Reflecting the underlying strength of the Australian economy, the unemployment rate dipped a further 0.1% in October, to reside at 3.4%. With more people in work and labour scarcities the only conversation at business Christmas BBQs, it is little wonder wages lifted 3.1% over the year-ended September, recording the highest growth in almost exactly a decade.
The unemployment rate is at near fifty-year record lows, with its little dip (0.1% in October) delivering a result that would have seemed impossible just two years ago. In October, there were 13.617 million people in work, an increase of 32,200 over the previous month.
Below, we can see the stunning results of the last two years, which is also driven by great stability in the participation rate. It was again steady at 66.5%.
As we learned all too bitterly at times over the last decade, it is possible to have a falling unemployment rate, but to be lumbered with the painful reality that underemployment (people in work but needing more hours) was ultimately a more important measure.
As we can see below, labour market under-utilisation – the number of people unemployed, plus the number seeking additional hours – fell 0.2% in October, to record just 9.3%, having peaked at more than double that less than three years earlier in April 2020.
If we accept a person who has one hour of work is employed (that’s the official definition anyway), we can use hours worked as one measure of health in actual employment levels.
In October, the average number of hours worked per person was 89.56 which was above the historic average of 85.72 and continues the above average trend experienced since February 22. Overall total hours worked were 1.897 billion which was an increase of 43.2 million hours an increase of 2.3% on the prior month. This can be seen in the chart below, which indicates we are fast approaching the all-time average working hours peak. Labour capacity in the economy is stretched, no matter how we look at it.
One suspicion we have is that hours worked could actually be higher if the system of work was better coordinated. There are too many people wasting precious working time shuffling from one job to the next across the day because no one job offers them sufficient work. It might work for the employer who says they only have four hours work available, but when the incumbent needs eight hours work to get by and has to ‘double commute’ to get those hours in two jobs instead of being available to do a little over time, we can see one of the challenges created by the casualisation of the workforce.
Partly as a response to the tightness in the labour market, the September Wage Price Index showed wages finally starting to move. National average wages growth lifted 3.1%, underpinned by private sector wages growing 3.4% over the year-ended September. This was the highest year-on-year percentage change since December 2012 and was fuelled primarily by increases for those on individual arrangements as Greg Jericho’s analysis in The Guardian demonstrated.
However, with inflation running at 7.3%, wages are still falling in real terms, and by quite a margin. As Jericho pointed out – that means average living standards are falling
Overall, it means that while these wage increases are welcome and are not contributing to inflation, they are also not bridging the gap. The concern is for the level of future wage rises and the delicate economy-wide balancing act that has to moderate wages growth and living standards against inflation.
At this stage, the RBA expects inflation to ease during 2023 and return to the target band of 2-3% in 2024. So, the balancing act for policy makers is that wage demands above that range could add to inflation, and therefore extend the current rate tightening cycle. That of course would have implications for housing markets.
