Firms should expect challenging labor market conditions to persist through 2023
Firms in industries facing acute labor shortages, such as healthcare, retail, and hospitality, should expect hiring and retaining workers to remain challenging through 2023. Competition to attract and recruit talented workers will be particularly tough in these industries; however, firms across the economy will face similar challenges. These dynamics will ensure that bargaining power is on the side of the workers, and firms should carefully develop their budgets and personnel plans with this in mind. B2B companies that serve these sectors should expect higher wage bills to put further cost pressure on their customers. Finally, persistent labor shortages will also prevent businesses from fully meeting demand. MNCs that are more adept at hiring and attracting skilled workers will have a strong advantage over their competitors.
All metrics used to monitor Australia’s labor market show that the country is experiencing a historic shortage of skilled workers. The country’s unemployment rate was at its lowest in history, at 3.4%, in July. In August, it only inched up to 3.5%. Recent data from the Australian Bureau of Statistics shows that job vacancies are currently at an all-time high, with over 470,000 open positions nationwide. Therefore, it comes as no surprise that labor shortages are highlighted as one of the major challenges that businesses are facing. In June, 31% of firms stated that they struggled to find suitable employees.
The federal government is implementing and exploring a host of measures to address the country’s skills shortage. For example:
- The government has increased the quota for foreign workers entering the country from 160,000 to 190,000 in 2022–2023. It has also lowered entry barriers, such as English proficiency requirements, for key sectors, such as healthcare, to broaden the pool of applicants.
- The government has expanded the Technical And Further Education program (TAFE) to include 180,000 fee-free positions to domestically train young workers.
- The Labor government is also looking to expand subsidies for childcare so that more parents can enter the workforce on a part-time or full-time basis.
Labor shortages in Australia will persist through 2023–2024, posing a medium-term challenge for firms in the country. Foreign workers will trickle into the country over the course of many months, and domestic training programs will only begin showing results gradually. Even if the programs were able to show results immediately, their combined total still would not account for all the vacancies in the country. Moreover, the problem is complicated by the fact that Australia must compete with other countries to attract foreign workers. For example, neighboring New Zealand is also facing nearly the exact same kind of worker shortages, and several markets across the globe are competing for healthcare practitioners.
Having said that, the extreme tightness that the labor market has displayed in 2022 will ease somewhat in 2023. While labor availability will be much lower than historical levels, the market will gradually improve over the course of 2023 and 2024 as government measures yield results and demand for labor softens. Rising interest rates and a slowing global economy will lower labor demand in certain industries. Construction, manufacturing, and mining―while still facing major shortages― showed early signs of easing labor demand in Q3 2022. This trend could spread to other sectors but not to a magnitude that would put firms back in the driver’s seat next year.
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