Here's why Australian unemployment remains elevated despite booming jobs growth

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Australian employment growth surged by 371,500 over the past 12 months, the fastest increase over a comparable period since before the global financial crisis.

However, despite that near unprecedented hiring spree, Australia’s unemployment rate hasn’t fallen all that far, declining 0.2 percentage points to 5.5% over the same period.

While it now sits at the lowest level in over four years, it probably surprises more than a few people that it hasn’t fallen further.

This chart from ANZ helps to explain why unemployment is taking so long to fall even with strong employment growth.

Source: ANZ

It overlays the annual change in employment growth versus changes in the participation rate, measuring the proportion of Australians of working age who are either in or actively seeking work.

As employment growth has improved, so too have the number of Australians who are actively participating in the labour market.

ANZ says this, along with strong levels of population growth, helps explain why the unemployment rate hasn’t fallen further over the past year.

“The participation rate is rising, though it is still some way below its peak levels over the past decade,” it says. “Australia is also experiencing strong population growth. This lifts the pace of jobs growth required to bring the unemployment rate down.”

Essentially, with strong population growth and a greater proportion of the population participating in the labour market, its meant that unemployment levels have remained relatively steady even with the boom in job creation.

ANZ says that Victoria, home to the fastest growing population of any state and territory over the past year, demonstrates this point.

“Despite employment growth that has been stronger than the national average since early 2016, its unemployment rate has actually risen over this period,” it says.

“Victoria’s unemployment rate is now the highest of all the states. Its population growth, which is well above that of the other states, explains the apparent inconsistency.”

And with an abundance of labour available to meet demand, that’s also contributed to the downward pressure on wage growth that’s been seen over the past six years.

Like any market, wage growth is partially dictated by supply and demand, and at the moment both are increasing.

NOW READ: Why Australia needs to start talking about its population growth

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