CBA: “Labour market tightening…wage growth forthcoming”

By Gareth Aird, head of Australian economics at CBA

Key Points

  • The ABS monthly labour force survey excludes overseas residents in Australia and therefore the survey has not accurately captured the impact of the international border closure on the labour market.
  • The ABS quarterly labour account includes all people who contribute to Australian economic activity irrespective of their residency status.
  • Employment was back to its pre‑COVID level for resident workers in Q1 21. But the total number of people employed was down by 2.1% over the same period.
  • The number of non‑resident workers in Australia has fallen sharply over the past year despite the overall level of employment rising strongly since mid‑2020; many foreign workers have returned home whilst foreign arrivals have dropped to zero.
  • Hours worked in Q1 21 were 2.2% lower than their pre‑COVID high whilst GDP was 0.8% higher over the same period. The implication is that GDP per hour worked has surged.
  • Job vacancies are very high across a range of industries and skill levels. The labour market is tightening very quickly and a lift in wages growth is forthcoming as firms compete for labour.

The number of Australian residents employed in Q1 21 was flat compared with Q1 20 (i.e. Australian resident employment had returned to its pre-COVID high in the March quarter 2021). But the total number of persons employed in Australia in Q1 21 was 2.1% lower over the year.

Australian employment

The number of foreign residents employed in Australia has fallen dramatically over the past year. The number of non-resident workers declined from 521k in Q1 20 to 235k in Q1 21. That number will continue to fall whilst the international border remains closed.

Non-resident workers

Non-resident workers as a share of total workers had been fairly stable at around 4% over the two decades to 2020. But the share of non-resident workers dropped to 1.8% in Q1 21.

Non-resident workers percentage

GDP in Q1 21 was 0.8% above its pre-COVID high (Q4 20).But total hours worked by domestic residents and non-residents was 2.2% lower than its pre-COVID high (Q4 20).

GDP & hours worked

Productivity, as measured by GDP per hour worked in the market sector, has surged over the past few quarters. Productivity growth will slow from here.

Productivity

The number of job vacancies as a share of the number of residents who are unemployed is consistent with an unemployment rate below 5%.

Jobs vacancies have surged across a whole range of industries. Those industries that have a higher concentration of foreign workers, like hospitality, have an incredibly high number of vacancies.

Internet job vacancies

Job vacancies have surged for all skill levels. The labour market will tighten very quickly from here. A lift is wages growth is the inevitable consequence of a tight labour market as firms are forced to pay more to attract workers.

Internet job vacancies across skill levels
Unconventional Economist

Comments

  1. Anders Andersen

    I don’t agree, wage rises will only occur where the position is technical and in short supply. Anywhere with an EA, forget unless the workers are strongly willing to carry out protected industrial action and for most lower paid workers that’s not likely.

    • Hernando Dobski

      Wage rises will not occur ‘cos the government will “open teh gates” to double the number of migrants to make up for the shortfall during the lockdowns.

  2. C'est de la folieMEMBER

    I suspect the effects may be somewhat muted.  Much of the current employment rebound has been underpinned by short term and casual employment fuelled by governments and relating to ‘shovel ready’ projects.  That means that they have the prospect of an end built into them.   It also means that the majority of them a fairly unskilled.

    In areas where there is a real ‘skills shortage’ (professions and trades for starters) or areas where there is a requirement for labour attributes which diminishes the potential pool of applicants (fruit pickers for starters) we may well be able to anticipate real incomes growth.

    But beyond these the combination of short term employment (people keeping an eye out for the next gig) and a continued ability to access a potentially large pool of applicants (many low skills office gigs) is likely to keep incomes subdued.  Another factor which may temper things is the likelihood that vast numbers of these types of positions are now being filled using employment agencies.

  3. Jumping jack flash

    Without some decent movement in CPI first, I wonder where the extra money will come from to pay everyone the higher wages?
    Will it simply be debt? Will they rewrite the rules of business and suddenly promote borrowing money for the payroll as a good idea? I doubt it, at least not yet.

    There are a few options of course without CPI occurring first and a couple of the most obvious ones are automation (being a capital expense), and consolidation (getting rid of swathes of lower-paid employees and replacing them with a few, highly efficient and higher paid employees).

    None of these will result in net wage increases.
    But without actual growth of the pie, how can there be more pie to hand out to everyone?