Welcome to the Spotlight on where we'll look at the broad factors affecting our economy and markets. Here we'll also provide regular opinion pieces as well as links to useful resource material.

Spotlight on the labour market

The resilience of Australia’s labour market was one of the biggest good news stories of 2009 for the Australian economy. The unemployment rate was widely expected to reach much higher levels than it did. In May 2009, the Federal Government in its 2008-09 Budget, forecast the unemployment rate to peak at 8.5% in mid 2010. This was then revised down to a peak of 6.75% in the Mid-Year Economic and Fiscal Outlook released in November 2009.

Currently the unemployment rate stands at 5.7% and has been around this level since May 2009, although this is still up from its low of 3.9% in February 2008.

Employment figures

From February 2008 to November 2009, the number of people employed in Australia increased. Around 130,000 jobs were created over this period, although the number of unemployed also rose by around 212,000. As Australia’s population grows and as young people leave school and other education, Australia needs to create around 20,000 jobs a month just to keep the unemployment rate steady. Over the past 18 months, less jobs were created than the number of people requiring employment, causing a lift in the unemployment rate.

Why did the labour market prove more resilient than forecast?

1. Australia’s economic performance

Australia’s economy was a standout performer over 2009, when compared to international counterparts. The International Monetary Fund has forecast that Australia will be only one of the world’s 33 advanced economies to record positive economic growth in 2009. This places Australia as one of the select few economies globally to record positive growth over 2009 with others on the list including India and China.

Australia’s economic outperformance can be explained by:

• effective government stimulus
• aggressive and pre-emptive cuts to the official cash rate from the Reserve Bank of Australia
• a relatively strong banking system
• population growth
• strong links to Asia
• renewed demand for our natural resources

2. Australia has a flexible labour market

Employers were much more prepared to reduce the hours that their staff worked rather than shedding staff. This helped the unemployment rate stay lower than expected . The chart below shows the fall in hours worked versus the fall in employment.

In the 1990s recession, both hours worked and employment growth fell, leading the unemployment rate higher from 5.7% in August 1989 to 10.9% in December 1993. In the 2009 downturn, employers reduced hours worked, down 3.2% in the 12 months to July 2009 – their lowest point. Federal Treasury has calculated that this reduction in hours worked saved around 250,000 jobs, preventing a much steeper rise in the unemployment rate.

Since August 2009, the number of hours worked has been rising, driven by the improving economy. Over 12 months, the number of hours worked are now roughly flat and indicates the labour market could be on the mend.

Employment growth versus growth in hours worked

Source: ABS. Data to 30 November 2009

3. Switch from full-time to part-time jobs

One other reason for the resilience of the labour market is the switch from full-time jobs to part-time jobs. Since February 2008, 66,000 full time jobs have been lost, while 200,000 part time jobs have been created.  

As the chart below shows, there has been an increasing move over the past two decades towards casual employment in the Australian workforce, as more flexible working conditions have been introduced. The proportion of people employed in part-time work has risen from 15% in 1980 to now stand at 30% in 2009. While employment has been lost and hours worked reduced with the move to part-time jobs, this has helped the economy. More people have maintained employment and an income source than in previous recessions and this has helped consumer spending and mortgage repayments.

Split between full-time and part-time jobs

Where were the jobs lost?

Despite the relative resilience of the labour market and rise in part-time job, some industries performed better than others, while some did experience falls in employment.

In the 12 months to August 2009 (latest available data) the following industries experienced job losses: retail trade (-52,200), manufacturing (-29,100), financial and insurance services (-18,200), rental, hiring and real estate (-16,800), construction (-15,400) and other services (-25,500). If we look at the size of job losses versus total employed in each industry we see that rental, hiring and real estate, mining and other services shed the largest proportion of people employed in each industry.

Some sectors lifted employment over the 12 month period, with healthcare and social assistance adding 115,200 jobs, or 9.5% of its total workforce.  Other sectors such as accommodation and food services, profession, scientific and technical services, and administrative and support services also recorded slight positive gains in employment.

On a state by state basis, NSW was the only state that shed jobs from February 2008 to November 2009. NSW experienced a loss of 10,400 jobs, with the unemployment rate rising from 4.2% to 6.0%.

Other states experienced a rise in the number of jobs but also higher unemployment levels. Although jobs were added, not enough were created to match rising demand for employment given population growth.

Victoria has added 63,500 jobs with the unemployment rate rising from 4.1% to 5.4%. In Queensland, 39,300 jobs have been added, while the unemployment rate has risen steeply from 3.6% to 6.1% due to strong growth in the population. In South Australia, 8,100 jobs were created, but the unemployment rate rose from 4.5% to 5.5%.  In Western Australia 31,700 jobs were added, while the unemployment rate rose from 2.8% to 5.2%. Tasmania shed 400 jobs, with the unemployment rate rising from 5.0% to 5.4%. In the ACT jobs were steady, but the unemployment rate rose to 3.1% from 2.6%, while the Northern Territory added 7,900 jobs, with the unemployment rate actually falling from 4.5% to 3.5% with sampling issues likely influencing these figures.

Outlook for the labour market

Over the past three months the labour market has shown signs of improvement. Job advertisements have risen, skilled vacancies are higher and full-time jobs have risen too. This suggests that the deterioration in the labour market is reaching its worst and the unemployment rate won’t rise much higher.

The important point to remember is that the unemployment rate is a lagging indicator and employers will often increase hours for existing employees before hiring new staff. The unemployment rate will remain elevated for some time. Jobs will need to be created for the unemployed, as well as for new entrants to the labour force given Australia’s strong population growth.