Australia's job market: How robust is it really?

Jobs are an important element of the housing market equation. Without a job it’s hard to keep up mortgage payments or apply for a loan and the same can be said when the hours worked are too few. A weaker jobs market will generally translate to less wages growth and less upwards pressure on dwelling values. So it’s encouraging to see Australia’s labour market remains fairly tight, at least from an international standpoint.

The labour market data for October which was released by the Australian Bureau of Statistics last week showed a headline seasonally adjusted unemployment rate of just 5.7% which is unchanged from September after an upwards revision over the month. As some international comparisons, unemployment in the USA is 7.2%, the Euro area is at 12.2%, United Kingdom has an unemployment rate of 7.7%, New Zealand is at 6.2% and Canada is recording unemployment of 6.9%. There are plenty of counties with a lower rate of unemployment than Australia’s (for example, Japan at 4.0%, Germany at 5.2%, China at 4.0%, Switzerland at 3.0%), however Australia’s jobs market is looking OK at face value.

National unemployment rate

Taking a look below the headlines though shows some aspects of the labour market which are softening.

For a start, at a national level there were no full time jobs created over the past 12 months. The total number of jobs created over the twelve months to October 2013 was 89,200 of which there were 59,500 fewer full time jobs and 148,700 more part time jobs. The last time we saw such a divergence in full time versus part time jobs creation was back in 2008.

Annual change in number of full time and part time jobs

At a state level we can get a clearer idea of where the jobs are being created and lost (note that the below data isn’t seasonally adjusted). It’s encouraging to see that Queensland, where the jobs market has been patchy since the onset of the GFC, has recorded the highest level of jobs growth with 53,500 new positions over the past year. That equates to more than half the national total which is a very positive sign for the Queensland economy and housing market. Victoria is showing the second largest number of new jobs at 25,700 followed by Western Australia (18,400) then New South Wales (10,800). There were 13,600 fewer jobs in South Australia and 5,600 fewer jobs in Tasmania.

Number of jobs created over past twelve months

Analysing the data across full time and part time jobs creation gets a bit more interesting. Just to qualify this data before going into the detail, the Australian Bureau of Statitics classifies a part time job as one where the worker has worked for less than 35 hours over the week. So the definition is quite liberal. The downturn in full time jobs creation was caused almost entirely by a reduction of full time jobs in New South Wales where there were 48,700 fewer full time workers over the year. In balance, the level of part time jobs growth was the highest of any capital city, however the reduction in full time employment is disturbing and potentially is another factor why first time buyers are such a small proportion of the NSW housing market.

Queensland, where overall jobs creation has been the strongest over the past year, recorded only 5,100 new full time jobs over the year, or about 9.6% of the total number of new jobs.

Victoria created the most new full time jobs (11,400 over the past year) and shows the best split between full time and part time jobs creation (44% of new jobs were full time and 56% of new jobs were part time).

Annual change in number of jobs, full time versus part time

Part time workers as a proportion of the total number of jobs reached a new record high in October, comprising 30.5% of the jobs pool. Despite the rise in business confidence since the federal election, the labour force data suggests that tough business conditions are causing employers to remain reluctant to make long term employment commitments at the moment.

Proportion of part time workers employ3ed

Another factor that suggests the jobs market isn’t quite as buoyant as what the headline figures would suggest is the participation rate which has been trending lower since November 2010. Participation in the labour force has moved from 66.0% in November 2010 to 64.8% in September and October this year. Clearly we are seeing more eligible members of the labour force ‘opt out’ due to either early retirement (the ageing baby boomer cohort is no doubt fuelling the lower participation rate) or frustration with an inability to secure a job.

Without a lower participation rate the jobless rate would have certainly moved higher. Westpac have suggested that if the participation rate hadn’t slipped lower over the past six months the current rate of unemployment would be 6.5% nationally.

Labour force participation rate

An interesting feature of the declining participation rate is that it is being dragged lower primarily by males, rather than females, leaving the work force.

Participation rate males v females

The official forecast from Treasury is that the national unemployment rate will peak at 6.25% in June next year. If the participation rate continues to fall the official national jobless rate might not reach this high despite what appears to be softer underlying labour market conditions.

It’s worthwhile reminding that unemployment is a lagging indicator; higher unemployment comes after weaker economic conditions. Leading indicators such as dwelling approvals, consumer and business sentiment, share market performance and number of hours worked have shown a much more positive flow over recent months suggesting that labour markets may benefit from these improved business conditions in the future.

Tim Lawless is national research director of RP Data.


Tim Lawless

Tim Lawless

Tim Lawless is national research director of CoreLogic RP Data.

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