The official unemployment rate in June fell to 3.5%. It’s been almost 50 years – August 1974, to be exact – since it was lowest.
How we got there was thanks to the hiring of more people: 88,400 people compared to 60,600 the previous month.
This reduced total unemployment by 54,300, although the workforce increased by 34,200 to 14,093,000.
90,000 new jobs a month
After the impact on employment in 2021 by the stoppages due to the Delta variant of Covid-19, there would always be a rebound. But the strength is amazing. Since October last year, employment has grown, on average, by more than 90,000 people a month.
We can compare it to what happened during the initial recovery from the start of Covid-19, from May 2020 to January 2021.
This recovery came after a much larger job loss compared to late 2021. This makes the last eight months more impressive. With fewer opportunities to catch up, slower growth could reasonably have been expected.
Climbing job vacancies
Along with a record proportion of the employed population – 64.4% – there is a record proportion of vacancies: 3.4%.
Exceptional growth in labor demand is encouraging people to join (or rejoin) the workforce. The proportion of the population employed or looking for work in June rose to 66.8%.
But also disease record
Compensating for more people who want to work, however, is that more people are out of work sick.
In the first six months of 2022, on average, 5.2% of workers worked fewer hours than usual due to illness. This compares with 3% of the same months from 2017 to 2019.
Some employers are likely to have to hire additional workers to cover the increase in absenteeism rates due to Covid-19 or the flu, increasing demand.
So what about wages?
The puzzle of all this is wage growth. How can we have such low unemployment and yet so little evidence of stronger wage growth?
Even with a record low unemployment and record vacancy rates, in the 12 months to the end of March, wages grew by only 2.4%. This compares with prices (inflation) growing by 5.1%. As a result, real wages fell by 2.7%.
This lack of “market” response is most likely due to Australia’s institutional arrangements for wage setting. These agreements inevitably make a certain delay in wages that respond to demand.
About 35% of employees are in business bargaining agreements, which are renegotiated on average every two to three years. These agreements could include annual wage increases, but based on the labor market as it was when the collective agreement was signed.
About 23% of employees have awards, and their increases are set by the Fair Work Commission once a year.
However, the decision of the Fair Labor Commission last month to raise the wages of the awarded workers to 5.2% shows that wages ultimately reflect labor market conditions. There should also be a higher rate of wage growth for workers covered by collective agreements, as employers adjust their expectations about what they should pay to retain and attract employees.
However, fears that wage increases will spiral out of control, causing a wage-price spiral as in the 1970s, are exaggerated.
Many factors have changed. In the 1970s, Australia had a “bargaining pattern”: if a group of workers achieved a large wage increase, it would apply almost automatically to all other workers. This is no longer the case. In addition, declining union representation, and the rise of technology and globalization, have made it more difficult for workers to negotiate higher wages.