Below trend growth to continue
How big is the issue for SMEs?
Strong employment growth in February and March has left the labour market very tight, with job vacancies easing only slightly from their peak in 2022. The tightness in the labour market comes despite surging population growth on the back of a very strong migration rebound. Treasury figures released in the Budget estimated net overseas migration would total 400,000 in 2022-23 and 315,000 in 2023-24 before normalising at around 235,000 over subsequent years.
Unemployment in Australia remains very low at 3.5%. We continue to expect unemployment to gradually begin to rise this year as the economy slows and labour demand softens enough to be outpaced by population growth, leaving the unemployment rate at 4% by end-2023 and 4.7% by end-2024.
With international borders now open, increased skilled migrant quotas and improved skilled migration program processes, there has been an easing of shortages in some industries. But for others it will take time before these changes have a material impact, with many firms continuing to experience severe recruitment difficulties.
Australia has a high level of skills on average according to international assessments, yet average skills’ proficiency mask skills gaps. In particular, there is an ongoing need for VET to be made more appealing and relevant for students, as well as sustaining incentives for participating in tertiary education. Measures announced in the Budget will help but will take time to flow through to industry. Funds have been retained in the Contingency Reserve (estimated at $3.7 billion) for the 5 year National Skills Agreement (currently being negotiated with state and territory governments) scheduled to commence on 1 January 2024. Under this agreement, an additional 300 000 fee-free TAFE and vocational education training places will be provided.
Overall, labour shortages were a little less problematic for Australian SMEs during the first quarter of 2023. That said, over 1 in 3 (32%) of all SMEs said labour shortages were a ‘very significant’ issue for their business (i.e. scored 8+ pts out of a possible 10) – though this was down from 36% in in the previous quarter, and the lowest read over the past year. SMEs are also a little more optimistic about the future, with 3 in 10 (30%) now expecting labour shortages to have a very significant impact on their business. This is down from 34% predicted in Q4’22 and 37% at the same time last year.
For more information, please see the full report Labour Shortages – The Perspective from Australian SMEs (Q1 2023)
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