How can Australia’s international border reopening revamp the job market?

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Highlights

  • Australia sees a strong rebound in employment and the beginning of long-awaited wages growth as soon as restrictions got eased.
  • The country’s wage price index rose 0.7% in the December 2021 quarter.
  • The labour market has been craving for the supply of skilled workforce since the commencement of the pandemic.

The COVID-19 pandemic initially opened a can of worms for the labour market amidst stringent lockdown restrictions that significantly halted economic activities. However, as soon as restrictions eased, the situation took a turn for the better, leading to a strong rebound in employment and the beginning of long-awaited wages growth.

As per the Australian Bureau of Statistics (ABS), the country’s wage price index rose 0.7% in the December 2021 quarter and 2.3% in 2021. The result was largely in line with the economists’ estimates. Meanwhile, the wages surged at the fastest annual pace in over three years during the December quarter. Also, the average weekly ordinary time earnings (for full-time adults) increased by 2.1 per cent over the year to November 2021, which was more consistent with underlying wage growth.

Despite the recovery, certain businesses that rely on international travel have not yet been able to rebound to their pre-pandemic stage amidst overseas border closures. However, Australia reopened its international borders after about two years of “Fortress”- level COVID-19 curbs to all vaccinated tourists.

Good Read: Australia sees strong wage growth in December 2021 quarter

As Australia reopens to the rest of the world, there are growing speculations around the impact of border reopening on the labour market.

Potential impact on labour market

While some believe Australia’s strong labour market recovery has resulted from low immigration, others credit monetary and fiscal stimulus for such outcomes. Whatever be the case, the reopening of overseas borders was a much-needed push for the return of normalcy in the economy.

At the same time, one cannot neglect that the labour market has been craving for the supply of skilled workforce since the commencement of the pandemic. Several businesses have been experiencing worsening and enduring skill shortages, which has been negatively impacting services, production, and supply chains.

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While the Australian businesses have managed to survive with the country’s own skill base during the pandemic, the inflow of migrants seems essential to advance businesses’ growth. Moreover, the migration of foreign students to Australia is expected to create additional job opportunities for Australian workers.

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But this is not the end of the story! Higher immigration can also prompt a decline in wages growth, urging the central bank to retain low-interest rates. While easing labour supply shortages, the inflow of skilled workforce could give more power in the hands of businesses to control wages. This might not let the economy achieve stronger wage growth, pushing the timeline of interest rate hikes despite sky-high inflation.

Australia’s biggest bank, Commonwealth Bank of Australia (ASX:CBA), expects the central bank to increase interest rates as early as June 2022. The bank anticipates the inflation to be stronger than the central bank’s forecast, prompting it to increase interest rates soon.

Should businesses cheer?

The positive impact of higher immigration could outweigh the challenges associated with wages growth, given the fact that many businesses have been on their knees due to border closures. Such businesses are now seeing some light at the end of the tunnel with border reopening, which can foster businesses’ growth as well as economic recovery.

Having said that, it might not be easy for such businesses to stand back on their feet as prolonged border closures opened a whole set of new opportunities for skilled workers and tourists in other countries. So, it might take some time for foreigners to again look to Australia as an attractive destination. This might require immense support from state and federal governments in terms of appealing immigration policies.

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