Rebalancing the labour market to support productivity
Low labour productivity is bad for the economy, bad for living standards and bad for business. The government understands this and has signalled it will act to address some labour market issues.
The conclusion of the federal government’s economic reform roundtable has left policymakers with a very long to-do list. From the CFO perspective, the focus on the labour market and skills development was an important component of the discussions which merit ongoing attention.
That is because the current dynamics of our labour market are a key component of Australia’s dwindling productivity levels, which are harming our prosperity. Since peaking in March 2022, total labour productivity in Australia has fallen by 5.7%, the equivalent of around $150 billion in foregone annual real GDP.
Low labour productivity is bad for the economy, bad for living standards and bad for business. The government understands this and has signalled it will act to address some labour market issues (while it sidesteps industrial relations) – which will have implications for employers across the C-suite and elsewhere.
Supporting a market-led contribution to employment growth
It was known from the outset that discussions at the roundtable would focus on one of the largest economic elephants in the room: the growing impact of the care economy on labour productivity, jobs, growth and the budget.
The care economy captures activity related to the health and aged care sectors, as well as childcare, education and disability support. Due to our ageing population, and the rapidly growing National Disability Insurance Scheme (NDIS), the care economy is growing at a much faster rate than the broader economy.
However, much of the care economy is underwritten by government spending at a time when many government budgets are in structural deficit. At the roundtable, major reforms to rein in the growth of the NDIS were flagged, with Treasurer Jim Chalmers stating that five of the seven “big intensifying pressures” on the federal budget are in the care economy.
The bottom line for employers is that in the medium term, care economy jobs growth may well slow. In Deloitte Access Economics’ latest Employment Forecasts report, we estimated that total non-market sector employment (which encompasses the care economy) will grow by a still solid 3 per cent in FY26, compared to a turbocharged 4.5 per cent in the prior financial year.
This comes amid nascent signs of a private sector hiring recovery as successive interest rate cuts begin to work through the economy. As a result, employers in the private sector may find it easier to compete against the non-market sector for candidates than they have in years past.
Alternatively, employers in the non-market sector may see an increase in competition for employees. Longer term, government efforts to reduce the impact of the care economy on the budget will likely cause more significant, structural changes to the sector — like the consolidation of small and poorly managed providers across disability and aged care.
This would provide advantages: better organisation of a fragmented workforce which currently sees many employees working across several employers could enhance employee retention and better enable employers to train and upskill staff.
Amp up skills utilisation
Skills development and skills utilisation are key building blocks of productivity. To flick the switch on these drivers, members of the roundtable discussed ways to better recognise and utilise migrant skills and qualifications.
According to recent modelling by Deloitte Access Economics for Settlement Services International, there are more than 621,000 permanent migrants living in Australia who are under-utilised and not working to their full potential.
That’s because almost half of all permanent migrants who migrated to Australia in the last 15 years are working in an occupation that is lower skilled than what they are qualified for: 53 per cent have a higher education degree at bachelor’s level or above, compared to about one-third of the broader Australian working-age population.
We estimate that closing the gap in skills under-utilisation between migrants who are already here and Australian-born workers could add an average of $9 billion to Australia’s GDP each year over the next decade.
This can be accomplished not just by expanding the recognition of international qualifications, but also through providing more support for migrants to help them better understand the Australian labour market and the opportunities to use their skills.
This should involve targeted programs to help improve the English proficiency and Australian business knowledge of migrant professionals, particularly in an occupational context — there is a role for industry networks here.
Often, a lack of knowledge of the Australian business context prevents new migrants from securing an appropriate job in the first place. Needing to choose some job to support themselves and their family, it’s easy to get stuck in a low-skill rut.
There also needs to be targeted support for female migrants, who have much lower labour participation rates than their male counterparts. Often arriving as secondary applicants, many would benefit from support to effectively navigate the Australian labour market.
Supporting these migrants to work at their skill level would unleash a huge productivity boom, primarily across white-collar industries like professional services, education and health.
The economic reform roundtable lasted just three days, but the discussions that occurred there could shape a reform agenda for years to come.
David Rumbens is Partner at Deloitte Access Economics.
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