labour market conditions than to media “announcement effects”; and b) polling data could be used to nowcast the unemployment rate.