A critical shortage in the labour market

Posted by Gavin Chau

Anyone running a business would know how hard it is to find workers at the moment. Dan Murphy’s is offering on-the-spot job interviews to anyone that expresses an interest to a team member in any store between now and September 11. Other companies are offering substantial sign-on bonuses such as $10,000 for truck and excavator operators for Thiess (on top of a $142,000 income), $6000 to join Volkswagen as a mechanic in Sydney, $5000 to join a plumbing business in Newcastle, and $5000 to become a nurse unit manager in Western Australia.

The unemployment rate is at 3.4% and still trending downwards. This is a 48-year low with around one job vacancy for every unemployed person. Obviously, the only reason it isn’t at zero is there is a mismatch between skills and jobs. Full employment is usually considered an unemployment rate of between 4-4.5%.

Like anything, when supply is lower than demand, the demand curve moves to the right, and prices rise, so it’s no surprise that wage increases are already happening. In the June quarter, wages grew by 0.7% in the private sector and 0.6% in the public sector; if bonuses are included, then wages grew by 0.8%. Wages are likely to continue to grow over the remainder of 2022. However, we expect them to ease slightly in 2023 as the effect of successive interest rate rises ripple through the economy.

Most of the wage pressure has been driven by a Covid-related decline in immigration. Not surprisingly, Melbourne has the lowest unemployment rate in the country due to its relatively higher reliance on skilled migrants. While real wage growth is still down by 3.5% for the year when adjusted for inflation, seeing wages growing faster than asset prices is a healthy sign. The slower property price appreciation and the relatively higher growth in gross rents is a good way to rebalance the housing market, which has suffered from yield compression for decades.

The re-opening of international borders should begin to alleviate some of the wage inflation pressure and address some of the skills shortages. However, employment-related migration levels have had a slower start than anticipated. The Albanese government has pledged to increase the permanent skilled migration intake by 20%, from 160,000 to 195,000. A side effect of this is that it will add to the already strained rental market.

In short, while the property market remains soft with the recent interest rate rises, we’re seeing strong increases in both rents and wages nationally, setting up the conditions for the next impulsive wave up in property prices.

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Posted by Gavin Chau, on 6th Sep 2022