There are more job vacancies than there are unemployed people

Job vacancies are at a record high, according to the Australian Bureau of Statistics. They are currently more than double their pre-pandemic level. That’s causing headaches for those trying to recruit – and working in jobseekers’ favour.

“Jobseekers find themselves in an increasingly favourable position, with greater control over where and how they work and more bargaining power to ask for higher wages or better conditions,” Callam Pickering, economist with job site Indeed, told ABC. “With job mobility at a decade high, it’s clear that many workers are taking advantage of that.”

According to the ABS, 9.5% of employed people changed their employer or business in the 12 months to February – the highest mobility rate in a decade.

Pickering told ABC that the labour market could tighten even further.

“If Australian businesses were genuinely concerned about the economic outlook and the impact of inflation and higher interest rates, then we’d expect them to pull back on their hiring,” he said. “Right now, the outlook for the Australian labour market remains exceedingly bright even with growing concerns over high inflation and rising interest rates. With job vacancies elevated, we’d expect the labour market to tighten further in the near term, even if filling many of these roles will be difficult.”

So does this mean Australia is close to full employment? Well, that’s complicated.

Australia had an official policy of full employment between 1946 and 1975, according to ABC. During that era, governments kept the unemployment rate below 2% on average.

Those three decades also enjoyed the sustained economic boom of the postwar era, with rising incomes and quantum leaps in the standard of living, along with rapid growth in affordable housing.

But even then, the architects of that full employment policy argued about what “full employment” should mean, ABC reported.

Nugget Coombs, one of Australia’s most influential public servants in the 20th century, was one of the masterminds of the policy. In a 1944 lecture at Adelaide University, he defined full employment as a “high and stable level of employment” that would see “a few more jobs available than men and women to fill them.” Coombs said full employment would tend to be “a slight but persistent shortage of labour.”

However, that didn’t mean everyone would have a job. Some people can’t work due to illness or disability. Some are wealthy enough to be idle. Some take time to change from one job to another. But ultimately, Coombs envisioned full employment as a situation where around 4% of men and 2% of women who were seeking jobs were unemployed at any given moment, ABC reported.

Today, full employment means something very different. That change can be traced to the 1970s, when the economy was hit by “stagflation” and the unemployment rate spiked to double digits, ABC reported. Buffeted by these economic headwinds, policymakers abandoned their old commitment to full employment as a policy.

Instead, they embraced the theory that higher levels of unemployment could be natural under certain conditions.

That meant adopting a new definition of full employment: A jobs environment where unemployment kept a lid on inflation, preventing wage pressures and prices from rising too quickly.

That means the economy could have “full employment” even with unemployment rates of 8% or higher, according to ABC.

So what does that mean for the current employment situation?

At the moment, economists who use the modern, mainstream model say Australia is actually below full employment, ABC reported. That means they think there are more people employed than is sustainable for current conditions, and that, in turn, is exacerbating wage and price pressures and labour market inefficiencies.

The unemployment rate will eventually have to rise again, economists say.