Will wage increases in Australia outpace inflation in 2024?

The labour market in Australia is showing promising signs of resilience for 2024, as a recent survey indicates that wages are projected to rise faster than inflation, coupled with a decrease in the number of organisations planning to implement job cuts in the March quarter.

This optimistic outlook suggests a robust demand for labour, potentially providing a more stable and prosperous environment for workers across various sectors. The findings from an Australian Human Resources Institute survey highlight a positive shift in employment trends, pointing towards an economic landscape where employees may enjoy greater financial security and job stability.

According to the Australian Human Resources Institute’s March outlook report, workers can expect a significant wage increase over the next year. Specifically, wages excluding bonuses are predicted to grow by 3.7% in the 12 months leading up to January 2025.

This projection is based on a survey that garnered responses from over 600 human resources professionals, and it represents a notable jump from the 2.6% wage increase anticipated for the year ending in October 2024, as forecasted by a previous poll conducted three months earlier.

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Such a substantial rise in wages underscores the evolving dynamics of Australia’s labour market, reflecting an environment where wage growth begins to outstrip inflation rates, thus enhancing the purchasing power of the workforce.

This optimistic wage growth forecast is a testament to the strength and adaptability of the Australian labour market in the face of global economic challenges. With fewer companies looking to reduce their workforce and rising wages, the survey paints a hopeful picture for the Australian economy in 2024.

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The trend towards higher wage increases than previously expected benefits employees and signals confidence among employers in the economic outlook. As such, this development may contribute to a cycle of increased spending and investment, further fueling economic growth and stability.

Workforce expansion: The data indicates that 36% of organisations are optimistic about their growth prospects and expect to increase their employees in the current quarter. This suggests a positive outlook on business growth and demand for services or products, leading these organisations to invest in more human resources.

Reduction in layoffs: Only 3% of organisations plan to reduce their workforce. This low percentage indicates a stable job market where most companies either maintain their current staff levels or expand them rather than cut back. It reflects overall economic stability or growth, where there is less need for layoffs or downsizing.

Recruitment challenges: The statement also touches upon the issue of recruitment difficulties, noting a decrease to 38% from almost 50% in a previous survey conducted in November. This reduction suggests that while nearly two-fifths of organisations still face challenges in finding suitable candidates for their vacancies, the situation has improved compared to a few months ago. The easing of recruitment difficulties could be attributed to various factors, including changes in the labour market, better alignment between skills and job requirements, or enhanced recruitment strategies by organisations.

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Hope for resilience

Australians are placing their hopes on the continued strength and resilience of the labour market throughout this year as a means to manage and pay off the increasing burdens of higher mortgage costs and rising consumer prices. This reliance on a robust employment environment is crucial for maintaining financial stability and meeting the escalating expenses many face in the current economic climate.

However, recent data from the Australian Bureau of Statistics has cast some uncertainty on this outlook, revealing a concerning trend in the job market. January marked the second consecutive month of lacklustre employment growth, with the economy adding only 500 jobs. This minimal increase in employment is accompanied by a rise in the unemployment rate to 4.1%, the highest in two years. This development challenges the optimistic view of the labour market's ability to support households against financial pressures, indicating potential hurdles in sustaining economic well-being and confidence.

Disparity in hiring intentions

The recent quarterly survey has shed light on the current employment trends across different sectors, revealing a notable disparity in hiring intentions. It was observed that the public sector is showing a stronger inclination towards expanding its workforce, with 46% of the entities surveyed indicating plans to increase their staff numbers.

This contrasts with the private sector, where only 29% of the respondents expressed similar intentions. This difference highlights the varying degrees of optimism and capacity for growth between the public and private sectors, with the public sector seemingly more poised for expansion in the current economic climate.

To tackle the ongoing recruitment challenges, 42% have invested in developing their existing workforce's skills. This approach suggests a strategic pivot towards enhancing internal capabilities to mitigate many organisations' skill gaps and recruitment difficulties. Rather than relying solely on external hiring, these entities are focusing on upskilling their current employees to meet the demands of their roles and the broader industry needs.

Conversely, a smaller fraction, 18%, mentioned using apprenticeships to address recruitment challenges. This indicates a commitment to fostering new talent through structured training programs, though it appears less favoured than the emphasis on upskilling current staff. Traditionally seen as a vital pathway for introducing skilled workers into various industries, apprenticeships seem to be underutilised in the current climate, perhaps due to the immediate needs and fast-paced changes in job requirements.

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Improving job security

In addition to skill development, about 29% of the surveyed organisations have identified improving job security as a key measure to attract and retain talent. This move reflects an understanding of the importance of stability in the current uncertain economic environment, where job security has become a paramount concern for many workers. By offering more secure employment terms, these organisations aim to appeal to a broader pool of candidates and enhance their attractiveness as employers.

Furthermore, a quarter of the respondents want to increase wages or improve employment conditions to overcome recruitment hurdles. This indicates a recognition of the competitive nature of the job market and the need to offer compelling compensation packages to attract the right talent. By enhancing wages and working conditions, these organisations hope to not only fill their vacancies but also retain their existing workforce by ensuring they feel valued and adequately compensated.

Lastly, an equal proportion of the organisations surveyed are making concerted efforts to recruit from under-utilized groups, including parents returning to the workforce. This approach suggests broadening recruitment strategies to include diverse talent pools, recognising the potential of individuals who may have been previously overlooked. By tapping into these groups, organisations aim to enrich workforce diversity and bring fresh perspectives while contributing to a more inclusive and equitable job market.