Key points:

  • Australian employment rose in July, but growth in 2025 has so far been disappointing. Employment is no longer keeping pace with growth in Australia’s working-age population.  
  • Australia’s underemployment rate fell to its lowest level since August 2008. 
  • Australian wages rose 3.4% over the past year, comfortably exceeding inflation. 

Australian employment rose by 24,500 people in July, consistent with market expectations, and the unemployment rate declined to 4.2%. But while Australian employment increased by 263,700 people over the past year, it has climbed by just 113,300 people through the first seven months of 2025. If that pace continues, Australian employment may grow by fewer than 200,000 people this year — insufficient to keep up with working-age population growth.

Maintaining the pace of employment growth from 2023 and 2024 was always going to be difficult, but the drop-off has been swift, and the magnitude somewhat unexpected, given the ongoing strength in measures (including Indeed’s Job Posting Index). Job vacancies are jobs waiting to be filled, so a high number of job postings typically indicates strong future employment growth. That hasn’t been the case in 2025 so far. 

Line graph titled “Australian employment growth.” With a vertical axis ranging from -100,000 to 500,000, employment growth this year has been much weaker than in both 2023 and 2024. 
Line graph titled “Australian employment growth.” With a vertical axis ranging from -100,000 to 500,000, employment growth this year has been much weaker than in 2023 and 2024. 

Upside risks for the unemployment rate

Employment growth that no longer keeps pace with growth in Australia’s working-age population is concerning because, if it continues, the unemployment rate will rise considerably. We’ve already seen that recently, with the unemployment rate rising by around 0.3 percentage points since the beginning of the year.

The Reserve Bank of Australia expects the unemployment rate to increase to 4.3% by the end of the year, slightly above the current rate of 4.2%. But geopolitical and economic uncertainty, combined with recent employment trends, suggest that forecast may be optimistic. 

If there was a genuine positive to emerge from the latest labour force figures, it was the underemployment rate falling to its lowest level since August 2008. A larger share of working Australians are finding the hours they need, which is crucial as people continue to deal with cost-of-living pressures. 

Line graph titled “Australian unemployment measures.” With a vertical axis ranging from 0 to 25%, Australian unemployment measures remain low, with the unemployment rate (4.2%), the underemployment rate (5.9%) and the underutilisation rate (10.1%) all low by historical standards. 
Line graph titled “Australian unemployment measures.” With a vertical axis ranging from 0 to 25%, Australian unemployment measures remain low, with the unemployment rate (4.2%), the underemployment rate (5.9%) and the underutilisation rate (10.1%) all low by historical standards. 

Australian wage growth remains healthy

Australian wage growth comfortably exceeded inflation over the past year, allowing workers to claw back some of their losses from the cost-of-living crisis. Wages rose 0.8% in the June quarter and are 3.4% higher than a year ago. That said, households aren’t out of the woods yet. 

Line graph titled “Australian wage growth and inflation.” With a vertical axis ranging from -2 to 8%, Australian wages rose by 3.4% over the past year, outpacing inflation.  
Line graph titled “Australian wage growth and inflation.” With a vertical axis ranging from -2 to 8%, Australian wages rose by 3.4% over the past year, outpacing inflation.  

Adjusted for inflation, Australian wages are 5.8% below their peak, despite improving in the June quarter. A full recovery may take years, with the latest forecasts from the RBA suggesting little improvement this year or next. These figures highlight how damaging the cost-of-living crisis has been.

Line graph titled “Australian inflation-adjusted wages.” With a vertical axis ranging from 90 to 110 (indexed so that 2010 average = 100), Australian inflation-adjusted wages are 5.8% below their peak.  The most recent forecasts from the RBA suggest that won’t change in either 2025 or 2026. 
Line graph titled “Australian inflation-adjusted wages.” With a vertical axis ranging from 90 to 110 (indexed so that 2010 average = 100), Australian inflation-adjusted wages are 5.8% below their peak.  The most recent forecasts from the RBA suggest that won’t change in either 2025 or 2026. 

Assessment and implications

While the headline labour market data looked better in July — including employment growth and the unemployment rate — it is clear that momentum has slowed. The RBA’s three rate cuts this year have been vindicated by the considerable slowdown in employment growth in the first seven months of the year.

We expect another rate cut in November to provide sufficient support to households and businesses, while also ensuring that the unemployment rate remains low and we avoid recession. As of today, the RBA’s job isn’t quite done yet.