Australia’s unemployment rate has risen to an 18-month high of 1.5 percent in November, up by 0.1 percentage points from 3.8 percent in October, according to the Australian Bureau of Statistics (ABS.)
Bjorn Jarvis, ABS head of labour statistics, suggests the labour market is starting to loosen after a prolonged period of stable employment.
“The recent slowdown in hours worked over the past six months continued into November, with the total number of hours worked now around where it had been back in May. However, this follows very strong growth during late 2022 and early 2023,” Mr. Jarvis said.
“The slowing in hours means that overall growth rates in employment and hours worked are now similar over the past 18 months. The narrowing gap between these two growth rates suggests that the labour market is now less tight than it has been.”
The loosening of the labour market coincides with a general slowdown of the Australian economy as a number of consecutive interest rate rises begin to factor into spending decisions by businesses and households.
Amid intensive inflationary pressures realised in recent years, the Reserve Bank of Australia (RBA) has attempted to use monetary policy to cool down the Australian economy. In doing so, it has raised the cash rate from its all-time low of 0.10 percent, where it remained for 17 months, to where it sits now at 4.35 percent, all in the space of 19 months.
Since the RBA announced its first rate rise in May 2022, the unemployment rate hovered between 3.5-3.6 percent before a more rapid recent increase as the lag effect typically associated with interest rate rises started to kick in.
In the last two months specifically, a number of major employers have made significant adjustments to their hiring and firing practices.
Professional services firm Ernst & Young (EY) recently made 232 employees redundant following cuts of 338 and 100 jobs made by contemporaries PricewaterhouseCoopers’ (PwC) and KPMG, respectively.
In banking, Commonwealth Bank has axed over 1,000 staff in the past 12 months as it looks to continue rapidly cutting costs. In September, National Australia Bank (NAB) fired 222 employees, while Westpac has let go of more than 750 since May.
Macquarie Group has followed suit, axing a plethora of back office roles into redundancy in late November.
Business failure
In the smaller end of town, small to medium-sized (SME) businesses are facing troubles of their own, with insolvencies on the rise given both rate increases and a steep downturn in consumer sentiment.CreditorWatch—an Australian credit reporting agency—has warned of a stark rise in business failures and cessations throughout 2024. The bureau’s Business Risk Index—a barometer for commercial insolvencies—indicates insolvencies are likely to increase from 4.18 percent to 5.8 percent by mid-2024.
It’s important to note that interest rate rises particularly affect SMEs rather than large companies or conglomerates, given that the former generally must rely on debt financing. Large publicly listed companies can often issue shares, depending on the state of capital markets.
During COVID-19, business failures dropped to pre-pandemic levels as a result of government stimulus packages and tax relief. In the absence of these measures, many businesses previously at risk will struggle to meet their financial obligations and will thus contribute to rising unemployment.
Immigration
There is also the reality of recent swathes of migration placing upward pressure on demand for employment, given that a key factor in the unemployment increase is a larger pool of Australians looking for work.The labour force participation rate—the percentage of the working-age population either employed or seeking employment—is now at a record high of 67.2 percent, up from 67 percent in October.
Marcel Thieliant from Capital Economics—a London-based economics research firm—has articulated the Australian economy’s current struggle to offer employment opportunities to a large influx of migrants.
“The 80,200 jump in the labour force was the largest since the end of 2021’s Delta lockdowns and over the past three months, the labour force has expanded by 47,000 per month,” Mr. Thieliant said.
“Business surveys point to employment rising by around 20,000-30,000 per month, but that wouldn’t be enough to prevent the labour market from loosening.”
The Albanese government may have come to terms with the contentious practicality of its migration stance, promising on Monday that net migration will fall to pre-pandemic levels by 2024-2025.
