Strong employment growth, high participation and narrowing gender gaps show Australia’s labour market remains in good health, despite signs of a broader economic slowdown, argues Stephen Koukoulas.
Australia’s labour market is in good health. This does not mean it is perfect. Far from it.
But considering that perfection in the labour market is as unrealistic and unattainable as a perfect book or movie, the big picture for jobs, wages, participation, hours worked, gender equality, unemployment and job vacancies – the labour market, in other words – stacks up well.
It should go without saying, but economic management should always be focused on the labour market.
What good is a strong economy if there are a million people unemployed? Or if half of those with a job are not getting pay rises that are keeping up with inflation?
Or if women cannot get the same access as men to job opportunities in the paid workforce?
The data tells the story
The facts are that employment growth is rapid, wages growth is solid, the participation rate is high and rising, the gender employment and pay gaps are narrowing and the unemployment rate, while inching higher, remains very low on any historical measure.
The number of people employed rose by 76,300 in June and by 252,000 in the year to June. On any benchmark, these are strong numbers and confirm that, despite the economic slowdown that is unfolding, employment opportunities remain strong.
According to the wage price index, annual wages growth was 3.3 per cent in the March quarter, locking in a growth rate of 3.25 to 3.5 per cent for every quarter since September 2024. The good news is that this pace of wage increase is sustainable and consistent with the RBA’s inflation target.
What about real wage growth?
Currently, wages growth is marginally below the annual inflation rate (the trimmed mean inflation rate is 3.6 per cent) which is leading to cost-of-living pressures for many households. That said, the current inflation rate will likely prove to be transitory. Both Treasury and the RBA have forecast inflation to fall to the target over the next year or so, at which point real wages will be rising again.
The unemployment rate was 4.4 per cent in June. While it has been inching higher over the past two years from what was a 50-year low of 3.4 per cent in 2022, it remains historically low. Furthermore, it is at a level that a broad consensus of economists judge to be consistent with “full employment”. We have full employment, according to the RBA, when there are as many people in jobs as possible, while inflation remains low and stable.
Over the course of the next economic cycle or two, if the labour market remains in a position where it is operating at or near full employment (which it should), it will further solidify the health of the labour market.
Mind the gender gap
In terms of gender balance in the labour force, the trends remain overwhelmingly favourable. This is important for social as well as economic reasons.
In the late 1970s, the female participation rate was around 43.5 per cent, which stood in contrast to the male participation rate of around 79 per cent. The gap was a huge 35.5 percentage points.
Fast forward to now and the female participation rate has risen to around 63 per cent, while the male rate has eased to around 70.5 per cent, meaning that the gap is just 7.5 percentage points. This is a remarkable development and shows a substantial positive structural change in the labour market. As educational opportunities for women increased, so have wages in female-dominated sectors, alongside greater access to childcare over time.
In terms of the gender pay gap, the Workplace Gender Equality Agency calculates that the difference between male and female full-time adult average weekly earnings has narrowed from 18.7 per cent in 2015 to 11.5 per cent. Again, this is favourable news and in concert with the rise in the female participation rate, it supports productivity as the labour force and proportion of the population in paid employment increases.
Will the jobs market hold?
While the slowing economy will likely see the labour market experience a cyclical weakening over the remainder of 2026 and into the first half of 2027, structural improvements, workplace flexibility and higher skill levels all mean the Australian labour force is set to remain robust over the long run.
This will be critically important not only for the individuals involved, but for government finances. As our ageing population retires, this puts pressure on the budget and other areas of the economy. Full employment, a high and rising participation rate and moderate but sustainable increases in real wages will yield economic and social benefits.
This is why the funding of skills, education and training is important, as is establishing a tax system and welfare payment rules that encourage paid work. It is also a key reason why policymakers must take account of how their policy actions impact the labour market, including at the RBA, which has full employment as part of its mandate.
Australia’s labour market will soften as economic growth slows. But the evidence suggests it enters that period from a position of considerable strength.
Stephen Koukoulas is Managing Director of Market Economics. He has 30 years’ experience as an economist in government, banking, financial markets and policy formulation. Stephen was senior economic advisor to prime minister Julia Gillard, has worked in the Commonwealth Treasury and was the global head of economic research and strategy for TD Securities in London.
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