Public sector employment continues to dominate jobs boom

The booming growth in government-aligned jobs continued in the September quarter, underpinning the nation’s bumper employment gains but dragging on productivity growth.

Jim Chalmers has presided over a boom in taxpayer funded positions. Picture: John Gass / NewsWire

The booming growth in government-aligned jobs continued in the September quarter, underpinning the nation’s bumper employment gains but dragging on productivity growth.

Of the approximately 160,100 additional people employed in the September quarter, 146,000, or 91 per cent, found work in the so-called non-market sector, covering education, healthcare and the public service, according to data from the Australian ­Bureau of Statistics. Taxpayers subsidise many of these roles.

The growing share of government-aligned employees in the Australian workforce has been a trend of over the past two decades, when public sector adjacent jobs accounted for approximately 23 per cent of total employment.

However, amid surging public spending for health, aged care, education and the NDIS, taxpayer-funded roles have ballooned in the past two years, climbing to more than 31 per cent of total employment.

Economists and policymakers have decried the recent weakness in Australia’s productivity performance since the pandemic ended, yet much of the decline can be attributed to the public sector where productivity – which is much more difficult to measure than in the private ­sector – has declined.

By contrast, output per hour worked in the private sector has proven more resilient.

AMP chief economist Shane Oliver said that while productivity outcomes in the private sector were invariably higher than in the public sector, that was being exacerbated by elevated government spending, keeping pressure on inflation.

“Weak productivity growth makes it harder to get inflation down and will depress long-term growth in per capita GDP and hence in living standards,” Dr Oliver said.

Responding to the surge in public sector employment, a spokesman for Jim Chalmers spruiked the million jobs created since Labor won office in 2022, and pointed to private sector employment gains which in absolute terms are the highest on record.

“As the economy recovers, we want to see more jobs created in the private sector but we recognise that non-market jobs, like jobs in the care economy, are real jobs and we respect and value them,” he said, adding: “An economy where the jobs market and GDP is entirely propped up by the public sector is not a healthy economy.”

Economists predict another strong reading when fresh job numbers are released next Thursday, with consensus forecasts pointing to a slight increase in the key jobless measure to 4.2 per cent last month, up from 4.1 per cent in October.

But even when the rising proportion of government-aligned jobs eventually eases, Westpac chief economist Luci Ellis warned past experience indicated a bounceback in private sector employment could prove to be slow.

“The Australian economy could therefore be in for a period of even more subdued growth and much weaker employment than has occurred recently,” Dr Ellis said.

“While we expect private investment to become a more prominent driver heading into 2026 – reflecting the need to expand capacity, transition to lower carbon emissions, and adopt new technologies – this may be slow to gain momentum.”