Daily Commentary BY THE CURVE TEAM –

Underemployment Headwinds Continue for Wage Growth

21st of December, 2018

Australia’s economy continue to produce more jobs despite signs of slowing. However the latest data also shows that despite that strength, a substantial lift in wage growth is still someway off.

The Australian jobs market remains relatively strong with another 37,000 jobs being added to the Australian economy in November. Despite the slowdown in growth in the third quarter and some signs of further softness ahead, employers still seem willing to add to their labour force.

Strength in the labour market is also bringing more people back into the workforce. The participation rate was up again in November, rising to 65.7 and is only 0.1% off its highest level on record. As a result, the unemployment rate actually inched higher from 5% to 5.1% over the month.

The key thing that the data is telling us is that there is plenty of slack in the labour force and it isn’t just due to the growing level of participation rate. The underemployment rate rose 0.2% over the month with 8.9% of those employed wanting more work. Also, the growth in aggregate hours worked isn’t keeping pace with the growth rate of new jobs meaning more people are working less hours.

What could be the most telling employment statistic was actually released a week and a half ago. The ABS released a new quarterly experimental estimates series which showed that showed:

“The number of jobs that were filled in Australia increased by 0.3 per cent in the September quarter of 2018, with around half of the increase being secondary jobs.”

By the numbers, of the 39,556 number of jobs that were filled over the quarter, main jobs increased 20,418 and secondary jobs increased 19,138.

What this could demonstrate is households willingness to offset the lack of wage growth by picking up extra work. Equally it could show how much stress households are under and that they will do what it takes to get by.

Ultimately the data continues to suggest there is a significant degree of slack remaining in the labour force and as long as that remains the case, a significant lift in wage growth is unlikely to materialise.

David Flanagan

Director - Interest Rate Markets