Australia is replacing more jobs than it is losing, but the work is significantly lower-paying


Australia’s labour market, while still weak, has shown some encouraging signs of late. Unemployment, while still high by historical standards, has fallen fractionally and job creation is averaging around 20,000 per month so far in 2015.

On the surface these are encouraging trends according to analysis conducted by Deutsche Bank Australia’s Phil O’Donaghoe. However, the jobs being generated are vastly lower-paying than those lost.

Here’s a chart that provides some background to the trends being witnessed in Australia’s labour market. It shows the net change in employment by sector in the year to February 2015.

While not a definitive indicator on wages paid to individuals, on average, the new jobs are lower paid as those in the sector experiencing the greatest number of job losses, mining.

The chart below tracks nominal employment growth against wage-weighted employment growth. As it shows, employment growth is running at close to 2% as wages growth flatlined over the past 12 months.

O’Donaghoe explains:

“What are the lessons?

Australia’s recent labour market experience has been more nuanced than might be expected for an economy in the midst of an adverse terms of trade shock. But expansionary monetary policy, coupled with a ~20% decline in the trade weighted index since April 2013, has been associated with employment growth in services industries and construction that has outweighed weakness in mining and manufacturing.

That said, new jobs have been concentrated in industries that tend to be lower-paid than those industries where jobs are being lost.

In (the chart), for example, we plot the simple average of year-ended employment growth across 18 industry sectors, and the same series weighted by the level of average earnings in each sector. As the chart shows, while employment growth has been strong recently, ‘wage-weighted’ employment growth has been essentially flat for two years”.

Should this trend continue, it will likely impact on consumption and taxable income; two areas both the government and RBA would like to see accelerating given persistent softness in other areas of the economy.

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