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Unemployment is at historic lows, but job market conditions aren’t as strong as they seem

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Startup founder Mark Allen was desperate to find staff to expand his property technology firm Patch.

“It was very difficult. We just couldn’t find staff,” he said.

But one small change to his job ads “overwhelmed” him with applications.

“We changed the applications to be 100 per cent remote jobs,” he said.

“Workers are asking whether waking up at 6am to head to the office is worth it.”

Patch’s Mark Allen. Photo: supplied.

Mr Allen’s experience highlights the changes businesses are having to make to adapt to Australia’s tightest jobs market in more than a decade.

Unemployment fell to a 14-year low on Thursday as the economy continues to rebound from the pandemic, the Australian Bureau of Statistics said.

Economists say workers haven’t been in a stronger position to demand higher wages and better job conditions in a long time.

“This may quickly become the tightest labour market Australia has experienced in several generations,” Indeed APAC economist Callam Pickering said.

But beneath the headlines and business anecdotes lies a more complicated picture.

About 76,000 more people are receiving JobSeeker payments today than before the pandemic, with about 1.5 million Australians still classified as either unemployed or underemployed.

And economy-wide wages growth is still stagnant, running far behind inflation heading into 2022 as many households navigate a squeeze on their purchasing power.

Generational high for jobs market

The ABS’s estimate of unemployment fell to 4.01 per cent on Thursday, the lowest level since August 2008.

An estimated 122,000 people found full-time work in February while 44,500 people lost part-time jobs – delivering a net increase in employment of 77,400.

Looking at those figures, economists struggled to find any weaknesses in the jobs market.

“It was hard to imagine a more positive set of numbers than what we saw in today’s labour force release,” said EY senior economist Johnathan McMenamin.

Amid widespread reports that businesses are struggling to find staff as the economy reopens, bosses told The New Daily they are at their wits ends trying to expand.

“You put a job ad out and you get nothing,” said Queensland solar and lighting owner Daniel Jarrett.

Mr Jarrett has been trying to find door-to-door salespeople for his solar panel business, but said the dearth of migrant workers and backpackers during COVID-19 has left him with few options.

“I’ve tried for two years – there’s just no backpackers here to do the work,” he said.

His struggle to find international workers after two years of closed borders is an unsurprising one.

But it does show that today’s historically low unemployment rate is, in some respects, a result of government pandemic policy rather than economic growth.

Independent economist Saul Eslake estimates that the labour force comprises about 310,000 fewer people than it would have if borders remained open and growth continued at its pre-COVID rate.

This means the denominator used to calculate unemployment is lower.

“Those looking for work have faced far less competition from migrants since 2020,” Mr Eslake said.

But now that borders are reopening, bosses hope the labour pool will expand again, something economists expect to put upwards pressure on the unemployment rate over the next year.

Though that’s not necessarily a bad thing.

A lack of available workers has stopped firms from cashing in on higher consumer spending after lockdowns ended, holding back further investment.

As RBA governor Philip Lowe has repeatedly said, migration is good for Australia’s economy.

Worker struggles highlight wage woes

Despite the rosy picture painted by many economists and businesses, data suggests many workers are still finding it difficult to secure enough well-paid work.

According to figures from Services Australia, about 76,000 more workers are receiving JobSeeker payments today than before the pandemic.

Eligibility for these payments is restricted to those who are either not in work or not earning enough from their jobs, so the fact that the figure is higher than before the pandemic is a worrying sign.

However, it also reflects some curiosities in the way in which unemployment is determined by the ABS.

Workers are only classified as unemployed if the ABS finds they work less than one hour a week, or are both willing and able to start work if they don’t have a job already.

By contrast, about a quarter of people on JobSeeker payments are employed, but receive too little income to be excluded from government support.

It shows many workers aren’t making enough or working as many hours as they might like.

The underemployment rate is sitting higher than unemployment at 6.7 per cent in February, and although this is lower than pre-COVID, it shows there are still plenty of people who would like to work more hours.

In total, about 1.5 million Australians are still unemployed or underemployed, a measure known to economists as “underutilisation”.

It’s a crucial statistic, and not just for Australians doing it tough after lockdowns.

It also helps explain why there’s still a missing piece in the puzzle of Australia’s remarkable COVID rebound – faster wages growth.

Economists expect wages to pick up in 2022 as tightness in the jobs market forces bosses to offer higher pay to attract more workers.

But because there are more underemployed workers these days than a couple of decades ago, the headline unemployment rate may need to fall below 4 per cent to start generating significant wage rises.

And as Dr Lowe has previously noted, some business owners – such as Mr Allen – are looking at other perks such as remote working to lure staff rather than offering higher pay.

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