Posted: 26 Jun. 2019 2 min. read

Australia's labour market: where's the spare capacity?

Weekly Economic Briefing

The RBA cut Australia’s official interest rate to a historic low of 1.25% earlier this month to, in the central bank’s words, “support employment growth and provide greater confidence that inflation will be consistent with the medium term target”. This is despite an extended period of strong employment growth, and unemployment sitting at close to lows not seen for a decade. But spare capacity in labour market is helping to keep wages, and inflation, at bay. So where is this spare capacity?

The Australian economy has added 830,000 jobs in the past three years, but growth in the working age population has kept pace, as has participation (now at a record high). So while demand for workers has risen, so too has the supply.

The type of work Australians are doing is also changing. Increased availability of part-time and flexible working arrangements has been one reason for greater participation of women and older Australians in the workforce. RBA Governor Philip Lowe said last week, “We should not think of part-time jobs as being bad jobs, and full-time jobs as being good jobs”. This is certainly the case where workers choose to work part-time, but for those wanting more hours (those underemployed), this can be problematic.

One group particularly susceptible to underemployment is younger workers (aged 15-24). Indeed, while the overall underemployment rate in the economy sits at 8.5%, it’s more than double that for younger workers (see chart).

Younger Australians make up 15% of our workforce, compared to 17% a decade ago, with much of the decrease attributed to more people accessing full-time tertiary education. But graduates are increasingly finding it difficult to transition from tertiary study to full-time work (with the 2018 Graduate Outcome Survey showing 30% of university graduates failing to secure full-time employment within four months of graduation, and 27% of employed graduates are not using their skills/education). More than twice as many young people working part-time are actually looking for more hours compared to the overall labour force.

Australia Labour Force

High levels of underemployment and part-time work in the youth labour market, particularly for graduates, reflect some disconnect between skills being developed and those required. While industry often cries that graduates are not ‘job ready’, there is also significant potential for businesses to provide more on-the-job training to hone the skills they need and build on foundational education.

Deloitte’s recent publication “The path to prosperity: Why the future of work is human” focuses on Australia’s future skills needs, and what appears to be a bias amongst employers against both those with too little, and those with too much, experience when looking to fill vacancies.

Ultimately, underutilisation of our workforce is a wasted opportunity, and high levels of youth underemployment reflect an untapped resource that Australia needs to better harness as we seek to guarantee our future prosperity.

More about the authors

David Rumbens

David Rumbens

Partner, Deloitte Access Economics

David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis.  David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.

Hirumi Samarakoon

Hirumi Samarakoon

Graduate, Financial Advisory

Hirumi is a graduate in the Macroeconomic Forecasting and Policy team of Deloitte Access Economics. Having completed honours in Econometrics and Economics, her thesis examined key determinants of household mobility such as transaction costs, entrenched unemployment and house prices.