Lexi Webster
Australia's unemployment rate has been a persistent issue, with 82% of unemployed people facing challenges in finding work. The unemployment rate, calculated as the percentage of unemployed individuals in the labour force, is a critical indicator of the country's economic health. Australia has experienced a unique labour market since the pandemic, with rapid job creation and the highest labour force participation rate in history, largely driven by an increase in women in the workforce. However, this has created challenges for employers, with businesses struggling to fill roles and a notable shift towards part-time employment. While the unemployment rate has remained low, at 4.0% as of March 2025, understanding the underlying dynamics of the labour market is essential to address the unemployment problem and ensure sustainable economic growth.
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What You'll Learn
Labour force participation
In Australia, the working-age population includes residents aged 15 and over, with some exceptions. The labour force includes those who are employed and those who are unemployed but actively seeking work. Labour force participation can be influenced by various factors, such as economic conditions, wage levels, and the business cycle. When businesses are hiring and offering higher wages, more people are incentivised to join the labour force, increasing the participation rate. Conversely, during economic downturns or when businesses are not hiring, the participation rate may decrease as people become discouraged and stop actively looking for work.
Since the pandemic, Australia has experienced a unique labour market situation. On the one hand, the labour force participation rate reached its highest level ever, driven primarily by a surge in women's employment. This strong participation contributed to a tight labour market, with employers struggling to fill roles and staff shortages becoming prevalent.
However, it's important to note that the participation rate decreased to 66.9% in March 2025, slightly lower than the previous figure of 66.5%. This decrease could be attributed to various factors, including a shift from full-time to part-time roles and a general slowdown in job creation. Despite the high labour force participation, the number of new jobs created has decreased, impacting the overall employment dynamics in Australia.
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Difficulty finding work
Unemployment arises when individuals actively seeking work remain without a paid job. The unemployment rate represents the percentage of unemployed individuals within the labour force. Australia's labour market dynamics influence the unemployment rate, which has witnessed notable shifts since the pandemic.
During the post-pandemic period, Australia experienced a unique labour market situation, with the fastest rate of new job creation since 1994. Labour force participation surged, particularly among women, reaching its highest level ever. However, this tight labour market presented challenges for employers, who struggled to fill vacancies. Staff shortages became a pressing issue, impacting businesses' operations.
Several factors contribute to the difficulty in finding work for unemployed individuals in Australia. Firstly, the availability of jobs has decreased. Since July 2023, net job creation rates have declined, with a significant drop in the number of new jobs created each month, falling to around 25,000. This reduction in job creation rates has contributed to the challenges unemployed individuals face in securing employment.
Additionally, the nature of job creation has shifted primarily to part-time roles. Since mid-2023, part-time positions have accounted for nearly all new job creation in Australia. While this transition to part-time work has helped curb rising unemployment rates, it also indicates a weakness in job creation dynamics. The focus on part-time roles may not meet the needs of unemployed individuals seeking full-time employment.
Moreover, the incentives for individuals to actively seek work can fluctuate based on labour market conditions. When businesses reduce hiring and offer minimal wage increases, potential workers may be less motivated to look for jobs. This dynamic can further contribute to the difficulty in finding work, as individuals may delay or decrease their job search efforts until more favourable opportunities arise.
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Lack of migration
Migration has historically been a significant source of population growth in Australia, with a third of the population born overseas. Migration is set to become even more important as the population's natural growth rate declines. Australia attracts some of the best-educated migrants in the world, who are mostly skilled workers and students, with high labour force participation rates and low unemployment. Migration boosts the employment of Australian-born people without affecting their wages. A 1% rise in the annual migrant inflow leads to a 0.53% increase in the employment of the Australian-born population.
In 2019, Australia had the highest share of migrants in the OECD after Luxembourg, at 30% of the population. Migration surges in Australia have historically been associated with higher growth and favourable labour market outcomes. There is a robust and consistent negative correlation of -0.80 between migration and the unemployment rate. This indicates that as migration increases, the unemployment rate decreases.
The positive association of migration with the labour market is more pronounced and consistent across various metrics. The scatterplot of migration and employment growth reflects a large correlation of 0.45, despite a few outliers. Turning to wage dynamics, the scatterplot indicates a positive, albeit modest, correlation between migration and wages. This relatively weaker relationship is partly explained by the design of the wage price index, which is more stable than some other measures of earnings because it seeks to control for compositional change in jobs.
The impact of migration on the Australian economy has been the subject of several research studies. One study used a Vector Error Correction Model (VECM) to examine the dynamic interaction of short- and long-run relationships between immigration, the unemployment rate, and economic growth. Another study used the Augmented Dickey and Fuller test along with Phillips and Perron tests to assess the stationarity properties of the variables. Various other tests were also conducted to examine the co-integration of variables and the short-run dynamics between the unemployment rate and net overseas migration flows.
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Staff shortages
The issue is particularly acute in regional areas, especially for highly skilled workers. More than 80% of employers in very remote areas believe that the lack of applicants is due to the job location, and over 40% have had suitable applicants reject job offers because of the location. Similar patterns are seen in the Northern Territory and Western Australia.
Occupations with a highly gender-skewed workforce are also more likely to experience shortages. Male-dominated occupations such as machinery operators, drivers, labourers, technicians, and trade workers, as well as female-dominated occupations such as community and personal service workers, are facing significant shortages.
While businesses are investing in staff training to tackle these issues, wage adjustments do not appear to be a common short-term response to skill shortages. According to Jobs and Skills Australia, only 1% of employers adjusted remuneration to attract skilled workers in 2023, up from 0.4% in 2022.
However, there are signs of improvement. In 2024, Australia's skills shortage was reported to be "on the mend," with 33% of all jobs in shortage nationally, down from 36% in 2023. Strong enrolments in fee-free TAFE courses in priority sectors such as care, construction, technology, and early childhood education are expected to ease shortages over time.
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Underemployment
The underemployment rate in Australia has been trending upwards and reached a peak during the early months of the COVID-19 pandemic, surpassing 12% in May 2020. Even after the pandemic, the rate remained high, with an estimated underemployment rate of 6.4% in June 2023. This equates to approximately 1.1 million people out of a total labour force of nearly 14 million.
Structural and cyclical factors have contributed to the long-term increase in underemployment. One key factor is the rise in part-time employment over the past 40 years. Changes in how the labour market adjusts to fluctuations in labour demand have also played a role. For example, during economic downturns or due to technological advancements, employers may reduce workers' hours or utilise labour-saving technologies, leading to underemployment.
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Frequently asked questions
As of March 2025, the unemployment rate in Australia is 4.0%.
The unemployment rate is influenced by the number of unemployed people, which can be affected by cyclical factors such as economic downturns, and structural factors in the economy. For example, since July 2023, there has been a shift from full-time to part-time job creation, with a negative number of new full-time jobs being created. Additionally, labour force participation and business hiring practices impact the unemployment rate.
The Australian Bureau of Statistics (ABS) conducts a monthly Labour Force Survey, collecting labour market data from around 50,000 people. The ABS categorises individuals as employed, unemployed, or outside the labour force, and calculates the unemployment rate as the percentage of unemployed individuals in the labour force.
