Labour Market Balance Report

To help job seekers and hirers understand broadly where the labour market stands, this report brings together various indicators and discusses how they have evolved since the onset of COVID-19. We have also brought these indicators together into a single summary indicator, to give a sense of where the labour market stands in a quick glance.

A tight labour market means that it is easier for job seekers to find work but harder for hirers to find suitable candidates. In contrast, a loose labour market means that there is more competition amongst job seekers for fewer roles, but this can make it easier for hirers to find the right candidate.

According to most indicators the labour market has loosened since late 2022 but remains tighter than it was prior to the onset of COVID-19 in 2019. So, there are still jobs out there for those searching but they are not as plentiful as they were. It is taking 10 weeks longer for the average job seeker to find a job and there is more competition for roles. From a hirer perspective, this means that there are now more potential candidates to choose from and roles should be easier to fill than in 2022.

Our summary measure suggests that the labour market after loosening since 2022 has tightened since late 2023 and is now broadly balanced.

Source: ABS, SEEK, Treasury, DSS, JSA

While demand for workers has eased since its peak, it has not eased across all roles to the same extent, despite a slower economy. Job ads for healthcare & medical, community service & development, and manufacturing, transport & logistics remain elevated. In contrast ads for some higher paying jobs, such as those in information & communication technology and banking & finance have fallen below their pre-COVID levels.

Going forward, SEEK will be monitoring these indicators and our summary measure to understand current conditions and to assess whether the market is continuing to loosen slowly as most economists expect. Of course, labour market conditions vary across Australia, something that we intend to explore in future insights.

Combining different indicators into a single summary measure is useful to get a quick gauge of what they are telling us.[1] Dips in the resulting balance measure represent a loosening while increases represent a tightening. When the labour market is particularly loose, like the 1980s and 1990s recessions, the early 2000 labour market downturn, the Global Financial Crisis and during COVID, the balance indicator drops quickly. 

In 2019, prior to the onset of COVID, the balance indicator suggests that the labour market was sitting slightly on the loose side of balanced.

Source: ABS, SEEK, Treasury,DSS, JSA

Although it is generally slow moving, the balance can switch quickly. For example, it swung from very loose to very tight following the reopening of the Australian economy after stay-at-home orders ended in 2020 and has been broadly loosening since then.

Over the second half of 2023, the balance indicator dipped to suggest a notable loosening. This loosening is reflected in almost all the indicators, with all the underutilisation measures increasing, the part-time share of employment increasing, average hours worked declining, job ads declining, and applications per ad increasing.

In 2024, we have seen the labour market tighten to become broadly balanced. Unlike late last year when almost all the indicators were worsening, we have seen some indicators improve this year. For example, the employment-to-population ratio has ticked up, average hours worked have increased from their lows, and the underemployment rate has declined a little. The unemployment rate is also little changed from its level at the beginning of the year.

Looking forward, the balance indicator  shows that we should only expect the unemployment rate to change slowly with the conditions currently broadly balanced.

Assessing how tight the national labour market is, is not straightforward. There are several measures to consider and more than one way to define tight. One way to assess tightness is to look at how much ‘spare capacity’ there is to meet the demand for labour.

The spare capacity lens naturally leads to assessing tightness through measures that focus on how many people are available to work and searching for work, such as the unemployment rate, and measures that look at how many people would like to work more hours, such as the underemployment rate. These supply measures can be looked at in terms of the number of available hours in addition to the number of available people.

Another way to think about tightness is to look at how much labour is currently being used. The employment-to-population ratio is a key ratio telling us the share of the population that is currently working. The employment-to-population ratio is currently at a record level of 64.4%, above the 62.3% we saw  on average in 2007 before the GFC and again in 2019 before the onset of COVID, suggesting a tight labour market. Employment generally grows over time alongside population growth, so it is important to control for the size of the population when assessing tightness. The participation rate is like the employment-to-population ratio but includes people looking for work in addition to employed people.

Movements in the demand for labour can also tell us about how tight conditions are. SEEK job ad volumes are one such indicator of demand and are timelier and more frequent than most other indicators of demand. Ad volumes tend to increase in a tighter market because more businesses are looking for workers and it takes longer to find suitable candidates. The number of unemployed per job vacancy or applications per ad on SEEK are possibly better indicators of the relative tightness than the vacancy rate or job ads alone, as they give a sense of the ability for supply to meet demand.

For individual businesses, a tight market is likely to be reflected in longer recruitment times or in greater difficulty recruiting. Businesses might also consider that finding suitable workers is preventing them from increasing their output, so when conditions are tight, more businesses will report that labour is a constraint.

Wages also tend to grow faster when the market is tight because businesses have to offer higher wages to attract the best candidates, so the growth of wages and labour costs can also be used to gauge relative tightness. However, wages can take time to reflect an imbalance in the market because of the nature of wage setting in Australia. SEEK’s monthly Advertised Salary Index reflects new wage offers and so movements in the index are more reflective of, and responsive to, current conditions than other available wage measures.

Many measures only allow us to think about current conditions relative to history. To understand if the market is tight now, we need a benchmark to compare to. The RBA, which is tasked with keeping inflation between 2 and 3% and the labour market at ‘full employment’, thinks the labour market is tight when employment is above ‘full employment’ or the unemployment rate its below its ‘full employment’ equivalent. Full employment is the maximum level of employment consistent with inflation being within the RBA’s target 2-3% band. They use several models to assess the amount of spare capacity in the economy, but they are all broadly based on the relationship between inflation and the unemployment or underutilisation rate overtime, in terms of either number of people unemployed or the number of hours available.[2] Their current assessment is that the labour market is on the tight side, with unemployment below its full employment level.

Most indicators suggest the labour market is looser now than it was on average in 2023 but tighter than five years ago. Although, some of the measures, which tend to be more leading, suggest it is looser now than it was in 2019. If the Australian economy is operating at its full potential, the labour market should be a little tighter than it was in 2019, when the Reserve Bank of Australia (RBA) was cutting the cash rate to encourage faster economic growth, and the labour market was not tight.[3]

While the labour market was slightly loose in 2019 on average, it is a natural comparison point to use for assessing where we sit today, as it was the last year before we experienced the massive disruptions caused by COVID and the economy was relatively stable.

Variables normalised around the 2019 mean. The Job Seeker data also includes Youth Allowance for job seekers with no earnings. 

The full report continues with a discussion of the evolution of the labour market post-COVID - indicator by indicator.

NOTES [1] The balance indicator is the first estimated factor from a dynamic factor model based on the ifferent indicators of tightness.

[2] Broadly speaking, in these models higher average inflation for a given unemployment or nderutilisation rate will increase the full employment estimate, what the RBA refer to as the non-accelerating inflation rate of unemployment (NAIRU) or non-accelerating inflation rate of labour nderutilisation (NAIRLU). So, in an inflation-based model if an international supply shock increases the level of inflation for a prolonged period but wages and the Australian unemployment rate are nchanged, then the model’s NAIRU/NAIRLU estimate increases unless the models explicitly control for the supply shock. Similarly, in a wages-based model, if wages growth accelerates due to a government policy rather than the in response to underlying conditions then the model’s AIRU/NAIRLU estimate increases.

[3] The weak employment and inflation outcomes in the years pre-COVID were highlighted in the ustralian Government’s Review of the Reserve Bank of Australia (2023).