Unemployment rate tipped for historic fall below 4pc

The unemployment rate is on track to fall below 4 per cent this year – a mark not achieved since monthly records began in 1978.

Josh Frydenberg says Australia has a ‘historic opportunity to sustain unemployment at levels not seen in half a century’. Picture: Dan Peled

Australia’s unemployment rate is on track to fall below 4 per cent this year – a mark not achieved since monthly records began in 1978 – with the Reserve Bank expected to reveal a faster-than-predicted employment bounce-back in updated economic forecasts this week.

The Australian can reveal the March 29 budget is likely to include rosier employment forecasts, showing a dramatic improvement on Treasury projections the nation would hit an unemployment rate of 4.5 per cent by June and 4.25 per cent by mid-2023.

Amid rising inflation and a sharp fall in unemployment, the RBA board will meet for the first time this year on Tuesday ahead of releasing updated economic forecasts and governor Philip Lowe delivering a major speech in Sydney. The RBA is expected to rethink its interest rate outlook, with economists predicting the record low 0.1 per cent cash rate could rise earlier in the second half of the year.

Analysis by The Australian examining the correlation between the unemployment rate and number of job vacancies shows a significant tightening in the labour market compared with the start of the pandemic.

There are only 1.6 unemployed persons per job ad, which suggests significant demand for labour and indicates the unemployment rate will continue sliding in coming months as jobs are taken up. Before the pandemic, when the rate was 5.1 per cent, there were around 3.1 unemployed persons per job vacancy. If the rate, currently 4.2 per cent, falls below 4 per cent this year, it would be the first time since November 1974. The rate has fallen below 4.2 per cent three times, all before the global financial crisis, since monthly records began in 1978.

Josh Frydenberg said Australia had a “historic opportunity to sustain unemployment at levels not seen in half a century” if labour market scarring, which occurred following recessions in the 1980s and 90s, was avoided.

“With jobs ads close to record highs and unemployment at its lowest rate in 13 years, our labour market is in a strong position despite being hit by the greatest economic shock since the Great Depression,” the Treasurer said.

In November, the Australian Bureau of Statistics reported there were almost 400,000 job vacancies. A key driver of the employment recovery is the record level of female participation at 61.5 per cent.

Mr Frydenberg continued his assault on Labor’s economic credentials ahead of the federal election, due in May, after last week accusing Anthony Albanese of devising “new taxes in secret”.

“Unemployment, underemployment and youth unemployment are all lower today than when Labor left office,” he said.

“With unemployment at a 13-year low of 4.2 per cent compared to 5.7 per cent under Labor, there are now 1.7 million more Australians in work, including 1 million more women, compared to when Labor was in office. But the job is not yet done and there are still challenges presented by the virus, including supply chain pressures, which is why it is important we stick to our economic plan.”

After Mr Albanese this month pledged Labor would prioritise jobs for locals and shift away from Australia’s reliance on overseas workers, the Housing Industry Association and Master Builders Australia are pushing for easier access to skilled migrants in response to workforce shortages.

In its pre-budget submission, the MBA called for the establishment of a Pacific labour scheme for building and construction, and said Australia should gear its migration settings towards reaching a population of 30 million by the end of the decade.

“More investment in skilled migration is needed to ensure that building and construction businesses can fill labour shortages that cannot be met by the domestic workforce,” the submission said. “Over the past two years, shortages of key building trades have exacerbated some of the difficulties … from the pandemic.

“The worst delays and cost spikes have occurred in the market for bricklayers, carpenters, concreters and roofers, with the result that building projects have been completed more slowly and at a much greater cost.”

The HIA, which wants a new short-term visa for skilled construction workers, said a structural shortage of skilled trades workers had impeded the “efficiency of the residential building industry”.

“Over an extended period of time the net increase in the workforce of skilled trades workers has been inadequate to meet growth in demand,” the HIA pre-budget submission said. “This has arisen due to the combined impact of an acceleration in the number of workers leaving trade occupations as they age and an inadequate number of new entrants completing training and entering skilled trade occupations.

“There remains a role for skilled migration.”

Amid concerns a long-term hit to migration levels will impact demand for new homes, the HIA said the cap of 160,000 permanent migrants per year should be removed in tandem with medium- and long-term population growth targets responding to “variations in economic conditions”.

The HIA and MBA said federal government incentives and subsidies programs had helped increase apprenticeships last year by 50 per cent. The HIA urged the government to introduce an apprentice wage subsidy program to assist employers “overcome the productivity deficit and risk of taking on apprentices”, and offset the difference between junior and adult apprentice wages.