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Credit: Tim Gouw

SME Index reveals drop in employment, wages

For the first time since its launch in July 2022, the Employment Hero SME Index has recorded a simultaneous decline in both average employment growth and median hourly wages in February 2023. 

According to the latest data from the Index, the average employment growth decreased by -0.1 per cent, while median hourly wages fell by -1.5 per cent between January and February 2023.

While it may be too early to draw definitive conclusions, this data raises concerns about Australia’s current state of small and medium-sized businesses (SMEs). The Employment Hero SME Index draws on a vast dataset of over 140,000 SMEs and 1.4 million employees.

The recent figures are consistent with Australia’s NAB business confidence index, which hit a low in February that has yet to be seen since November 2022. 

Factors such as high inflation and rising borrowing costs have led to a decline in business profitability, causing SMEs to struggle to maintain employment and wage levels.

The latest Employment Hero SME Index data suggests a worrying trend for small and medium-sized enterprises (SMEs) in Australia. In February, most key industries experienced a drop in employment growth, including those that had previously struggled with talent shortages. In addition, SMEs across all states and territories and of all business sizes saw a decline in median hourly rates.

Although all industries saw growth on a year-on-year basis, average employment growth decreased for most month-on-month, except for Healthcare and Community Services, which saw a growth of 0.1 per cent. Among the worst affected industries were Retail, Hospitality and Tourism, which experienced a decline of -0.2 per cent, and Manufacturing, Transport and Logistics; Construction and Trade Services; and Science, Information and Communication Technology, which all decreased by -0.1 per cent. SMEs in Tasmania saw the greatest decline at -0.2 per cent, while those in New South Wales, Queensland, Victoria and West Australia dropped by -0.1 per cent.

Although it is too soon to determine the full extent of the downturn, the data suggests that Australia’s SMEs face significant challenges.

Job losses and pay cuts

The median hourly wage for SME employees in February was $35.43, and it decreased across most industries except for Manufacturing, Transport and Logistics, which remained stable.

The most significant drops occurred in Science, Information and Communication Technology at -2.9 per cent and Healthcare and Community Services at -2.8 per cent. Retail, Hospitality and Tourism and Construction and Trade Services also saw declines at -1.2 per cent and -1.1 per cent, respectively.

SMEs in all states and territories experienced a month-on-month decline in median hourly wages, with the ACT recording the largest drop at -2.5 per cent. This was followed by the Northern Territory at -2.1 per cent, West Australia at -1.9 per cent, and South Australia at -1.7 per cent. Meanwhile, SMEs in Tasmania recorded the smallest decline at -1.0 per cent.

Interestingly, SMEs of all sizes experienced a drop in median hourly wages, but larger enterprises with 200+ employees saw the biggest decrease at -1.9 per cent, followed by medium enterprises with 20-199 employees at -1.7 per cent. Smaller enterprises, on the other hand, saw the least decline at -0.8 per cent.

Ben Thompson, Co-founder and CEO of Employment Hero, said: “The latest data from the Employment Hero SME Index is in line with Australia’s NAB business confidence index, which indicates the start of a downward shift. However, it’s important to keep an eye on these trends over the coming months to avoid prematurely claiming the beginning of a downturn.

“SMEs across various industries saw a decline in employment growth and median hourly wages, with larger enterprises experiencing the biggest decrease. While all industries saw growth year-on-year, median hourly wages dropped almost across the board.”

Mr Thompson continued: “The median hourly wage rate remained stagnant in November and December, increased in January, and now we’ve seen a drop in February. This regression means we have returned to the same levels seen in 2022, or slightly below. The decline in wages could be due to a decrease in consumer demand, resulting in fewer work hours and reduced overtime and penalty rates.

“Retail, Hospitality, and Tourism SMEs experienced the biggest decline in employee numbers at -0.2 per cent. This could be a result of weaker consumer spending, which is in line with the Westpac-Melbourne Institute Index of Consumer Sentiment for Australia. Only the Healthcare and Community Services sector grew in employees and it’ll continue to be recession-proof due to our ageing population,” he said.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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