Sobering up after the Big Party
Investment Solutions | Market Insights

David Clark, Partner - Investment Management

Eric Boesten, Senior Analyst

A tempest is brewing in the domestic labour market, and it’s lowering the living standard of Australians.
Posted 09 October 2023

August's employment data has painted a melancholic picture, revealing that the labour market has turned downwards, resulting in an increase in the Australian Bureau of Statistics’ ‘real’ unemployment to a daunting 11%. The ‘real’ rate of unemployment includes both regular unemployment as well as underemployment, which is a measure of people who are unwillingly working in low-skill and low-paying jobs or only part-time. This spike, the highest in over two years, serves as a stark reminder that economic turbulence from tighter monetary policy is not yet over. 

The below graph displays the underemployment gap in Australia.  

At the heart of the issue lies a labour market that has taken a disconcerting turn, mirroring the tumultuous waves of a post-pandemic world. We have previously stated that we believe wage growth in Australia is not the colossal concern some make it out to be. The data supports our hypothesis, as wage growth remains relatively tame in the grand scheme of things due to high inflows of immigration. 

Over the past 12 months, Australia has seen its workforce increase by 484,000 individuals, with the population soaring by 706,000. On the labour supply side of things, this means more people competing for the same number of jobs. This influx has diluted the impact of wage pressure, but it has also planted the seed for different challenges in the labour market. 

On the demand side of things, another cloud looms: a slowdown in aggregate demand on a per-capita basis. This slowdown in consumption will also add fuel to the un/underemployment fire. While the full ramifications of this shift are yet to be felt due to the lagging effects, we can say that the economic outlook remains uncertain. 

There's also China's weakening growth outlook. Often seen as Australia's economic lifeline, China has seen economic deterioration, resulting in lower imports from Australia. When you combine these factors, you end up with anaemic wage growth, and it starts to look like a return to pre-COVID dynamics, only with a more pronounced sense of misery. 

Australia's economy and labour market have some tough challenges ahead. As we navigate these stormy waters, it becomes clear that the economic skies are more shrouded than the pre-COVID outlook. Beware of the hangover. 

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