Labor markets worldwide: Australia

Key insights

• Australia’s labor market remains extremely tight with unemployment at a historic low and a large number of job vacancies.
• Part-time work has increased in recent decades. It is more prevalent in sectors like retail and food services.
• This has coincided with an increase in underemployment, i.e. workers working part-time for economic reasons.
• Due to its large geographic size, one cannot just speak of one single labor market. Western Australia’s worker shortage has been so severe that the state is desperately trying to increase talent attraction from abroad, including with social media campaign strategies.

Australia’s labor market is very tight

The Australian economy has been experiencing an employment boom following the economic recovery from the pandemic. In fact, Australia’s unemployment rate remains below 4% and is still lower than at any time before the pandemic despite a slight uptick at the end of last year.

The labor market has added jobs at a rapid pace. Total employment has grown by more than a million since early 2020 to about 14.2 million at the end of 2023. Payroll employment is up by about 17% since the spring of 2020. About 400,000 jobs were added last year. While previous jobs reports came in higher than expected, the labor market unexpectedly shed more than 100,000 full-time jobs last December, potentially a sign that high interest rates are finally cooling down the economy and the labor market.

For now, labor demand remains elevated

It is fair to say that the Australian labor market is experiencing a significant structural worker shortage that is more severe than in many other advanced economies. The demand for workers in Australia remains quite elevated and is only cooling down very gradually, if at all.

High frequency job postings show that the demand for both white and blue-collar workers is still significantly higher than before the pandemic. Australia is thus also an exception within the group of advanced economies as countries like the US, the UK, and Germany have seen a substantial slowdown in white-collar job postings over the last 18 months – a phenomenon that I call “white-collar recession”.

Only the demand for ICT professionals has plummeted whereas job openings for most other professionals remain well-above the pre-pandemic level.

The demand for blue-collar workers remains even more elevated compared to the pre-pandemic trend.

Wages and inflation remain higher than pre-Covid

Suffice to say that the Australian labor market remains extremely resilient. With labor shortages prevalent across all sectors, wage growth continues to exceed its pre-pandemic trend. Nominal wages are currently growing about two percentage points faster than before COVID-19. Furthermore, as of right now, there is little sign that this higher rate seems to slow. Advertised salaries are growing at a rate of more than 4.5% compared to 2.5% before the pandemic.

Elevated wage growth is a concern for the Reserve Bank of Australia (RBA), which hiked interest rates again in November to a new high of around 4.35%. Elevated interest rates have now started to slow economic activity and might cause the labor market to weaken.

But some workers remain idle

One particularity of the Australian labor market is that a subset of workers remain underutilized even as most other data points show a tight labor market. Together with a low unemployment rate, labor force participation has been on a long-run upward trend thanks to the rapidly rising participation rate of women in recent decades (male labor force participation has been falling over time).

However, the share of part-time work has been steadily increasing. This is to some extent driven by higher female labor force participation. Women tend to opt more often for part-time work because they usually need to shoulder more household responsibilities. But part-time work for men has been rising too, especially in service-sector jobs like food and hospitality, for example.

And while there are many workers who choose to not work full time voluntarily – maybe because of household or care obligations or because they are students – the number of workers who say they work part-time on an involuntary basis now stands at 6% compared to 3% in 1980s.

The underemployment ratio measures the share of employed workers who want, and are available to, work more hours than they currently have.

Research from the Royal Bank of Australia (RBA)confirms that about half of the increase can be explained by the gradual increase in the share of part-time workers in total employment – it basically doubled from about 15% in the early 1980s to more than 30% today.

However, the remaining 50% of underutilization are due to higher underutilization rates within part-time and full-time work compared to a few decades ago.

There are two big trends driving this. First, underutilization is more prevalent in sectors that have grown more, including retail, food and accommodation services, and healthcare. Workers in these sectors often want to work more hours than they currently do.

Second, there has been an increase in flexible working arrangements over time. This means that companies more often adjust hours worked instead of cutting workers in a weakening economy and labor market. The RBA study shows that underutilization typically increases during economic slowdowns as businesses cut working hours in response to weaker demand.

With the gig economy becoming more important over time, the amount of casual work has increased in recent decades. As casual workers have no firm commitment to regular working hours, this could also be a factor in explaining Australia’s underemployment problem.

Structural changes in the economy can thus explain why Australia’s labor market shows extreme tightness when looking at the unemployment rate and labor force participation on one hand while on the other hand worker underutilization is also higher than in the past.

The country desperately seeks to attract talent from abroad to remote areas

Australia has been trying to attract skilled workers for years and the country has seen a significant inflow of people over the last two decades.

One should keep in mind that there is “no one labor market”, especially in a country of such enormous geographic proportions as Australia. The country is 90% larger than the EU but only has some 25 million inhabitants compared to the EU’s 450 million.

Additional labor supply in New South Wales or Victoria in the form of graduates or migration from abroad cannot ease labor shortages in Western Australia more than 3,000 miles away.

With Perth being one of the most remote million-inhabitant cities in the world, Western Australia has been suffering from worker shortages for a while, given that the region has also been enjoying a massive economic boom thanks to its commodities and agricultural exports.

Western Australia’s government has therefore pursued an increasingly aggressive talent attraction strategy and social media campaign that aims to bring talent into the country. The skilled occupation list has been expanded in 2022 while government officials also seeks to attract international students for skilled migration.

Social media campaigns, including TikTok videos, have increasingly targeted workers in the UK where pay is lower. Care workers could see their pay almost double and nurses make about 50% more in Western Australia compared to the UK.

This talent attraction strategy seems to have born some fruits already. Similar to other OECD economies, Australia has seen its net migration numbers surge to a record of more than half a million people per year during 2022 to 2023.

And Western Australia now stands out as receiving a significant number of workers from abroad compared to its population: more than 60,000 for a population of 2.6 million compared to Queensland population of 5.1 million.

What does that mean for recruiters?

Attracting talent from abroad means that migration laws will shape your recruitment decisions. Australian migration laws have been easing as the country seeks to solve worker shortages across various industries. However, making changes to visa requirements is not enough on its own. In the example of Western Australia, successful talent attraction strategy involved targeted social media campaigns abroad, which have been important to attract skilled workers to a rather remote area of the world. Showcasing the benefits of high wages and high living standards together with the advantages of a great climate can make all the difference to lure workers in.