Australia: Underemployment revealing labour market slack - Westpac

Analysts at Westpac explain that employment is growing as far as Australia economy is concerned, yet underemployment is trending higher and there is limited pressure on wages.

Key Quotes

“Of late we have seen a material strengthening in employment growth in Australia, from 0.9%yr in February to 2.0%yr in June. The unemployment rate has fallen to 5.6%.”

“Yet underemployment has continued to trend higher, signalling a much greater degree of labour market slack than the unemployment rate implies.”

“The data available for wages is more consistent with underemployment rather than unemployment. Indeed, aggregate wages growth is weaker than even underemployment would suggest.”

“While perhaps unsurprising in a state like WA or even Qld, this phenomenon is also being seen in the states which have experienced the strongest activity and employment growth, Victoria and NSW. This implies that the weakness in wages is entrenched and will be difficult to remedy.”

“Above trend growth in the economy and sustained robust job creation is necessary to produce a material improvement in wages growth. This is not an expectation that we hold.”