- Australia created over 420,000 jobs over the past 12 months, near the highest amount on record.
- Stronger labour market conditions have seen job security lift considerably in recent years.
- This is generally a good sign for faster wage growth. Generally.
Australia has been churning out jobs left, right and centre during the past 12 months.
According to the Australian Bureau of Statistics (ABS), employment nationwide increased by a mammoth 420,000 in the 12 months to February, close to the highest level on record for a comparable period.
And most of those jobs have been full-time roles, reversing the trend seen in prior years where growth in part-time employment did most of the heavy lifting.
While unemployment still remains elevated at 5.6%, largely reflecting stronger population growth and better job market conditions encouraging Australians to actively seek work, few can dispute that labour market conditions are pretty good at present.
It appears that an increasing number of Australians are warming to that view, an outcome that has, in the past, been a lead indicator for faster wage growth.
“In a positive sign for the wages outlook, job security is improving,” says Felicity Emmett, senior economist at ANZ bank.
“Unemployment expectations have fallen sharply, concerns about redundancies have receded, and workers are more willing to look for employment elsewhere.
“This is good news for wages, with a recent study by the RBA finding that falling job security had contributed to the decline in wage growth over the past few years.”
Here are a few charts supplied by Emmett to demonstrate that Australians are becoming more confident about the health of the labour market.
The first shows a measure of job security fears based off unemployment expectations in Westpac Bank’s monthly Australian consumer sentiment survey.
Fewer Australians expect unemployment to increase during the next 12 months with the index sitting well below the levels seen in recent years.
And with fears over rising unemployment diminishing quickly, so too are concerns about being made involuntarily redundant.
“Concerns about redundancies have fallen quite sharply,” says Emmett.
“The proportion of workers who do not expect to be with their current employer or business in 12 months due to shut down or downsizing has fallen steadily since August 2014… suggesting that workers are feeling more secure.
“While there are clearly other factors holding down wages growth, this improvement in job security should eventually flow through to higher wages.”
Redundancy concerns, as seen in the chart, have tended to act as a lead indicator for movements in Australia’s wage price index.
In another sign of improved job security, more Australians are now also willing to quit their job to find work elsewhere.
According to the ABS, the proportion of workers who don’t expect to be with their current employer in 12 months because they intend to find a job elsewhere has risen over the past few years, lifting from 4.3% in 2013 to 5% in February.
Emmett says this provides anecdotal evidence that workers are now achieving higher pay rises in new positions, a trend she says should eventually flow through to stronger overall wage growth.
However, while all three indicators suggest Australians are feeling far more confident about their job security, the question everyone wants to know is when it will translate to meaningful wage increases for workers?
Indeed, even with the positive trends seen over the past few years, average wage growth, especially for private sector workers, is barely keeping pace with inflation.
With the size of Australia’s labour force — including those in employment or actively seeking work — rising nearly as quickly as employment growth over the past year, boosted by higher immigration and more Australians looking for work due to stronger labour market conditions, it’s meant that little progress has been made on reducing unemployment or underemployment.
This large group of underutilised workers has meant that many businesses have had little difficulty in finding staff, keeping wage growth suppressed despite near-record hiring over the past year.
In order for wage growth to meaningfully increase, more progress has to be made in reducing the pool of underutilised workers.
Many forecasters, including the RBA, believe that Australia’s unemployment rate will need to fall to around 5% in order to deliver an acceleration in wage growth.
Some believe this level, known as the non-accelerating inflation rate of unemployment, or NAIRU, is now significantly below 5%, further murkying the waters as to when wage pressures will build.
Given the degree of uncertainty, especially with still ample supply of available workers, it explains why the RBA is only expecting a slow and modest increase in wage growth in the years ahead.
For those aren’t willing to wait to see what happens, perhaps it’s time to test your market value by looking for work elsewhere.