Australia’s labour market – (under)employment an issue

Delivering more jobs (particularly manufacturing jobs) might  be a key catchcry of US President Donald Trump, but it is also an important ambition for Australia in 2017 (think Prime Minister Turnbull’s election campaign focus on ‘jobs and growth’).

Our labour market enters the year at a crossroads. The unemployment rate remained relatively stable over the past year, and ended 2016 at 5.8%, a respectable result by recent standards. In part however, our unemployment rate is contained because of increasing numbers of baby boomers retiring.

In terms of jobs growth, the past year did see a reverse shift in momentum. 2015 saw growth of around 223,000 jobs, but over 2016, only 93,000 jobs were added to the national economy. And even that result masks the continuing shift from full-time to part-time positionsthe 93,000 jobs created included 129,000 part-time jobs and a contraction in full-time jobs of 36,000.

That result means that underemployment remains a growing problem in our labour force (even if unemployment has held steady). Indeed, underemployment has been at a record high of 8.5% since 2015 and has been trending steadily upwards over the last 30 years.

As the chart below shows, job growth has outpaced growth in hours worked over the course of 2016.

Growth in job numbers vs hours worked, trend


Spare capacity in the workforce has led to subdued wage growth. This is expected to continue into 2017, as the Australian workforce continues to transition from the mining boom – 2017 is the least year that business investment as a share of GDP should see a notable decline, before finally stabilising.

It’s not the same labour market across the states. New South Wales had the lowest unemployment rate (5.2% in December 2016) reflecting its recent housing inspired economic strength, while South Australia saw an increase in unemployment (to 6.8%), with its manufacturing base struggling. Victoria’s unemployment held steady at 6.0%, although strong population growth allowed for Victoria’s employment to show growth of around 116,000 jobs over 2016.

By industry, our economy continues to undergo some structural adjustment. Sectors with the strongest employment growth include health care and social assistance, education and training and construction. This reflects greater spending on private and government delivered services, along with the boost to the economy provided by housing construction over recent years. This is broadly in line with trends we have observed over the past decade.

However, more modest employment outcomes affected many industries over 2016. For example, utilities employment fell by 4.9% over 2016. Business services had seen powerhouse growth of 5.9% over 2015, but recorded a more modest 2.8% growth over 2016.

Mining, farming and manufacturing employment continue to head down, creating adjustment problems, particularly for the latter. The mining employment downturn is a result of the transition from labour-intensive construction to capital-intensive production, while farming is following a similar pattern, as technological improvements reduce the need for labour.

Looking forward, job growth will remain challenging in 2017, but areas of the economy which engage further with fast growing Asian economies will provide good momentum, and there is likely to be continued preference for spending on consumer services and government-led services such as education and health (with which should come job opportunities).

David Rumbens is a Deloitte Access Economics partner and co-author of our Weekly Economic Briefing.

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