Unemployment rate keeps on falling

Western Australia’s strong economy has produced an extraordinary fall in the state’s unemployment rate to less than 4 per cent, a level many economists thought would never be reached.

During the 1980s and 1990s, a reduction in the unemployment rate to less than 10 per cent was considered a significant achievement.

However those days are a distant memory and now the biggest issue facing many employers, especially in WA but also in other states, is how to find enough workers to meet the demand.

WA’s unemployment rate is currently 3.6 per cent but fell as low as 3.1 per cent earlier this year.

That is substantially below the national figure of 4.8 per cent, which itself is considered extraordinarily low.

One of the surprising features of the labour market is that the low unemployment has not led to a sharp spike in labour costs across the economy.

Certainly there have been big increases in labour costs in some sectors, particularly for contractors in mining and construction, where anecdotal reports suggest labour rates have gone up by 30 per cent or more.

The overall increase in labour costs over the past year in the construction sector has been 6.8 per cent while in the mining sector labour costs have risen 6.1 per cent, well above the WA average of 4.3 per cent.

If wages kept on growing at that rate and fed through to consumer prices, Australia’s inflation rate would increase above the 2-3 per cent band that is targeted by the Reserve Bank of Australia.

The current environment poses a test for how much flexibility exists in the labour market.

The strong demand for workers has encouraged many people to re-enter the workforce. Others have moved interstate to find work, and employers have cranked up their training programs to try and address skills shortages.

Some businesses are also sending work overseas or sponsoring migrants to come to Australia.