econ

Back in April, this column argued that the labour market has been central to the economic story of the pandemic. Initially, the narrative was about the collapse in hours worked and the unprecedented scale of the policy response. Later, it shifted to an unusually rapid recovery in jobs and falling unemployment. The story is morphing again, as workers, firms and policymakers grapple with an evolving jobs market.

The claim that COVID-19 has triggered a labour market revolution is most compelling for the US, home of the Great Resignation and the Great Retirement. According to US Bureau of Labor Statistics data, in August this year, the US quit rate (the number of workers leaving jobs as a share of total employment) rose to 2.9 per cent, setting a new series record as labour market churn soared.

Partly, that’s because workers are using high US vacancy rates to negotiate pay increases — workers who change jobs tend to get a pay rise and that wage-premium is now particularly high. At the same time, the share of Americans aged 16 and older not in the workforce because of retirement has also increased, rising from 18.5 per cent in the fourth quarter of 2019 to 19.6 per cent in Q3:2021. Research by Fed economists estimates that the share of the population in retirement between February 2020 and April 2021 was roughly 1.5 million higher than it would have been based on pre-pandemic trends. The US labour force participation rate had already been trending lower pre-COVID in line with an ageing population, but the pandemic has seen it fall further, by more than 1.5 percentage points.

By the end of August this year, the number of unfilled jobs (about 10.4 million), significantly exceeded the number of unemployed Americans (about 8.4 million) and the shortage of willing workers had pushed the headline rate of quarterly growth in the US employment cost index in the third quarter of this year up to the fastest pace seen since at least 2001.

Explanations for what Harvard University labour market economist Lawrence Katz has described as a once-in-a-generation “take this job and shove it” moment vary, although the pandemic is central to many of them. Some workers are still struggling with health concerns, for example, while restrictions on international worker flows are disrupting the supply of temporary and seasonal workers. Pandemic- related government policies have allowed households to accrue financial buffers, thanks to government fiscal largesse and QE-propelled increases in asset prices that can fund longer periods of job search or even early retirement. And the pandemic also seems to have triggered changes in worker preferences. Increases in work-from-home and flexible job arrangements have changed workers’ appetites for any return to previous conditions and there are signs that workers in relatively difficult and low-wage jobs are in search of more appealing alternatives, with quit rates particularly high in the retail, travel and leisure and hospitality sectors.

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Local labour pains

In many ways, the Australian labour market experience looks quite different. For a start, the latest numbers depict nothing like the rate of US job churn, with ABS data reporting that the share of employees not expecting to still be with their current employer or business in 12 months was just 9.6 per cent in August, little different from the long-term average of 9.5 per cent. Likewise, the share of those specifically looking to change jobs was also relatively low (at 4.9 per cent) and in line with past experience. The annual ABS measure of job mobility (the share of employed persons who changed jobs over the year) had fallen to a record low of 7.5 per cent as of February this year.

Australia’s participation rate has also held up relatively well. True, Delta-driven lockdowns saw it slide to 64.5 per cent in September, but that was from an historic high of 66.3 per cent in March 2021. Finally, although the numbers are now somewhat dated, wage growth in Australia has remained subdued — the latest Wage Price Index release reported an annual rate of increase of just 1.7 per cent in the June quarter of this year, less than half the 4.2 per cent annual growth in US wages and salaries in the September quarter.

So, there’s little evidence in the data that Australia is experiencing a US-style Great Resignation. Of course, that could change as we emerge from lockdown. And it’s not to say there are no similarities, as Australia’s labour market is experiencing its own pandemic- driven revolution, one of high vacancy rates and skill shortages. Job vacancies here have risen dramatically, standing at 334,000 in August 2021 — 106,000 higher than pre-pandemic — despite the Delta variant’s onset. The share of businesses reporting at least one vacancy was 20 per cent that month, up from just 11 per cent pre-pandemic. And the ratio of vacant jobs to total jobs hit an all-time high in Q2:2021. Consistent with these statistics, 27 per cent of businesses reported difficulties in finding suitable staff according to the ABS June 2021 Business Conditions and Sentiment survey, with 74 per of that group citing a lack of job applicants and 66 per cent a lack of the required skills or qualifications.

Border patrol

Closed borders have played a significant role as lost access to the global labour market has reshaped the employment landscape for businesses and workers. According to the same ABS survey, 32 per cent of businesses reporting difficulties in finding suitable staff cited international border closures as the reason. One rough proxy of the number of short-term non-residents employed in Australia is given by the difference between the number of employed persons reported in the ABS labour account (which includes all employed people, including those not usually resident in Australia) and the number of employed persons reported in the ABS labour force survey (which only captures the resident civilian population). Before COVID-19, the gap between the two measures had exceeded 500,000 persons. By the June quarter of this year, travel restrictions had seen it shrink to around 130,000.

Pre-pandemic data on the share of temporary visa holders in employment shows that while this group accounted for about six per cent of total employment in 2016, that share was more than double in the case of the food and accommodation sector and was also above average for mining, transport and manufacturing. As lockdowns are lifted and international borders gradually reopened, labour market conditions will shift again. And the labour market revolution will roll on.