The latest figures are in and the Australian labour market remains tight but is still growing steadily. Last year, Australia’s labour market was surprisingly strong. In 2023, it is still holding up well despite some unique challenges. Let’s take a closer look.

Labour market employment rates

The Australian labour market is continuing to show signs of strength, with the seasonally adjusted unemployment rate remaining at a low 3.6% in May 2023, according to data released by the Australian Bureau of Statistics. The participation rate also remained high at 66.8%, indicating that more Australians are either working or actively looking for work.

Furthermore, the underemployment rate (which tracks employed people who would prefer to work more hours) currently sits at 6.4% and the underutilisation rate (tracking both unemployed and underemployed people) is at 10%. ‘These are all fantastic figures, particularly given the very challenging economic environment we find ourselves in’, says Callam Pickering, Senior Economist at Indeed’s Hiring Lab.

Economic development

Australia’s economy is currently growing at an annual rate of 2.3%, down from 2.7% at the end of 2022, signalling a clear slowdown in economic activity. However, perhaps one of the most significant economic challenges facing the labour market this year is the country’s extraordinarily high cost of living. Hiring Lab’s latest labour market update reveals Australian wages rose by 3.7% in the past year. In normal circumstances, this rate would be considered an outstanding result – but in an environment with an inflation rate of up to 7%, it is anything but.

Inflation

The Reserve Bank of Australia (RBA) has set a target inflation rate of between 2% and 3%. However, inflation has been running above this target for several months. In March 2023, the inflation rate was 7% and at the end of June it was still above the target at 5.6%.

Notably, the RBA has said that it is committed to keeping inflation within its target range and expects that inflation will start to fall more in the coming months. Its forecast is for inflation to decline to 4.75% over the course of 2023 and to about 3% by mid-2025.

Cost of living

When inflation is high, the cost of living rises and people’s purchasing power decreases. It is, therefore, not surprising that the cost of goods and services has been increasing steadily in recent years, and this trend is expected to continue in the coming months. In fact, cost of living is now the single biggest risk to Australia’s labour market. The main contributors to the cost-of-living increases have been housing, food expenses and rising home loan interest rates.

Indeed's Callam Pickering believes that although the situation will improve over the next 12 months, it will still be a very challenging scenario for many households and businesses across the country.

Job postings on Indeed

The latest figures show that job postings on Indeed are consistent with the challenging economic environment Australia finds itself in. The good news is that, as of 23 June, Australian job postings were 88% above the pre-pandemic level. However, a closer look reveals that postings have, in fact, decreased by 25% since the end of last year.

The biggest downturn in job postings in June compared to February is found in sales (-1.8%), followed by software development (-1.1%) and retail (-1.0%). On the other hand, personal care and home health (+1.7%) as well as education (+1.5%) have recorded the greatest influx in job postings over the same period.

Implications for Australian businesses

The high inflation and rising cost of living are putting upward pressure on wages and other costs, which can impact businesses' bottom line. Organisations looking to hire new employees should keep an eye on the latest labour market information and be prepared to offer competitive wages and benefits. They also need to keep in mind the rising cost of living and factor this into their pricing strategies.

The Australian labour market is expected to continue to grow in the coming months, and the unemployment rate should remain low – in the high 3% to low 4% range. For employers, recruitment will likely still be challenging, but should be less so than last year.

Labour market trends to watch

Here are some of the key labour market trends to watch in 2023:

  • Skills shortages: The skills shortage identified in a Government-commissioned report in 2022 is likely to continue to be a major challenge for businesses in 2023. This is particularly true in some industries, such as construction and healthcare. Employers will need to find ways to attract and retain skilled workers, such as offering higher wages and other incentives. Increased skilled immigration rates can also help fill the skills gap. Australia is already well on the way to returning to pre-pandemic immigration figures, with the number of skilled visas granted in the 2022-23 financial year expected to be the highest in a decade.
  • Remote work: Remote and hybrid work is becoming increasingly popular. By the end of May, 12.6% of Australian job postings on Indeed were advertising remote jobs, and this trend is expected to continue. Increased remote or hybrid roles could lead to a more flexible and mobile workforce, as well as changes in the way that businesses operate.
  • Diversity and inclusion: Businesses are increasingly focused on diversity and inclusion, and this is expected to continue in 2023. In May, 33% of Australian job postings on Indeed mentioned the terms ‘diversity’, ‘inclusion’, ‘belonging’ or ‘equality’ – up from 22% on average in 2019. Notably, this increases to 42% of high-wage postings, compared to 25% for lower-wage opportunities, suggesting that larger corporations are more likely to promote their diversity and inclusion credentials.
  • Technological change: Technology is constantly evolving, and this is having a major impact on the labour market. Businesses need to be prepared for the changes that new technology will bring, such as the rise of automation and artificial intelligence.
  • Pay transparency: Pay transparency has gained a lot of traction in recent years, with many job seekers expecting it as a matter of course. In May, 35% of Australian job postings on Indeed included remuneration details. This is an increase up from 30% last year and 21% four years ago, as well as an increase across every state and almost every occupational group. Those employers who believe that they can compete on salary are taking advantage of this development – and reaping the rewards of greater candidate engagement.

All in all, despite some challenges to overcome, the Australian labour market is holding up well halfway through 2023. To remain successful, businesses need to be prepared for the latest trends and changes in the market and adapt their strategies accordingly.