Australia’s once red-hot post-pandemic jobs boom has entered a clear cooling phase, new wage and labor market data from Commonwealth Bank of Australia shows, leaving many workers with nominal pay increases that still fail to keep pace with the rising cost of living. With growing economic uncertainty pushing more employees to stay in their existing roles rather than seek new opportunities, labor economists warn the market will continue loosening through the middle of the decade, with implications for both inflation and Reserve Bank of Australia (RBA) interest rate policy.
One of the key indicators tracked in the bank’s latest analysis is the voluntary quits rate, a closely watched metric that measures the share of workers leaving their jobs on their own accord. That rate has continued a steady decline from its 2022 peak, signaling growing worker caution as job opportunities become less abundant. “Overall, the data supports our broader view that the labour market continues to loosen gradually but remains a little too tight for comfort for the RBA,” explained Commonwealth Bank economist Harry Ottley. Looking ahead, Ottley projected that the gradual softening will continue through 2026, with the national unemployment rate expected to drift higher over the coming years. This slow rebalancing of the labor market is forecast to help bring overall inflation back down to the RBA’s target range over time.
The findings come on the heels of comments from RBA chief economist Sarah Hunter, who earlier this week emphasized that future interest rate moves will depend heavily on household inflation expectations. Hunter noted that if consumers settle into persistent backward-looking inflation expectations, the central bank may need to tolerate a period of slower growth and higher unemployment to pull expectations back to sustainable levels. She tied the current inflation challenge directly to the post-pandemic labor market: after COVID-19 lockdowns lifted, Australia’s unemployment rate dropped to a near-record low of 3.5%, a tightness that contributed to the sharp acceleration in inflation seen over the past few years.
Official labor data shows the unemployment rate has ticked gradually higher over the past three years, reaching 4.4% in May 2024, down slightly from 4.5% in April. April’s reading was the highest unemployment rate recorded in Australia since 2021. Even with this upward trend, Australia’s labor market still outperforms most advanced economies: the Organisation for Economic Co-operation and Development (OECD) reports an average unemployment rate of 4.9% across its member nations, half a percentage point higher than Australia’s current figure.
For Australian households, the biggest ongoing strain is the gap between wage growth and inflation. The Commonwealth Bank data confirms that recent pay increases have fallen below the rate of inflation, effectively eroding household purchasing power even as nominal wages rise. In the three months ending June 2024, quarterly wage growth hit 0.8%, with annual wage growth holding steady at 3.1% – a rate that has not kept up with ongoing inflation, and shows no sign of accelerating to match rising prices.
Despite the current pressures on cash-strapped working households, Ottley pointed to one potential near-term bright spot. The recent 4.75% increase in Australia’s minimum and Award wages is expected to push third-quarter wage growth higher, and the bank is forecasting a 1.0% increase in the Wage Price Index for Q3 2024. An early estimate of this trend will be released in next month’s CBA Wage and Labour Insights report, which will give policymakers and workers a clearer picture of how the labor market is evolving.