By Shane Wright
The Reserve Bank expects the jobs market to slow with people working fewer hours rather than enduring a spike in unemployment.
The bank’s assistant governor for the economy, Sarah Hunter, said on Wednesday morning that while there were signs the jobs market was loosening it was still tight enough to be above the level considered by the RBA to be consistent with “full employment”.
Senior RBA assistant governor Sarah Hunter says the jobs market is slowing but without a spike in unemployment.Credit: The Sydney Morning Herald
In economics, full employment is the point at which the jobs market is consistent with “low and stable inflation”.
It is usually measured as a level of unemployment. Australia’s unemployment rate has drifted up from 3.5 per cent in June last year to 4.2 per cent in July this year, while the number of job vacancies has fallen by almost 18 per cent over the same period.
However, the participation rate – the proportion of people either in work or looking for it - has continued to climb and is at a record high of 67.1 per cent.
Hunter said the strong participation rate, limited changes in underemployment and the average hours worked by Australians had surprised the RBA.
But she said the jobs market was still likely to become less tight over coming months.
“We expect the demand for labour to grow at a slower pace relative to the supply of labour in the coming quarters, gradually bringing the labour market into better balance,” she told the Barrenjoey economic forum in Sydney.
“Our view is that some of this slowing in labour demand is likely to occur via a decline in average hours.”
Hunter said the bank believed job vacancies could continue to fall alongside a “relatively modest” increase in unemployment.
She said another factor was the current behaviour of employers who may be hoarding staff and reducing their hours rather than laying them off.
This may reflect the flexibility across the entire jobs market.
“This has allowed firms to contain labour costs while retaining employees, and avoid the costs associated with layoffs and rehiring,” she said.
“It has also meant fewer layoffs and smaller increases in the unemployment rate, which has kept more workers in jobs.
“If it turns out that more firms are currently hoarding labour, then we may expect to see a larger pick-up in the unemployment rate as firms reduce headcount to cut costs given the backdrop of weak growth in demand.”
Hunter said another sign the jobs market was easing was in wage growth which appeared to have peaked late last year.
Hunter said employment growth over recent years had been “uneven” with the health, education and public administration sectors experiencing the strongest improvement.
She said it appeared that in health, a significant number of those taking up jobs had either been unemployed or not in the job market. Some had also been pulled in from other industries.
The Reserve Bank has forecast unemployment to reach 4.4 per cent by the middle of next year.
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