Job vacancies in Australia are at a record level. The Australian Bureau of Statistics’ job vacancy rate, a measure of the proportion of available jobs currently vacant, is now over 2.5% – the highest level since the series began in the late 1970s.
This statistic gives importance to all the anecdotes about the labor shortage in Australia. When employers have difficulty hiring workers, job vacancies remain vacant for longer periods of time and the vacancy rate rises.
A high vacancy rate in normal times would indicate economic trouble. This would be evidence of a major underlying problem in the Australian labor market, such as workers not having the right skills to create new jobs.
But these are not normal times. This record job vacancy rate is largely explained by the impact of COVID-19, rather than indicating a problem with how the labor market is operating.
The pandemic has created a roller-coaster of employment numbers. The shutdowns have brought rapid job losses, which back then almost quickly. Employment in Australia has not grown as rapidly in any 12-month period as it did in the year in May 2021, as the economy recovered from an initial shutdown in 2020.
The high job vacancy rate primarily reflects this fast pace and the difficulty of hiring new workers in a short period of time. Recruitment always lags behind in the creation of new vacancies. With the bounceback from the shutdown, the gap has become clear.
Epidemic-related limits on international migration – especially temporary migrants, such as international students and working holidaymakers – have also contributed to the labor shortage.
In the last census (in 2016), the jobs most dependent on temporary migrants were hospitality (18.3%); Food trade and preparation (20.4%); and cleaning and laundry (19.3%).
As of May 2021 (a year after recovery and before the latest shutdowns in NSW and Victoria), vacancy rates for these occupations were more than double their average for 2019.
Australia’s vacancy rate should drop as the impact of COVID-19 on the labor market ends.
Read more: Local training is the best long-term solution to Australia’s skills shortage – not increased migration
impact on wages
Meanwhile, there is a natural interest in whether the labor shortage will trigger wage increases.
There is some evidence that recent wage growth (as of September quarter 2021) has been strongest in the industries where job vacancy rates have increased the most. Notable examples are professional, scientific and technical services (3.5%), construction (2.6%) and housing and food services (2.6%).
However, it is unlikely that the labor shortage related to COVID is enough to make a lasting difference in wages.
Even now, while shortages exist, much of the recovery in employment is happening without major wage increases. In June 2021, when the unemployment rate fell below 5% for the first time in more than a decade, wage growth was still a modest 0.44% for the quarter.
Read more: Vital Signs: Chill, this week’s news on wages indicates anything but hyperinflation
One reason for the lack of significant wage growth is revealed in the latest labor force figures by the Australian Bureau of Statistics. Most of the changes related to COVID-19 in employment involve workers being laid off during shutdowns and then returning to their old jobs.
For example, during the national shutdown from March to May 2020, more than 60% of workers on job seeker payments retained their jobs. These workers attributed the overall growth in employment from May to September 2020.
For employers, rehiring former employees has removed the need to offer higher salaries to attract new employees.
We have to rely on policy makers for higher wage growth in the long term, with the government and the Reserve Bank working together to bring the unemployment rate down to 4% or less.