Australia is creating jobs, just not high paying ones

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Australian employment growth has been solid over the past year, running at 2% in the year to August. However, despite being significantly higher than the 0.8% pace recorded in the previous 12 months, almost all of the jobs created have come from lower paying sectors.

That’s the view of Diana Mousina, economist at CBA, who points out that such a scenario – higher employment growth in lower wage sectors – is generally a negative for household spending power.

Job gains were concentrated in the service sectors, said Mousina in a research note released today.

The sectors of professional services, healthcare, accommodation and food services and admin services created the most jobs.

Job losses across the sectors were focused in retail, agriculture, finance and insurance and mining. About 44% of new jobs created over the past year were part time.

The chart below, by CBA, reveals job creation across the various individual sectors over the past 12 months.

While the giant services sector has contributed the majority of employment growth, higher-paying industries such as mining and financial services have seen jobs shed, not added.

Despite the hot housing markets in eastern state capital cities and an acceleration in employment growth, jobs were shed in among rental, hiring and real estate workers, along with those in retail.

Interestingly, as the dot point chart below reveals, despite recording the largest employment growth over the past 12 months, GDP across professional services contracted.

More broadly, and understandably, excluding professional services, there is a reasonable correlation that exists between those sectors that have seen GDP growth accelerate and employment growth.

Looking ahead, Mousina believes unemployment will plateau at just over 6% over the next few quarters as Australia’s economic adjustment continues, predicting that the labour market will be flexible enough to absorb additional mining sector job losses through higher residential construction employment. She also believes that the lower Australian dollar will also provide assistance to the tourism and education sectors.

While good news that Australian employment growth is accelerating, given the vast majority of the job growth is taking place in lower-paying industries, it suggests the outlook for household incomes, hence household consumption, will likely remain weak despite a noticeable improvement in overall labour market conditions.

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