‘A bit artificial': Shock unemployment figure exposes cracks in Australia's migration-fuelled NDIS jobs boom

News.com.au

5 days ago

Sky-high numbers of immigrants have been 'absorbed' into taxpayer-funded industries like the NDIS in recent years in an 'artificial' situation now starting to unravel as growth in the so-called non-market sector slows, experts warn.
The unemployment rate rose to a four-year high of 4.3 per cent last month, beating market expectations of 4.1 per cent, according to Australian Bureau of Statistics (ABS) figures released on Thursday which showed there were an additional 33,600 people looking for work — the highest level since the pandemic in late 2021.
The shock jobless figure, which sent the Aussie dollar into free fall and raised market expectations of an August rate cut by the RBA to near certainty, came on the heels of fresh data showing a record number of arrivals in May despite the Albanese government's pledge to curb migration to 'sustainable' levels.
There were 33,230 net permanent and long-term arrivals in May, surpassing the previous record of 31,310 in 2023 by 6 per cent.
In the year to May there were 245,890 net permanent and long-term arrivals, also the highest on record, while the 12-month rolling number of 447,620 was the second highest on record after 482,450 in the 12 months to May 2024.
The Institute of Public Affairs (IPA), a conservative think tank, estimates that if current trends continue the number could reach 598,000 by the end of the calendar year.
'With Australia's unemployment rate trending up since December last year, yesterday's rise highlights some fundamental weaknesses in Australia's economy and jobs market — chief among them is Australia's worker shortage crisis,' said IPA research fellow Saxon Davidson.
'The simultaneous rise in unemployment and worker shortages shows how far out of alignment the Albanese government's labour and migration policies are. The federal government has fundamentally mismanaged the labour market. Despite allowing record levels of migration, Australians are not seeing the benefits of this in terms of per capita economic and overall productivity growth.'
Mr Davidson said it was 'unconscionable that in a time of rising unemployment the Albanese government continues to flood the Australian labour market with record numbers of migrants competing for jobs'.
'The latest ABS data shows that Australia's worker shortage crisis is 42 per cent higher than pre-pandemic levels, increasing by 2.9 per cent in May 2025 to 339,400,' he said.
'Job vacancies have been over 300,000 for four years straight. What the latest unemployment rate rise shows us is that we need to cut tax and red tape barriers to allow more Australians to get into work so businesses can grow to their full potential, as well as returning Australia's migration program back to a sustainable level.'
'It's a bit artificial'
AMP chief economist Shane Oliver agreed that immigration was a 'double-edged sword'.
'On the one hand it creates demand which is good, but on the other it also increases supply of workers,' he said. 'If underlying conditions in the economy are weak as they have been for the last few years, you have to generate a lot of jobs [to keep pace].'
Growth in the civilian working-age population has eased from a peak of 3 per cent in 2023, at the height of Australia's post-Covid immigration surge, to around 2 per cent, or about 29,000 per month — still well above the historical norm of 1.5 per cent.
'If you've got your working-age population growing at 29,000 per month and the participation rate at 67 per cent, that means every month you've got to create about 19,000 jobs,' Dr Oliver said.
'We seemed to be able to do that quite easily until a year ago because we were generating a lot of jobs in the care economy. The immigration situation was manageable because we were creating all these jobs in health and aged care, NDIS.'
Experts have previously warned that Australia's taxpayer-funded jobs boom, largely driven by the explosion in the NDIS, has masked weakness in the private sector jobs market.
Last year, 80 per cent of all new jobs created were either in the public service or taxpayer-funded 'non-market' sectors like healthcare and education.
'All of that surge in immigration was being absorbed into the workforce but going into the public sector or non-market jobs, whereas private sector employment growth was quite weak,' Dr Oliver said, noting growth in non-market sector jobs was now starting to soften.
'It's a bit artificial in a way, if you regard private sector jobs as more real. You're absorbing a lot of workers into the public sector, it may have a way to go as there is demand for some of those services, but unfortunately it can be detracting from overall growth in the economy. A lot of the jobs they were going into were also relatively low-productivity jobs.'
'Plainly unsustainable'
Australia has seen both declining GDP per capita and declining productivity — measured as GDP divided by hours worked — in recent years.
'They tend to go hand-in-hand,' Dr Oliver said.
'If you increase the supply of labour which is what we've done dramatically in the last few years, it can have the effect of depressing productivity. So what's happened is we've pumped a lot of people into the economy, that's pushed up employment numbers to some degree but also pushed up hours worked, but we haven't seen the commensurate rise in GDP.'
Innes Willox, chief executive of the Australian Industry Group, said the June labour market data 'points to the impact that our weak private sector is having on the labour market'.
'For over a year, there has been negligible jobs growth in the private market sector, with government-supported employment in the public and non-market sectors doing the heavy lifting,' he said in a statement on Thursday.
'During 2024, approximately four in five new jobs created in Australia were in these government-supported sectors. As the Australian Industry Group has been warning since the start of this year, this level of dependence on the taxpayer for job creation is plainly unsustainable.'
Mr Willox said with the private sector accounting for two-thirds of employment in Australia, 'it was inevitable that its sustained weakness would eventually spill over to the broader labour market'.
'It appears this problem is now coming home to roost,' he said.
'It is therefore imperative that government takes immediate action to return the private sector labour market to health. There is much that can be done — on tax, energy, regulatory burden, industrial relations and more — to provide better policy settings for private sector investment and jobs creation.'
He added, 'We look forward to working with the Treasurer through the upcoming Economic Reform Roundtable in August to build a package of sensible reforms that can restart private sector growth.'
August rate cut looms
Dr Oliver said strong population growth had 'artificially kept up demand' in the economy, which had contributed to inflation pressures and forced the RBA to keep interest rates 'higher than they would have been' even as growth in the underlying economy and private sector was weak.
'Arguably the jobs figures are starting to expose that,' he said.
The RBA surprised markets last month when it decided to keep the official cash rate on hold at 3.85 per cent. Money markets and experts had been widely predicting a rate cut due to weaker-than-expected economic data.
After the latest unemployment figures, money markets are now pricing in an August rate cut at 100 per cent as of Friday morning.
'It should be a lock,' Dr Oliver said. 'You've got inflation figures [still to come], there's always a risk [it surprises on the upside] and the RBA could say we've got to hold.'
In its official statement last month, the RBA board said while inflation was falling, it wanted to wait for a 'little more information' before moving on rates.
RBA governor Michelle Bullock said the board had opted to reconsider cutting in August after full quarterly inflation figures were released.
AMP is forecasting inflation will come in at 2.6 per cent or slightly below.
'I'm not going to put a number on if it comes in at 2.6 will cut or if it comes in at 2.7 we won't,' Ms Bullock previously told NCA NewsWire.
'What we'll be doing is we'll be looking at it in the context of where the forecast think it is leading us.'
ANZ's Brian Martin and Daniel Hynes said in a note on Friday that the 'soft' June labour force data were pointing to a 25 basis point cut next month.
'The small increase in overall employment, the decline in hours worked and the increase in the unemployment rate (the latter to a new high for this cycle, albeit after some extraordinary stability) are all consistent signals,' they wrote.
'Within the details, it appears the group rotating into the labour force sample had a higher propensity for being unemployed than the group it replaced, which helps explain the jump in unemployment. That is, there is both statistical noise and signal in the survey.'
Aussie dollar crashes
A number of commentators have now suggested the RBA got it wrong last month.
'The July post-meeting statement described the labour market as 'strong', although given today's results, we would expect the RBA to note an easing in labour market tightness in the June quarter,' Mr Martin and Mr Hynes wrote.
IG market analyst Tony Sycamore said 'combined with last month's fall in employment, there are clear signs of deceleration emerging in the labour market'.
'This calls into question the RBA's decision to prioritise inflation over growth and jobs at its board meeting earlier this month,' he said.
Employment as a whole rose by 2000 people in June, following a fall of 1000 in May, and was up 2 per cent year on year.
That was against expectations of 20,000 jobs to be added in the month and the unemployment rate to hold.
Markets immediately jumped on Thursday's news, with the ASX200 rising 0.9 per cent to hit a new record high as investors bank on a future rate cut.
With expectations of lower rates, the Australian dollar slumped back below 65 US cents.
Despite Thursday's data, Treasurer Jim Chalmers said Australia's unemployment remains historically low while the participation rate remains near record highs.
'The ongoing resilience in our labour market over the past three years remains one of our best defences against the volatile global economic conditions we face, which is a big focus of my discussions here at the G20,' Dr Chalmers said from the G20 finance ministers meeting in South Africa.
'The Australian economy is not immune from global uncertainty but we are well placed and well prepared to face the challenges ahead.'
Speaking to ABC Radio on Friday again about the job numbers, Dr Chalmers said the result was 'unwelcome' but 'unsurprising' and that the 'modest tick up in the unemployment rate' had been expected.
'And here at the G20, there are only two economies, including ours, where last year we saw continuous growth inflation with a two in front of it, and unemployment in the low fours,' he said.
'But it remains the case that over the last three years, the labour market in Australia has been a real source of strength at an uncertain time. More than 1.1 million jobs created on our watch [and] the lowest average unemployment of any government in the last 50 years.'