Australia’s job market might be showing signs of slowing down, but it’s not falling off a cliff just yet. According to the Reserve Bank of Australia (RBA), the labour market is likely to remain tight over the next few years, despite higher unemployment rates and a gradual cooling in wage growth. As the RBA works to bring inflation under control without triggering a sharp rise in joblessness, the outlook for workers and employers is a bit of a mixed bag.
The Forecast: Unemployment Rises Slowly, Wage Growth Eases
The RBA has projected that while unemployment will increase slightly, it will still remain relatively low compared to historical standards. Currently sitting at 4.2%, the unemployment rate is expected to creep up to 4.6% by mid-2028. This means that while the job market will experience some softness, the RBA is betting on a gradual shift rather than a sudden shock to the system. For workers, that likely means continued job security but potentially more competition as hiring slows down.
Meanwhile, wage growth, which has been on a steady rise, is expected to cool off in the coming years. The Wage Price Index (WPI) showed an annual growth of 3.4% in the December quarter, but the RBA expects that to ease to around 3% by 2028. This is a sign that wage pressures are starting to subside, likely due to slower economic growth, as the central bank continues to raise interest rates to tame inflation. In other words, workers can expect more modest pay increases going forward, even though the job market is still fairly strong.
The RBA’s Tightrope Walk: Inflation vs. Employment
So, how does the RBA plan to balance this delicate act? By using higher interest rates to slow down demand just enough to get inflation back to its 2-3% target without causing mass unemployment. In theory, this should lead to a slowdown in labour demand, but it won’t be drastic enough to trigger a huge surge in job losses. However, this approach has its risks. The RBA has admitted that its projections depend heavily on a few uncertain factors, like the pace of economic growth and whether inflation is truly under control.
For businesses, the next few years might offer some relief from rising labour costs. As wage growth slows, employers may no longer feel the pressure to offer huge pay increases just to attract and retain talent. But, let’s be honest: if your company operates in an industry facing skill shortages or strong demand, you might still need to offer competitive salaries to keep employees on board.
Changes in Labour Force Participation
There’s also a subtle shift coming in labour force participation. The RBA expects a slight decline in the participation rate — the percentage of people either working or actively looking for work — as economic activity slows down. This decline is expected to be modest, but it’s a sign that people may be less inclined to enter the workforce, or some may even leave, due to factors like easing cost-of-living pressures. Fewer workers needing second jobs could also play a role in this trend.
Interestingly, the employment-to-population ratio might also dip slightly. This reflects a cooling in private-sector hiring, as businesses move from the rapid growth they’ve seen over the past couple of years into a more measured pace of hiring.
Looking Ahead: A More Competitive Job Market?
For now, the labour market is in a decent place, but there are definitely signs that it could get a little tougher in the next few years. While unemployment stays relatively low, wage growth will likely slow, and competition for jobs may increase as businesses hold off on hiring. The RBA’s strategy to use interest rates to control inflation while maintaining job security could work — or it might not. A lot depends on whether inflation is really under control and whether economic activity slows as expected.
For workers, this means job security in the near term, but fewer opportunities for big pay rises. For employers, it’s a balancing act between keeping labour costs stable and competing for talent in an increasingly tight market. With the RBA walking a fine line, the next few years could see a more competitive job market, but one that’s still offering steady opportunities for those with the right skills.
