Unemployment Rate in Australia: Causes and 2023 Outlook

The unemployment rate in Australia is historically low. There are an estimated 480,000 open jobs in Australia at the moment.

This situation is the result of several contributing factors: two years of immigration freeze during COVID, a resultant – and persistent – skills shortage, and worker discontent.

But there are signs this situation will shift in 2023.

So… what’s driving Australia’s historically low unemployment rate? We’re going to explore the job market now that we’re well into the final quarter of calendar 2022.

Unemployment Rate and Immigration

The fall in net migration during the two years of COVID border closures and lockdowns in Australia has contributed to our low unemployment rate. With hundreds of thousands of migrants unable to come to Australia over this period, labour shortages are still being felt in many sectors across the country.

In Australia, migrants play a critical role in supplementing the national supply of labour. This is because:

  • 68% of new migrants to Australia, immediately commence employment upon arrival. They have a median age of 26, and typically stay in the workforce for several decades
  • 69% of migrants hold a tertiary qualification upon arrival here. Another 35% obtain a tertiary qualification after arriving. For migrants arriving on a skilled visa, the tertiary qualification rate is an impressive 86%
  • A higher proportion of recent migrants (70%) are in the workforce than people born in Australia (65%). This is very telling. Recent migrants (76%) are also more likely to be employed full-time than Australian-born residents (68%).

Economic analysis from the Australian Industry Group shed light on the impact of border closures, on Australia’s workforce. When the recession hit in early 2020 – that is, when COVID first landed here – the Australian workforce shrank due to layoffs and lockdowns.

Then, as the economy recovered in late 2021, all these jobs were recreated. At this point, unemployment levels returned to normal. But there was a major issue. With several hundred thousand migrants missing, our labour force couldn’t recover.

What ensued was what the Australian Industry Group call a ‘labour force gap’; the difference between the actual workforce in Australia and the workforce that would be expected based on past trends. This is one of the key reasons for our current labour shortage and low unemployment rate.

worker shortages

Unemployment Rate and Skills

According to a National Skills Commission report, Australia is facing a staggering skills shortage across several sectors and job types. The number of occupations struggling to fill positions has jumped from 153 to 286 throughout 2022. This means, almost one-third of Australian sectors are facing a serious shortfall of workers.

Of the 20 largest employing occupations, more than half face serious labour shortages.

ABC News

Occupations with the greatest shortages include:

  • Technicians
  • Knowledge professionals
  • Machinery operators
  • Labourers
  • Community workers
  • Personal service workers
  • Nurses

And on that last occupation, it’s not only nurses but a broader labour shortage trend among other health professionals, like GPs. The demand for health professionals as a sector, increased by almost 50 percent in 2022. This was the largest increase of any sub-employment group for the period.

The driver? According to the report, COVID. And what did COVID create in this sector, in particular? Burnout. The problem is, with an aging population, the demand for health professionals is only going to increase.

We’ve written more on this topic recently, which you can read here.

Worker Discontent

In this job market, anyone would think it’s an employee’s dream. However, with rising inflation, and ongoing cost of living pressures amidst interest rates that don’t look to be easing soon, Australia’s workers aren’t in a particularly upbeat mindset.

They’re quiet quitting.

They’re not experiencing wage growth. So, their earnings are worth less, every year.

And they are dissatisfied with the world of work. They want flexible, worker-centric opportunities to make their professional lives more rewarding and engaging.

Another factor related to worker discontent is the sickness we’ve experienced in Australia during winter. According to the ABC, some economists have noted that increased staff absences due to COVID illness have pushed the unemployment rate lower.

In this environment, employers tend to hoard labour to keep their business operating, according to JP Morgan economist, Ben Jarman.

“Increased absence from work has made employers even shorter of desired hours of labour supply, such that they have held on to existing staff to an extraordinary degree,” he said.

“Hours lost due to absences has, therefore, been an additional factor pushing the labour market to new levels of tightness through mid-year.

Ben Jarman, JP Morgan Economist

When the unemployment rate is this low (3.5%), it’s easy to think about the power shift towards employees, giving them the upper hand. A situation that would, under normal circumstances, make them happier in their working lives. They’re surely in a position to negotiate better wages, conditions and perks, right?

Yet today’s data indicates quite the opposite. Workers are doing the bare minimum at work (quiet quitting), and many are leaving their vocations to pursue other plans after being brutalised by COVID (we see you, healthcare workers 🥹). Many are just sick of the era of COVID and need change.

So, is worker discontent also linked to our low unemployment rate? Perhaps. Workers aren’t leaving jobs; they’re staying in their roles with little wage growth yet big dissatisfaction. They’re experiencing mortgage and cost-of-living pressures while the global economic outlook is gloomy. These are tough times for many. Hence, I think it’s misguided to disassociate the unemployment rate from the prevailing sentiment of today’s employed.

unemployment rate

Unemployment Rate and the 2023 Outlook

As we edge towards a new year, the unemployment rate is set to rise in 2023, according to KPMG. Their estimations are for unemployment to reach 4.5% next year. Factors such as rising inflation, higher interest rates and wage growth stagnation will result in the loss of an estimated 150,000 jobs by the end of 2023.

Others believe a 1% rise in the unemployment rate next year, is optimistic. According to macrobusiness.com.au, this is because:

  • The Reserve Bank’s aggressive approach to monetary policy
  • The expectation of record immigration to Australia in 2023

On the second point, after the new Labor Government’s recent Jobs & Skills Summit, it was announced the government would embark on the largest immigration program in Australia’s history. With a mission to boost permanent and temporary migration by record numbers, the Albanese government announced measures including:

  • Lifting the permanent non-humanitarian migrant intake by 35,000 to a record high of 195,000
  • Increasing temporary migration levels by:
    • Expanding the ability to work for international students via:
      • Uncapping the number of hours international students can work while studying for another 12 months
      • Extending the length of post-study work visas by two years.
    • Committing to clear the ‘backlog’ of “nearly one million” visas awaiting approval.

Australia’s unemployment rate and skills shortage is set to change in the new year. We only hope the swing towards meeting the market’s skills needs doesn’t move too far in the other direction, where a surplus of talent in the marketplace can’t find work. Remains to be seen.


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