Overview

• Over 1 in 3 SMEs continue to identify labour shortages as a very significant issue for their business.
• Employers do not expect a material shift in available talent in 2023.
• Construction most impacted with 1 in 2 SMEs still struggling to find labour.
• Accommodation & Hospitality most improved & now among the least impacted.
• The bargaining power of workers has increased with 7 in 10 SMEs increasing pay for existing staff and 5 in 10 for new staff.

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.

Overall, labour shortages were a little less problematic for Australian SMEs during the final quarter of 2022. That said, over 1 in 3 (36%) SMEs continue to identify labour shortages as a ‘very significant’ issue for their business (down slightly from 38% in the previous quarter). Notwithstanding a forecast decline in demand growth in the economy, employers are not expecting a material shift in available talent in 2023, with over 1 in 3 (34%) SMEs still anticipating labour shortages to be having a ‘very significant’ impact on their business (vs. 38% in Q4) over the next 12 months.

By state, 45% of SMEs in QLD still heavily impacted (42% in Q3) – highest overall by some margin. The number of SMEs experiencing ‘very significant’ labour shortages fell in all other states, with the biggest falls in TAS (30% from 44%) and WA (37% from 44%) and lowest overall in SA (27%). The number of SMEs who think labour shortages will be a ‘very significant’ issue in the next 12 months remains highest in QLD and lowest in SA.

While employers expect skills shortages to continue into 2023, they are more prominent in some key sectors of the economy. Almost 1 in 2 (48%) SMEs in Construction said labour shortages were very significant (by far the highest of all industries), followed by Manufacturing (41%), Transport & Storage (38%) and Retail (36%). The lowest number was in Accommodation & Hospitality (26% and down sharply from 37% in the previous quarter). Fewer SMEs in most sectors reported a very significant impact from labour shortages over the past 3 months, except in Personal Services where it jumped sharply to 33% (22% in Q3) and Finance & Insurance (24% from 21%).

Fewer firms in all sectors expect labour shortages will still be a ‘very significant’ issue for their business in the next 12 months, except Finance & Insurance (31% from 14%) and Personal Services (33% from 21%) where a significantly higher number expect to be heavily impacted.

NAB also asked business the strategies they are implementing to help overcome these challenges. The bargaining power of workers has clearly increased, with around 7 in 10 (69%) SMEs increasing pay for existing staff – the top response. This aligns with the RBA December minutes which noted wages growth was continuing to pick up and that the risk to wages growth was to the upside due to the tight labour market and high inflation. Retainment of employees helps reduce both direct and indirect costs associated with turnover.

The next most common strategies were: taking better care of existing staff (56%); paying new employees at higher pay rates (50%); increasing flexibility in where and how employees work (46%); and increasing training opportunities (42%). Around 1 in 4 (26%) were also spending more on recruitment, 17% offering internships or graduate programs, 14% using retention bonuses, 13% hiring migrant workers and backpackers and 7% offering sign on bonuses. Around 1 in 10 were not implementing any of these.

By industry, a much higher number of SMEs in Business Services are offering increased work flexibility (70%), in Personal Services more training opportunities (60%) and in Accommodation & Hospitality spending more on recruitment (52%) and hiring more foreign workers and backpackers (32%). We also noted a much lower number in Personal Services sector that increased pay for existing staff (51%) or paid new employees more (38%), in Manufacturing taking better care of employees (45%), in Wholesale offering internships or graduate programs (6%), in Manufacturing (7%) and Wholesaling (8%) retention bonuses, and in Finance & Insurance (3%) and Personal services (2%) hiring migrants and foreign workers.

For more information, please see the full report Labour Shortages – The Perspective from Australian SMEs (Q4 2022)