Employment Hero’s August SmartMatch Employment Report reveals a growing divide in Australia’s economy, where rising wages and shrinking hours are creating challenges for businesses across sectors and regions.

Despite a 6.2% annual moving average wage uptick in wages, productivity is suffering as businesses struggle to balance ‘wageflation’ in August, with 2.4% fewer median monthly working hours in a bid to retain staff. This persistent ‘wageflation’ is fuelling a hotter-than-reported jobs market, with verified wage growth among SMEs sitting well above the ABS wage growth figure of 4.1% reported in June. 

This trend was particularly pronounced in August casual employment, where a9.8% rise in jobs was coupled with a 4.9% decline in hours worked, signalling growing job insecurity as employers grapple with the pressures of ‘wageflation’ while trying to stay afloat.  

While wage growth is generally positive, the reduction in hours worked raises red flags. Businesses are grappling with balancing rising wages against declining productivity, with last quarter’s GDP indicating productivity per hour dropped 0.8% while the average unit cost of labour increased by 1.3%. 

Inflationary pressures continue to build as the job market remains strong, despite the cutback in hours. This dynamic is contributing to ‘wageflation’, where wage increases outstrip economic output, adding fuel to inflation without corresponding productivity gains.

Small and medium-sized enterprises (SMEs) are bearing the brunt of rising wages, lopping employee hours despite the additional strain on their operations. This behaviour is an indicator of ‘labour hoarding’ where businesses are desperately trying to retain staff in anticipation of future labour shortages and cost of recruitment. 

Australia’s recovery remains uneven across regions and sectors. The ACT led the nation with wage growth of 6.9%, while South Australia lagged behind at 2.6%, illustrating the stark contrasts in economic performance.

Meanwhile, sectors like Construction & Trade Services saw significant wage increases of 9.8%, while Healthcare & Community Services lagged at 3.7%, highlighting disparities in wage growth across industries. 

Annual employment growth continues to remain the highest in WA at 7.2% and QLD at 5.3%, indicating Australians are still migrating to industrial hotspots to find jobs, and increase their earning potential.

Median hourly rates in these regions are growing annually at 3.1% and 5% respectively, with the median hourly rate in Construction & Trade Services sitting at $50.50 and Manufacturing, Transport & Logistics at $40.40.

Casual employment has surged, but this has not translated into greater financial security for workers. Casual employees experienced a 4.9% drop in hours worked year-on-year, compounding job insecurity. Full-time employees earned a median hourly wage of $50.50, compared to $37.50 for casuals.

Young Australians aged 18 to 24, often heavily employed in Retail, Hospitality & Tourism, saw a 6.7% month-on-month and 4.4% year-on-year decline in hours worked across all sectors, exacerbating financial instability. While wages in the Retail, Hospitality & Tourism sector grew by 4.4% year-on-year, the 2.7% decrease in hours worked in that sector means these gains have not translated into improved financial security.

Employment Hero CEO and chief economist, Ben Thompson said Australia’s two-speed economy is becoming more pronounced, with inconsistent economic performance creating challenges for businesses across sectors and states alike.

“Wage growth is outpacing productivity, which is completely unsustainable, particularly for small businesses folding under the surging cost of operating,” he said.

“It’s becoming harder for business owners to strike the right balance between maintaining staff and managing wageflation, which means more Australians will inevitably be grappling with job insecurity and inconsistent wages. Wageflation over the long term creates problems on both sides of the market, particularly where a pay-packet boost today could spell a layoff in the future. 

“It’s also alarming to see the disparity between economic activity across the nation, particularly in unionised sectors like Healthcare and Construction who have the highest median wages in the country.  While some regions and sectors are thriving, others are facing a lethargic economy where productivity ultimately suffers.  When jobs growth across the country is uneven, this creates ripple effects for the communities who are most impacted.”

Pictured: Ben Thompson (Employment Hero). Photo Credit: Anna Kucera.