REGIONAL LABOUR MARKETS DECOUPLE FROM METRO
Labour market conditions around the country remain very tight – even in the face of policymakers slamming the brakes on economic activity (primarily through large and successive hikes to the official cash rate) to curb inflation.
Regional economies in general, and labour markets in particular, have continued to outperform metro markets under these much tighter conditions. In fact, while the COVID-19 period saw regional economies first decouple from metro economic performance, this split has continued:
- Regional demand for labour jumped further and faster than metro markets from late 2020 to February 2022’s interest rate rises.
- In metro areas, vacancy growth halted abruptly after Feb 2022, whereas in regions the momentum continued through till October.
Some other historically significant milestones that have set regions apart from metro labour markets:
- The sheer jump in regional demand for labour is significant in contrast to the metro scenario. Job vacancies in regions reached what looks to have been a record peak of 94,100 job vacancies in October 2022. While vacancies have since pulled back, down to just under 81,000 in December 2022, this is still nearly double the pre-pandemic monthly average.
- Regional unemployment has been tracking lower than metro unemployment over the last two years. Historically, the reverse has been true.
- Regional unemployment continues to plumb new lows, reaching just 2.8 per cent in the month of November 2022 and averaging just 3.0 per cent in final quarter of the year.
And while there is diversity underneath this aggregate regional unemployment rate, the high demand for labour regionally is just about universal – see further below for a snapshot of the range of conditions across regions. This snapshot shows that even in regions where unemployment has been persistently high, demand (job vacancies) continues to grow significantly. In previous quarterly updates we’ve written about the need for policy and program responses to be tailored accordingly.
WHY ARE REGIONAL ECONOMIES SO STRONG?
2 OUT OF THE 3 Ps ARE FIRING IN REGIONS
Regional Australia’s exceptionally tight labour market – and economic – conditions are underscored by strong economic fundamentals. Specifically, two out of the three Ps (population, participation and productivity) are firing.
In terms of participation, regional people are keen and engaged to work – the regional participation rate reached 71.4 per cent in May 2022 – the highest in more than 30 years – and has remained broadly around this rate since then.
Meanwhile, regional populations continued to grow through the pandemic – a stark contrast to the situation in the capitals (Sydney and Melbourne in particular).
The Regional Movers Index tracks population flows from capitals to regions and includes a measure of net migration to regions.
At the height of the pandemic – when lockdowns were widespread and most severe in capitals – net migration to regions was double the levels that had prevailed in the two years pre-pandemic.
Since the ending of those severe lockdowns, regional people have resumed moving to capital cities. Nevertheless, the net migration flows to regions (from capitals) remains significantly larger than pre-pandemic – in the order of 70 per cent.
The biggest cities are shedding residents, and ABS data shows that for the first time in more than 20 years, both Sydney’s and Melbourne’s populations shrank in the year to June 2021. These very different population dynamics are a key factor behind the relative outperformance of regional labour markets over their major metro counterparts, discussed in more detail below.
IF POPULATIONS ARE GROWING, WHY ARE REGIONS STILL STRUGGLING TO RECRUIT – AND POSTING EVER-INCREASING JOB ADS?
SUPPLY OF WORKERS IS STILL PLAYING CATCH UP WITH DEMAND
Employment data though 2022 shows that while the regional labour force was expanding, this was just not happening quickly enough.
Mercifully, that pace of expansion quickened at the end of the year, with annual growth above 3 per cent in the December 2022 quarter. This is faster than the expansion of the regional labour force during the height of the mining construction boom of 2011 and 2012. And rightly so – the peak in regional job vacancies at that time was a mere 59,100 jobs. This compares with latest peak of more than 94,100 job vacancies in October 2022 – so the most recent expansion in the supply of labour in regions still has a fair bit of catching up to do.
The high demand for labour – in regions is underscored by:
- High and enduring business confidence and conditions. Favourable economic conditions in regions have given businesses the confidence to invest in additional staff. Generally, the pandemic’s impact in regions wasn’t as significant as in the capitals. For tourism and hospitality businesses in particular, the closed international border diverted holidaymakers to Australian regions. Meanwhile in the ag sector growing conditions were favourable through 2021 and 2022 – and these have coincided with high commodity prices. Flooding in eastern Australia undermined that good run. Conditions in regions are also proving to be less sensitive to interest rate hikes than in the capitals. The lower dwelling prices (and smaller mortgages) in most regions are likely to cushion the effect of rate hikes compared with what’s experienced in the capitals – given that the housing sector (and mortgage market) is a key channel for the transmission of monetary policy into the wider economy.
- Regional population growth. The pandemic also created the impetus for many city dwellers to make a permanent shift to regions. With this additional population comes additional demand for goods and services locally and therefore the demand for additional workers to provide them. This is especially the case with many new arrivals bringing their city-based jobs with them rather than filling local jobs.
- Ongoing expansion of the services sector. Long-term, structural economic changes continue to favour the expansion of labour-intensive service industries like health, allied health, education, community services, aged care and childcare. Expansion of these industries is happening in regional Australia as much as metro Australia, and is a significant driver of labour demand.
The constraints and dynamics on the supply side of the regional labour force include:
- The pool of workers ready and available to work has just about dried up. With unemployment so low and participation already very high, the availability of local people ready and able to work has just about dried up. Employers are being forced to advertise more widely. Part of the record vacancies being advertised reflect this with employers having to re-advertise or go through these internet-based channels compared with more informal channels preferred previously.
- High labour mobility. The record vacancies being advertised are also a mix of new and replacement jobs. With overall labour mobility currently quite high, employers need to backfill jobs left by people moving on – so employers are needing to backfill jobs more than usual.
- Closed international border. The closed international borders stopped the flow of migrants into regions – for both long-term and short-term settlement. While borders have re-opened the key sources of seasonal transient labour – backpackers and students – have not returned to pre-pandemic levels.
- Local skills mismatch. There is a significant skills mismatch in many regions – demand is greatest for high-skilled trades and professionals but supply of these in regions has fallen due to the erosion of regional post school learning opportunities (VET and tertiary) making it harder to get those qualifications in region.
- Gaps in key regional soft and hard infrastructure. Two key examples include housing and childcare. Suitable housing is in short supply in regions, putting a cap on the number of people who can move into the regions with high job vacancies. Childcare is also in short supply, restricting the ability of people with young children to take up work.
THE DETAILS: REGIONAL JOB VACANCIES, NATIONALLY AND AROUND THE GROUNDS
DEMAND REMAINS ELEVATED, HAVE WE PASSED THE PEAK?
Demand for labour in regions hit an all-time high of some 94,100 jobs advertised online in October. These vacancies pulled back in the following months, with a non-trivial fall in December in particular (-10.8 per cent). This took job ads to a total of nearly 81,000 vacancies.
The December drop is largely in line with typical, pre-COVID seasonal hiring patterns – so there is a question mark over the trajectory of demand over the near to medium term. On the one hand interest rate hikes should start to bite and weigh on regional economic momentum and consequently regional demand for labour. However, population migration to regions is still a fundamental source of demand that is remaining elevated.
This latest number of job ads is still 10.1 per cent greater than a year earlier – demand for labour in regions is still very high and this is the case across each of the states.
In the month of December, demand for labour was greatest in regional Queensland (some 23,800 ads, 17.5 per cent more than a year earlier) followed by regional New South Wales (23,200 ads, up by 6.2 per cent) and regional Victoria (12,800 ads, up by 9.7 per cent).
Not only has regional Queensland (in aggregate) recorded the largest volume of ads, the Sunshine State has also seen the largest annual growth in job ads (up by 32.7 per cent).
Meanwhile the monthly drop in job ads in December 2022 was universal across the states.
Job ads in December 2022 are still well in excess of what was being advertised a year earlier in most regions. Only four regions were advertising fewer jobs than a year earlier.
The five regions with the biggest jumps in vacancies in December 2022 compared with December 2021 were:
- Yorke Peninsula & Clare Valley, SA up by 33.0%
- Central Queensland up by 28.8%
- Outback Queensland up by 25.4%
- Tamworth and North West NSW up by 25.3%
- Blue Mountains, Bathurst & Central West NSW up by 20.1%
All regions recorded reduced job ads in December 2022. The five regions with the smallest falls are scattered around Tasmania, Victoria, and Western Australia.
The five regions recording the smallest monthly dips in vacancies in December 2022 were:
- North West Tasmania down by 5.2% (651 compared to 687)
- Ballarat & Central Highlands, Victoria down by 5.4% (1,361 compared to 1,439)
- Goldfields & Southern WA down by 5.8% (2,165 compared to 2,298)
- Bendigo & High Country, Victoria down by 6.1% (4,082 compared to 4,348)
- Wimmera & Western Downs, Victoria by 6.4% (1,191 compared to 1,272)
ADDITIONAL REGIONAL LABOUR MARKET INDICATORS:
SPREAD OF UNEMPLOYMENT RATES ACROSS REGIONS – LOWEST BELOW 2 PER CENT, HIGHEST REMAINING AROUND 10 PER CENT.
As highlighted at the outset of this note, underneath the very low aggregate regional unemployment rate is significant diversity across different regions, whereas high demand for labour is just about universal.
Outback Queensland exemplifies the need for local, place-based approaches to meeting demand for labour. While it has a persistently high unemployment rate (at 10.6 per cent during the December 2022 quarter), during that quarter it also had the greatest growth in job vacancies. In places like this there are significant opportunities to better use the local labour force. Policies and programs need to improve jobseeker skills and work readiness and improve connections between jobseekers and employers.
Meanwhile, for NSW’s Blue Mountains, Bathurst and Central West region, the virtually non-existent unemployment rate indicates that the pool of labour available locally has just about dried up. Many tree-changers from cities are likely to be bringing their jobs with them into the region, generating additional demand for goods and services (and thereby local labour to provide these), rather than representing additional labour supply.
A key focus of RAI’s current research program is local labour markets and how communities, their leaders and stakeholders can address their local issues that will likely fit somewhere between these two very different conditions.
REGIONAL EMPLOYMENT BY INDUSTRY – LEVELS AND GROWTH:
The regional labour force is on the cusp of cracking 5 million people. During the three months to November 2022, an average of nearly 4.9 million people were employed in the regions, some 4.3 per cent more than a year previously.
SOURCES The Internet Vacancy Index is updated monthly by the Department of Education Skills, Employment and Business
(lmip.gov.au/default.aspx?LMIP/GainInsights/VacancyReport). The RAI has an interactive Regional Job Vacancy map of the data showing
vacancies in 37 regions across Australia (regionalaustralia.org.au/home/regional-jobs-vacancy-map).