Australian workers are increasingly choosing job security over career moves as economic uncertainty and rising living costs reshape employment decisions across the country.
New research from the Australian HR Institute (AHRI) reveals that employee turnover has fallen to its lowest level in three years, signalling a significant shift in workforce behaviour, mentioned by HRD.
According to the June Quarter 2026 Australian Work Outlook report, the annual employee turnover rate dropped to 13.5%, down from 15.2% in December 2025.
The decline of more than 11% over six months marks the lowest turnover level since AHRI began tracking the data in May 2023.
The findings are based on a survey of 606 senior business decision-makers and human resources leaders conducted by YouGov between 5 and 11 April 2026.
Sarah McCann-Bartlett, Chief Executive Officer, AHRI said, "The subdued activity suggests that employers and employees are taking stock of the uncertain economic environment and hunkering down.
She added, "Australian workers may be choosing stability over movement, but stability is not the same as job satisfaction."
Wage pressure builds
While lower turnover may appear to signal workforce stability, the report highlights growing concerns over declining real wages and employee engagement.
Employers surveyed by AHRI expect to offer average pay increases of 3.1% over the next 12 months, down slightly from 3.3% in the March 2026 quarter. However, these projected increases remain well below headline inflation, which currently stands at 4.2%.
The Reserve Bank of Australia has forecast inflation could rise to 4.8% by the middle of 2026.
The widening gap between wage growth and inflation is effectively reducing employees' purchasing power, placing additional strain on household finances already affected by higher interest rates and increasing fuel costs.
"When pay expectations are running below inflation and employees' choices are limited, this creates real risks for engagement, productivity and wellbeing," McCann-Bartlett said.
The divide between public and private sector wage expectations is also becoming more pronounced. Private sector employers anticipate wage increases of 3.3% through to April 2027, while public sector organisations expect average rises of just 2.4%.
The figures come amid mounting pressure from trade unions, which are advocating for a 6% increase in the minimum wage to help lower-paid workers cope with rising living expenses.
Reskilling takes priority
Rather than pursuing large-scale redundancies, many Australian employers are focusing on workforce development and internal talent management to navigate economic challenges.
The AHRI report found that 39% of organisations are investing in reskilling or retraining programmes for employees. A further 32% are reorganising teams and job roles, while 31% are redeploying workers internally.
In contrast, redundancy intentions remain relatively low.
Only 19% of employers indicated plans to make positions redundant, a figure unchanged from the previous quarter and among the lowest recorded since the survey began.
McCann-Bartlett mentioned, "While it is encouraging that employers are responding to cost pressures by reskilling and redeploying rather than making cuts, this must sit alongside honest communication with employees about pay and other non-financial benefits."
AI reshapes workforce
Artificial intelligence is also emerging as a major factor influencing workforce planning decisions across Australian organisations.
Businesses are increasingly reassessing skills requirements and organisational structures as AI technologies become more widely adopted.
McCann-Bartlett noted, "As AI is adopted by organisations, if you look at the changes AI is going to make to the skills we need and how our workforce is structured – yes, we're going to have to continue to reskill and reorganise in order to adapt to a faster pace of AI adoption."
AHRI describes this evolving trend as the growing "5Rs effect", characterised by simultaneous reskilling, redeployment, reorganisation, recruitment adjustments and redundancy management. The framework is increasingly shaping HR strategies across Australian workplaces.
Hiring remains cautious
Although workforce reductions remain limited, hiring activity has not returned to previous highs.
AHRI's Net Employment Intentions Index, which measures the difference between organisations planning workforce growth and those anticipating reductions, remained unchanged at +38 for the second consecutive quarter.
However, the figure is significantly lower than the +48 recorded in both September and December 2025.
Recruitment intentions showed a modest improvement, with 61% of organisations planning to hire staff. Despite the increase, this remains well below the 71% recorded six months earlier, highlighting continued caution among employers.
The data suggests that organisations are opting to maximise existing talent through internal development rather than pursuing aggressive recruitment campaigns.
Psychosocial risks persist
The report also highlights growing concern around psychosocial hazards in the workplace, an issue receiving increased regulatory attention across Australia.
Job demands and workload pressures remain the leading source of psychosocial complaints, cited by 23% of employers. Poor workplace relationships followed closely at 22%, while lack of role clarity and inadequate support were identified by 19% and 17% of respondents respectively.
McCann-Bartlett warned, "Against the backdrop of muted hiring activity and reduced reliance on contractors, a key risk for employers is that job demands and workload pressures increase in the months ahead.
“This reinforces why employers must remain committed to improving employee engagement and developing internal talent,” concluded.
The concerns come as global employee engagement continues to weaken. Gallup's 2026 State of the Global Workplace report found engagement levels fell to just 20% in 2025, the lowest level since 2020, with managers identified as a major contributing factor.
Signs of progress
Despite ongoing concerns, the AHRI report identified some positive developments in workplace wellbeing.
The proportion of organisations reporting no psychosocial claims or complaints during the previous 12 months increased from 20% in 2024 to 30% in 2026.
Complaints relating to remote or isolated work also declined from 17% to 13%, suggesting that flexible and hybrid working arrangements have become more established and effective.
However, many employers still consider themselves only moderately prepared to manage psychosocial risks.
Current interventions largely focus on flexible working arrangements and work-life balance initiatives, while fewer organisations are tackling deeper structural issues such as workload management, job design and leadership capability.
Only 21% of organisations reported making changes to work organisation or job design specifically aimed at improving psychological safety.
As Australian businesses continue to navigate economic uncertainty, the latest findings suggest that workforce stability may be masking deeper challenges around employee engagement, real wages and workplace wellbeing.