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Australia’s declining unemployment rate may be bad news for its SMEs and India

In May, Australia’s unemployment rate fell as a result of a hiring boom and the country’s shift from a solid recovery to expansion following the COVID-19 pandemic. Additionally, there’s been several legislative amendments to the employment laws in the past couple of months, including an increase in minimum pay, superannuation, and the annual adjustment to the high-income threshold.

From April to May 2021, employment rose by 115,000 people – translating to a 5.1% drop in the unemployment rate, according to the Australian Bureau of Statistics (ABS).

Bjorn Jarvis, head of labour statistics at the ABS, said May was the seventh consecutive monthly fall in the unemployment rate.

“The unemployment rate fell to 5.1%, below the 5.3% mark in March 2020 and back to the level in February 2020. The declining unemployment rate continues to align with the strong increases in job vacancies,” Mr Jarvis said. 

Meanwhile — Australia’s seventh-largest trading partner — India reported its unemployment rate reached the highest level in one year, at 11.9% in May 2021 compared to 7.97% in April. This was due to the catastrophic second wave of the COVID-19 forcing shutdowns across the country, as per the data from the Centre for Monitoring Indian Economy (CMIE).

Skill shortages

While speaking to the WA Chamber of Commerce and Industry, Prime Minister Scott Morrison stated that the Australian economy’s single biggest problem on the road to recovery is the lack of workforce skills.

“Workforce, I believe, is the biggest single challenge facing the Australian economy. You will hear me talk about it until you’re sick of hearing me say it about the importance of building the skills our workforce needs.

“There are many challenges in our economy whether it’s tax, energy, digital transformation, all are vital priorities.

“But if you ask me what the single biggest challenge facing the Australian economy is we want to build and grow for the future and come out of COVID — Workforce, workforce, workforce, workforce,” he said.

The Morrison government released a nationwide anchored assessment of Australia’s labour market study on occupations called the Skills Priority List on June 30. The List provides a current labour market rating as well as a future demand rating for jobs across the country

As per the Skills Priority List, over 150 occupations face current skill shortages across Australia, most commonly for technicians and trades workers occupations, followed by professionals, machinery operators and drivers, and personal service workers.

“The Skills Priority List provides a vital and honest picture of where Australia is at when it comes to skills, and it will be used to help steer our ongoing national leadership in securing Australia’s workforce,” said Stuart Robert, Minister for Employment and Workforce.

SMEs facing pressure 

In a highly competitive talent market, small business owners are having a hard time filling open vacancies. Speaking on the data, Kheang Ly, CEO and Co-Founder of OWNA, said: 

“At OWNA, we have felt the tightening labour market first-hand.

“We don’t get the abundance of resumes submitted anymore like we used to, so that tells us that the availability of people looking for work is not what it used to be.

“With COVID-19 and no skilled migrant workers being allowed into the country like previous years, this has also helped the unemployment rate fall as businesses are forced to look at what is available, even if the skillset might not be there.”

Carl Hartmann is the co-founder of Compono, an HR technology company that helps to hire and retain talent. “While the 5.1% fall in unemployment job figures released last week is good news for the government, Australian businesses are still facing the challenges of skill shortages because of our closed border policy,” Mr Hartmann noted.

“We’ve seen the job market tightening for a few months as the market becomes candidate-driven, and as a result, several trade professions such as tech, retail and hospitality are struggling to source skilled talent needed to grow businesses.

“The government needs to act quickly to create a better plan for reopening the economy so that we can have skilled workers coming in to fill these important roles.

“Businesses also need to be more flexible with assessing matches and open to remote talent pools. A good match isn’t just someone with the right experience; it can also be a candidate with transferable skills applicable to the role.

“Australia is clearly in a good place for recovery, but we can’t become complacent in this progress as many businesses are still feeling the pressure, particularly in the tourism and arts/entertainment sectors.”

With half of Australia’s population under lockdown, as the country battles to contain a spread of the delta COVID-19 strain, the impact on small companies and jobs remains to be seen. “The May ABS unemployment data showed positive signs for the Australian economy, though it is worth noting the timing of the report predates many COVID-19 related lockdowns across the country.” Weh Yeoh, CEO of a social enterprise company Umbo, warned.

“Of course, the devil is all in the details. For many Australians, the number of people in the workforce is less significant than the match between workforce supply and demand.”

While it is widely believed that raising the minimum wage aids in overall economic recovery and reduces public subsidies for low-paid labour, it may also encourage employers to slash low-paying jobs. Consequently, the Fair Work Commission has taken a staggered approach to minimum wage hikes for the second time in a row.

IZA World of Labor author David Neumark said in a report that low-paying jobs requiring low skills are the jobs most likely to decline with increased minimum wages. “Although a minimum wage policy is intended to ensure the most basic standard of living, unintended consequences undermine its effectiveness. 

“A good deal of evidence indicates that the wage gains from minimum wage increases are offset, for some workers, by fewer jobs.

“Furthermore, the evidence on distributional effects, though limited, does not point to favourable outcomes from minimum wage hikes, although some groups may benefit,” he wrote.

The India Factor

The employment scenario in Australia directly impacts Indians, who are now the second-largest migrant population in Australia after the British.

Data from the Australian Bureau of Statistics show that overseas migration from Indian hit a record in 2019 with a net gain of 73,200 people. The impact of COVID-19, however, saw a drop in 2020.

Unsurprisingly, any significant change in the immigration policy directly impacts unemployment numbers in both countries. While Australia’s economy has rebounded successfully in recent months despite restrictions for foreign workers, it’s almost impossible to downplay the role played by the migrant population in filling holes in the country’s economy.

Mr Jim Varghese, the National Chair of the Australia India Business Council, elaborated his concerns about the existing immigration policy on other sectors. “Border closures have also adversely impacted universities’ efforts in international research collaboration and student exchange programmes and contribute to bilateral programs,” Mr Varghese said.

“It will take time for universities to regain the international students even after the borders open.

“Hence Australia needs to look at a different model or identify immediate strategies to attract international students and, importantly, utilise their skills to benefit the Australian economy.

As for its South-Asian partner – India — calls to open up a travel bubble are getting stronger. Quoting the Grattan report on permanent skilled migration after the pandemic, Mr Varghese said he agreed that Australia should “unashamedly” prioritise younger migrants for their earning potential.

“Australia India Business Council (AIBC), as a Premier Industry body engaged in many years in Australia-India trade, understands and appreciates the Federal government’s priority for health in the current COVID 19 scenario and hopes that the reduction of skilled migrants is only temporary.

“AIBC believes that the Government will take a pragmatic approach moving forward.”

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