Australia Faces New Challenges as Labour Market Softens
Australia enters 2020 facing a number of labour market challenges. Slowing employment growth, rising unemployment, and low wage growth will be three of the main issues dominating economic discussion.
- Australian employment growth has slowed and is no longer sufficient to bring the unemployment rate down.
- Wage growth has softened to 2.2% and remains below its average over the past decade in every industry except healthcare.
- Australia still has a youth unemployment problem, with young men struggling to find work and young women wanting more hours.
The Australian labour market is showing signs of fatigue, with employment growth softening and unemployment drifting up. The economy has struggled throughout 2019, growing at its slowest pace since the beginning of the global financial crisis and prompting concern over the outlook for jobs.
Calls are getting louder for greater fiscal stimulus in the form of programmes that promote economic growth and boost employment. Without such measures, the trends that defined 2019 may persist into the new year.
Employment growth has slowed
Australian employment has increased an average of 22,200 people per month in 2019, down from 23,600 in 2018 and 34,200 in 2017. The 2019 rate translates into annual employment growth of 2.1% — not enough to bring the unemployment rate down.
As a result, the unemployment rate increased to 5.2% in November from 5.0% in December 2018. The rise stems in part from high population growth and rising inflows into the workforce, reflecting greater participation by women and older Australians. Meanwhile, the underemployment rate, which refers to workers who’d prefer more hours, has not improved in years and remains a problem.
Wage growth continues to disappoint
Australia still has a lot of talent sitting on the sidelines — too much to push wage growth higher. At 2.2%, annual wage growth is low by any standard, barely keeping ahead of inflation. Unfortunately, it is unlikely to improve anytime soon. The Reserve Bank of Australia expects wage growth to remain at its current level over the next two years.
In only one Australian sector, healthcare and social assistance, is pay growth strong relative to what was once considered normal. Over the year to the September quarter, wages in the sector rose 3.2%, above its 3.0% average over the past decade. A few other sectors, such as professional services, are experiencing much stronger wage growth than they were a year ago, inching closer to their historical averages. Unfortunately, a number of sectors are experiencing pay gains below 2%.
For more on the causes of low wage growth in Australia, see our detailed report.
Youth unemployment is high and rising
The unemployment rate for people between 15 and 24 years rose 0.3 percentage points in the first 11 months of 2019, reaching 11.8%. A lack of opportunity and stiff competition for entry-level jobs have made it hard for younger people to find a foothold in the Australian job market.
Young men have struggled more than young women to find work. Their unemployment rate was 13.2% in October compared with 10.6% for young women. The unemployment rate gap between the two sexes increased sharply this year and is now well above its historical average.
In addition, young women are more likely to be dissatisfied with their hours. Almost one in five employed young women identify as underemployed and would prefer more work time. By comparison, around one in six young men want more hours. This gender underemployment gap has narrowed recently but is still at around its long-term average.
Workforce participation is rising
A major reason for upward pressure on Australia’s unemployment rate is that more working-age people are actively in the job market. The workforce participation rate, defined as the share of working-age Australians either employed or seeking employment, surged throughout 2019, in August reaching a record high 66.1% for those 15 and over. This rise is due mainly to higher participation among women and older Australians.
Since 2014, women’s participation has increased across all age groups, particularly among those 60-64, 35-44, and 55-59. For men, participation has increased more modestly among most age groups, with a larger rise among those over 60.
Older Australians are remaining in the workforce longer than previous generations. Two reasons help explain the trend: improved health and a shift toward less physically intensive jobs. Most jobs created today are in the service sector rather than in industries such as manufacturing, construction, and agriculture, in which jobs are often tough for workers 50 and older.
Greater workplace flexibility, both in hours and work conditions, has also contributed by helping mothers and other women re-enter the workforce and allowing older workers to remain in the workforce longer.
Services are driving employment growth
Job creation remains concentrated in service industries. Over the past year, employment in professional services increased 98,600. Education and training and administrative and support services also registered strong gains, up 70,000 and 66,000 respectively. The three sectors accounted for almost 70% of 2019 employment growth through October.
Manufacturing posted the biggest job losses, with employment falling 77,200. That’s a mind-blowing number at first glance, but it’s easy to explain. Manufacturing employment surged last year, tied primarily to infrastructure programs. But those jobs were temporary. This year’s decline has offset last year’s jump, leaving manufacturing employment down only slightly.
Challenging labour market trends are likely to persist
Australia enters 2020 with slowing employment growth centred around full-time roles and rising unemployment. To stimulate economic growth, the Reserve Bank of Australia cut its benchmark cash rate three times in 2019 to just 0.75% and further cuts are expected. The outlook for wages hinges almost entirely on the unemployment figures. The small increase in the unemployment rate so far this year may already have dragged wage growth lower. In short, the economic environment is difficult.
In the year ahead, employment growth will probably again be concentrated in the service sector. Keep a special eye on healthcare. An ageing population and high population growth are creating huge demand for health and aged care services. Healthcare is the odds-on favourite to be the strongest industry in 2020.
Rising property prices spell good news for a number of industries. Real estate and financial services will benefit directly. And retail may benefit indirectly via the ‘wealth effect’. Higher property values boost the assets of millions of Australians, and economists believe that makes them more likely to consume goods and services. However, construction, which normally benefits from higher property prices, may find conditions tougher due to a sharp decline in the project pipeline. That’s not likely to change in 2020.
Overall, many of the trends that defined Australia’s labour market in 2019 will persist into 2020. Youth unemployment will remain an issue, wages will again disappoint, and job gains will be concentrated in the service sector. The chief hope is that lower interest rates will soften the blow. At the same time, the view is growing that state and federal governments must do more to promote economic activity and improve the job market. Without greater fiscal stimulus, we can expect more of the same.
Callam Pickering is an Economist at the Indeed Hiring Lab with a focus on Australia. Previously he was an economist at the Reserve Bank of Australia focusing on household spending and house prices. He also worked as the economic editor at online publications the Business Spectator and Eureka Report where he covered economic issues relating to Australia. Callam earned a Bachelor of economics and Accounting from Monash University.