The arrival of Covid-19 and associated restrictions have made it difficult to interpret what is really going on in the labour market. The measures we typically use to build up a picture have been tainted in various ways.
Take the unemployment figures. The accepted definition of unemployment is based on someone being out of work but available and looking for employment. But the pandemic made this definition much less workable.
There were people who were out of work but were locked out of work. There was no point in looking for work because none was available. Consistent with this situation, the Australian Bureau of Statistics did not count those who were receiving JobKeeper payments as unemployed.
No one believes the unemployment rate really went from 5.1 per cent in February last year to 7.4 per cent in July, only to decline to 4.5 per cent in August this year. (The latest reading is 5.2 per cent, pretty much where we started before Covid.)
The pandemic also did curious things to the participation rate, with large numbers of people seemingly dropping out of the labour force, only to reappear relatively quickly.
In February last year the participation rate was 65.9 per cent (close to a historic high). In May last year the rate was 62.6 per cent, which corresponded to about 650,000 people apparently dropping out of the labour market. By October this year the participation rate had recovered to 64.7 per cent. Earlier in the year, the participation had exceeded 66 per cent, a rate greater than had been recorded going into the pandemic. (The recent monthly variations have been affected by state lockdowns, particularly those in NSW and Victoria.)
On the face of it, the rebound in the participation rate is looking much stronger than in several other economies, in particular in the US. There, the participation rate fell by close to two percentage points from its pre-pandemic rate.
It has been slow to recover even as the economy recovers and the labour market tightens. The financial cushioning many individuals received as a result of the pandemic has dulled the (short-term) incentives to return to work.
There are interesting questions about the labour market at the moment, including:
• Will we experience relatively more workers quitting their jobs, a phenomenon that is apparent in the US?
• What will happen to wages given the evidence about worker shortages in several sectors?
• What will happen in the event of net overseas arrivals returning to pre-pandemic levels?
• Are there any burning industrial relations issues any more?
American academic Anthony Klotz has coined the term “the Great Resignation” to describe the trend in the US of many more workers than normal quitting their jobs. The monthly quit rates in the US had averaged about 2.4 per cent in 2019 but recently have hit close to 3 per cent.
Bear in mind, however, that the tick-up in the rates of resignation has not been even across sectors. Resignation rates have risen particularly in leisure and hospitality but have been stable in finance, information technology and government.
University of Melbourne professors Mark Wooden and Peter Gahan have asked whether Australia will follow suit with our own version of the Great Resignation.
It’s important to note here that resignation rates had been declining for many years before the pandemic and the average duration of jobs had been rising. This stickiness in the labour market is seen as one of the factors driving low wage growth.
Wooden and Gahan conclude “if job opportunities improve as the economy opens and competition for workers increases, quit rates should increase as more workers seek to move to jobs providing better wages and opportunities. But there would be nothing unusual or undesirable about this.”
Wage growth is an important issue for many players – workers, employers and policymakers, including at the Reserve Bank. Wage growth had been sluggish for quite some time before the pandemic, with annual wage growth dipping below 3 per cent from 2013. Covid and associated early restrictions resulted in even lower growth but recent figures point to an uptick in wage growth.
There is plenty of anecdotal evidence around of employers finding it hard to secure suitable workers – certainly at the price they want to pay. There are the obvious sectors such as agriculture, hospitality and construction in which workers are hard to recruit. But there are also unfilled vacancies across professional services (including lawyers, accountants and IT specialists), retailing and transport.
Whether the depth and pervasiveness of these shortages are sufficient to shift the dial on overall wage growth is unclear, although it looks fairly certain that annual wage increases should have a three (at least) in front of it next year. The outcome partly will depend on how quickly migrants return and which types of migrants.
Before the pandemic, net overseas migration (long-term arrivals minus long-term departures) had been averaging 240,000 a year, contributing more than 60 per cent to population growth and adding significantly to labour force numbers. International students typically are employed in hospitality and retailing whereas skilled migrants are concentrated in areas requiring university or trade credentials.
It’s hardly surprising that business lobby groups have been making the case loudly for the migrant intake to resume as soon as possible and at pre-pandemic levels at least. It looks likely the government will accommodate these demands not least because of the sugar hit to gross domestic product as well as easing some acute labour market shortages.
The downside is this decision easily could dampen future wage growth, something that matters a great deal to most workers, particularly given the threat that interest rates could rise and the extent of household indebtedness.
When it comes to industrial relations, it’s just not the issue it once was – apart from a small number of sectors such as the waterfront and parts of construction.
Enterprise bargaining has entered a death spiral. There are now only 10,000 agreements covering 1.8 million workers (there are close to 13 million in the workforce in total). In 2010, there were 25,000 agreements covering 2.6 million workers. It’s a non-issue for most private sector employers who use the awards and individual arrangements to remunerate their workers.
It will be well into next year before the noise in the labour market figures begins to fade.
But there are plenty of interesting developments to watch for in the meantime.
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