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International students will have an extra two years to stay and work in Australia under visa changes announced by Education Minister Jason Clare.

The move is a first step in encouraging more international students to move into permanent migration pathways, but will be limited to those who graduate from courses in areas of skill shortages such as nursing, teaching, IT and engineering.

Under the changes, bachelor degree graduates will be able to stay for four years, up from two. Master’s graduates will have their post-study work-rights visas increased from three to five and PhD graduates will be able to stay six years, up from four.

Mr Clare met with the Council for International Education earlier this week to discuss increasing the number of international students who go on to become permanent migrants from 16 per cent. In Canada, the figure is 27 per cent.

Mr Clare told The Australian Financial Review Higher Education Summit on Tuesday that international students were an important source of labour while they were studying and there needed to be more incentives for them to stay on, and for longer, after they graduate.

”When they graduate they go home. It would be great if they stayed on and helped us fill some of those chronic skill gaps ... Seems to me like a no-brainer,” Mr Clare said.

Chris Stoltz, a professor of practice in engineering at La Trobe University, said having more overseas-qualified engineers working in Australia would greatly ease the pressure on industry.

“The latest figures from Engineers Australia show that the demand each year for engineering graduates in Australia is about 16,000 – but universities are only producing about 9000 each year,” Professor Stoltz said.

“Yet 47 per cent of migrants actively seeking a job as an engineer are currently underemployed, often working in less-skilled industries to get by.”

His comments are backed by research that shows that while the educational attainment of international graduates tended to be much higher than the overall population, they often struggled to find work in the area of the degree and often get relegated to low-skills jobs in hospitality and the care sector.

However, immigration expert Abul Rizvi said he was not convinced staying longer in Australia was the answer to graduates securing permanent residency.

“In order to get permanent residency they need to have worked in a skilled job. But it is often very hard for them to get a skilled job while they are here, and they get stuck in dead-end jobs,” Mr Rizvi said.

Mr Clare said he was alert to concerns that students might flood education providers with the sole intention of residency.

The higher education sector is already raising a red flag over huge increases in visa applications from India and Nepal, which is being driven by the removal of a cap on the number of hours students can work each week.

The Morrison government removed the 40 hour-a-fortnight cap on how many hours students could work.

Applications from Nepal, in particular, are on the rise, increasing by 70 per cent in the past year.

To the end of March, there were 6312 applications from Nepal to study a vocational course in Australia, with visa approvals running at an exceptionally high 85 per cent. Application numbers for China and India, the two largest source countries for overseas students, were 3930 and 3483 respectively.

Mr Rizvi, who has been raising concerns over the dramatic rise in Nepalese applications for student visas, has also argued that increasing the period of time that students can stay after graduation will not address skills shortages.

“Longer post-study work visas are not the solution – that just increases students in immigration limbo. Better to guide overseas students into quality courses relevant to OZ long-term skill needs & transparent pathway to PR for high-performing students,” he said on Twitter.

Industry, union and business leaders spent two days hashing out details on the future of Australia’s workforce. Here’s what they landed on.

Over 140 heavy-hitters from business, union, industry and political circles gathered in Canberra this week to discuss critical and ambitious plans to reform the Australian economy by boosting workforce participation, increasing productivity and putting plans in place to boost real wages.

The lineup was impressive – attendees ranged from industry and union leaders, such as the Australian Council of Trade Unions Secretary Sally McManus and Australian Industry Group’s CEO Innes Willox, to business magnates including Fortescue Metals’s CEO Andrew ‘Twiggy’ Forrest and Atlassian’s CEO Scott Farquhar.

These conversations on the future of Australia’s workforce are occurring at a critical juncture in time. Australians are facing soaring cost-of-living issues, employers are struggling to navigate the tightest labour market in recent history and the government is dealing with eye-wateringly high levels of national debt.

This means that every attendee had an agenda; each person felt their issue should be set as a priority, and not everyone will walk away happy.

Treasurer Jim Chalmers is not blind to this fact and, in his opening address, noted that bringing these disparate groups together would result in some challenging conversations, but said he felt cautiously optimistic about what the collective group could accomplish.

Here are some of the key issues and announcements to come out of the two-day summit.

1. Wages 

While discussions at the Jobs Summit were certainly varied – declining productivity, low female workforce participation rates, the introduction of multi-employer bargaining – they all ladder up to many people’s key concern: responding to the fall in real wages growth.

And it’s no wonder. Australia’s decline in wage growth has been a hot-button issue for years now. And despite recent ABS statistics showing that wage growth rose by 2.6 per cent this year, the accompanying inflation pressures mean this isn’t translating into a benefit for employees.

Public versus private wages from 2012-2022

 

State and territory breakdown of 2022 wage growth

 

This will no doubt continue to make headlines over the coming months, but the government hopes that many of the decisions made during the summit will help to ease pressures.

2. Productivity challenges and female workforce participation

To boost wages, you need to boost productivity, said the Grattan Institute’s CEO Danielle Wood.

Speaking to delegates, Wood stated:

“While productivity remains the secret sauce of higher incomes, it is worth noting that recent research finds some reduction in the share of productivity gains passed through to workers over the past 15 years.

“No matter how you cut it, the rate of productivity growth has slowed over the past decade. Over the past 60 years, our labour productivity improved at an average rate of 1.7 per cent a year. Over the decade to 2020, it was 1.1 per cent a year.

“This is not just an Australian phenomenon. The slowdown has been seen around the developed world, although our relative performance has also slid down the international rankings. Everyone is running slower, but Australia is also falling back in the field.”

Wood suggests these productivity concerns could be partly remedied by putting more resources into getting women back into the workforce.

“Women are often excluded from full-time work, and from the most prestigious high-paid roles, because these so-called ‘greedy jobs’ are incompatible with the load of unpaid care still disproportionately shouldered by women,” she said.

According to Katy Gallagher, Minister for Finance, Women and the Public Service, if female participation in the workforce matched men’s, the economy could be 8.7 per cent larger by 2050.

As has been widely discussed and reported on, the pandemic has pushed back years of incremental wins for women in the workforce. As the graph below demonstrates, we’ve been making progress following a 19 per cent gender pay gap peak in 2014, but since the pandemic, that gap has started widening once again.

Australia’s gender pay gap from 2012-2022

 

This drop in pay also coincides with a drop in female participation rates in the workforce, due to many women working in insecure jobs (hospitality, retail and tourism) and increasing the amount of unpaid labour they took on during the pandemic years.

“We can’t keep asking women to babysit the economy,” said Equality Rights Alliance’s Secretariat Helen Dalley-Fisher.

“We have to shift the distribution of unpaid work, and we have to change our workplaces to make this possible. We should expect everyone to work flexibly at some point in their careers as they meet their fair share of caring work.”

Australian workforce participation rates for men and women 2012-2022

 

Experts say the solution to this lies in better childcare support for working families.

In response to this, many have called on the government to bring forward its $5 billion childcare subsidy plan, which is currently set to be included in the October 2022 budget.

The plan would give families with a combined income of up to $80,000 a 90 per cent subsidy for childcare for their first child. Support would also be offered to families with a combined income of up to $530,000.

“We can’t keep asking women to babysit the economy.” – Helen Dalley-Fisher, Secretariat, Equality Rights Alliance.

KPMG’s National Chair, Alison Kitchen, was one of the voices in support of the subsidies.

“Policies to reform [subsidies] in the childcare sector are sound investments with tangible economic benefits. They’re not welfare. For every dollar invested in those policies, the nation’s GDP is boosted by almost $2.”

However, the government claims it cannot bring this subsidy forward due to the “massive debts” inherited from the previous government, and states that the $5 billion plan will still help thousands of working families when it’s introduced in the new financial year.

Speaking to HRM, Professor Ben Hamer CPHR, AHRI board member and Adjunct Professor at Edith Cowan University, says that while he understands the need to address childcare needs to support female participation at work, he is “perpetually frustrated” that this is framed as a women’s issue.

“It’s a family issue, and as far as employers are concerned when they’re looking to leverage untapped talent in a tight labour market, it’s absolutely an organisational issue,” says Hamer.

“We need to recognise that the nine-to-five, five-day-a-week model has been around for over 100 years. And yet women were only granted the full adult wage in Australia less than 50 years ago. 

“It was a system designed by men, for men. And so we need to fundamentally change the system.”

One way he suggests doing this is by embracing more flexible ways of working which, he acknowledges, most organisations are already doing but suggests that efforts should be more “radical” – such as scrapping the work-hours model completely and focussing on output alone. 

“We also can’t underestimate the importance of appropriate female representation at the most senior levels. And I’ll give you an example. When you look at the organisations mandating office attendance… you’ll find it’s rarely coming from female CEOs. Read into that as you will.”

3. Multi-employer bargaining and simplifying the Better Off Overall Test (BOOT) 

One of the more contentious items on the summit’s agenda was the introduction of multi-employer bargaining agreements. 

“Multi-employer bargaining gives unions the ability to strike agreements for workers across a number of organisations in the same industry,” says Hamer. 

Only a few hours into the summit, Workplace Relations Minister Tony Burke announced that the government was prepared to take “immediate action” to enable multi-employer agreements and to simplify the better off overall test (BOOT), which was introduced in 2009 by the Rudd government.

While the government concedes that the BOOT is in need of an overhaul – Treasurer Chalmers told ABC’s 7:30 it was “not sufficiently simple, fair or flexible enough for workers” – it’s standing steady in its plans to shake up enterprise bargaining.

“The changes that have been worked through right now will make a real difference to business being able to employ people, and people being able to make ends meet with decent pay rises into the future,” said Burke.

Those in low-income jobs are already able to enter into multi-employer agreements, but this process has been criticised and called “a failure”. Industry leaders are calling for more details to be released to give a better sense of what a wide-scale approach would look like, and how it would differ from current processes.

RMIT University professor, industrial relations expert and summit attendee Anthony Forsyth said that current individual enterprise bargaining “completely ignores how businesses have evolved”, noting that our new-found reliance on labour hire and outsourcing needs to be taken into account.

However, there’s plenty of opposition to this plan, notably from industry leaders and the political opposition.

Shadow Employment Minister Michaelia Cash, who was not present at the summit, said multi-employer bargaining would be “devastating” for the economy, as it could increase strike activity across sectors. And Innes Willox, CEO of the national employer association Ai Group, said such changes would be “seriously misguided”.

“We can, and must, make it much easier for small employers to engage in enterprise bargaining that enables agreements to be relevant to the genuine needs of the business and the employees,” Willox said in a statement. “We should definitely not subject them to a one-size-fits-all approach of sector bargaining and the prospect of damaging industrial action.”

Despite this opposition, Burke said consultations to legislate these changes are likely to begin next week and hopes the legislation will be introduced by the end of this calendar year. 

This move could very well be a defining feature of the Albanese government – for better or for worse.

3. Skilled migration and homegrown talent

One of the key ways to breathe life back into the Australian workforce from a skills perspective is to introduce more visas for highly skilled migrants.

On day two, Home Affairs Minister Clare O’Neil announced a temporary 35,000 increase to Australia’s migration intake cap, bringing it to 195,000. 

Regional migrant positions will also increase from 9000 to 34,000, as will state and territory sponsored visas (11,000 to 31,000).

“This is absolutely a step in the right direction to ensuring the right migration mix to support skill needs and labour market demands,” says Hamer. “But we can’t overlook the need to bring in more temporary workers, such as those on Working Holiday Maker (WHM) visas to bolster our hospitality, agriculture and tourism sectors, particularly as we head into the Christmas season. 

“And it’s not just about giving out visas, but creating the right conditions to entice and retain these workers. For example, there are over 70,00 backpackers with valid WHM visas currently outside of Australia who could travel and work here if they wanted, but have chosen to stay out of the country.”

“Now is the perfect time to take stock of where we’re at, identify current and emerging risks to the labour market, and come up with a plan for safeguarding our economy in the long run.” – Dr Ben Hamer CPHR, AHRI Board Director

O’Neil added that the government’s focus is firmly on Australian jobs first.

“That’s why so much of the summit has focused on training, and on the participation of women and other marginalised groups,” said O’Neil. “But the impact of COVID has been so severe that even if we exhaust every other possibility, we will still be many thousands of workers short, at least in the short term.”

Annie Butler, Federal Secretary of the Australian Nursing and Midwifery Federation, warned against using temporary overseas workers as disposable resources.

“To ensure we have the skilled workforce we need we must plan appropriately, train our local workforces, and then encourage overseas skills through permanent migration programs.”

Joanna Howe, University of Adelaide associate professor in law, is also in favour of permanent migration policies, as she believes the “poor quality” of temporary visa jobs, in terms of conditions and pay, make for a ‘revolving door’ situation.

Columnist and former Deputy Secretary of the Department of Immigration, Abul Rizvi, added to this point, stating: “We are now barrelling towards becoming a fully fledged low-skilled guest worker society.”

This means we need to make plans to bolster homegrown talent in conjunction with an increase in migrant workers. To this point, the government announced an extra 180,000 fee-free TAFE places as of 2023, totalling $1.1 billion.

“We want to see more Australians gaining the skills they need to find good jobs, in areas of national priority,” Prime Minister Anthony Albanese said to summit delegates.

Notable mentions

That covers the big-ticket items discussed over the two days, but here are some other noteworthy announcements and discussion points that are worth mentioning.

• The government plans to offer better flexible working arrangements and access to unpaid parental leave to assist families in sharing the load for care work.
• Michelle O’Neil, President of the ACTU called for the paid parental leave scheme to be increased from 18 to 26 weeks immediately, and to be increased to a full year by 2030 in order to boost economic activity.
• More power will be given to the Fair Work Commission to get involved in unfair bargaining practices.
• A national construction industry forum will be created to manage safety, mental health, training, productivity, culture, gender and diversity in the industry.
• Albanese announced that his government would keep stage-three stage cuts, despite initial calls from the Labor government to scrap them.
• $36.1 million has been pledged to increase staff capacity in visa processing centres by 500 over the next nine months.
• Experts are pushing for more innovation to come out of Australia. We’re currently rated 25th in the world in terms of product innovation and 23rd for collaborative patents, said Queensland University of Technology Vice Chancellor Professor Margaret Sheil. Australia invests 1.8 per cent of its GDP into research and development compared to 2.3 per cent across the OECD.
•  Peter Dutton, who didn’t attend the summit, urged the government to consider letting older Australians back into the workforce without having to forgo their government benefits. Albanese responded by announcing a $4000 work bonus income bank credit for pensioners, allowing them to engage in more work. This will be available until June 30 2023.
• An increase in training and jobs for Indigenous Australians and culturally and linguistically diverse people. This will include 1000 digital apprenticeships in the Australian Public Service.
• Australian of the Year and tennis pro Dylan Alcott called for people living with disability to be able to pick up more hours of work without having to forgo any of their disability support payments.

  Next steps

  No matter what side of the fence you sit on regarding these issues, it seems clear that this government is committing to walking the talk with its proposed changes – and that proactivity is certainly going to make an impact in critical areas.

  “The best time to develop strategic policy is not in reaction to when things are bad and reap the benefits years down the track,” says Hamer. “Now is the perfect time to take stock of where we’re at, identify current and emerging risks to the labour market, and come up with a plan for safeguarding our economy in the long run.”

The Albanese government’s jobs summit needs to brainstorm ideas for putting Australia at “the top of the charts” for globetrotting workers, top executives say, and some warn they are holding back on committing money to big projects due to labour shortages.

“We’ve got to get Australia back to the top of the charts in terms of where people want to come and work,” said Coles chief executive Steven Cain. “Every business that I speak to is seeing increasing churn levels.”

Demand for technology workers is so high that Coles, which is trying to cut costs and make its online shopping operations more efficient, is using workers located overseas for some work that it would usually do in Australia and carefully prioritising projects, Mr Cain said.

Rob Scott, head of the nation’s second-largest employer, Wesfarmers, said the WA-based conglomerate was finding it tough to fill jobs ranging from construction and engineering to skilled buyers in its retail businesses.

“Any role in technology and data and digital [is hard to fill],” he said. “Some of the skilled designer roles and buyer roles in retail are hard to come by. And it’s not just skilled labour – if you look at a lot of regional areas and small businesses are really struggling,.

“Cafes, restaurants, hospitality, tourism businesses, particularly in regional areas, are struggling. That doesn’t have a direct impact on our businesses, but it has an indirect impact because a lot of those small businesses are customers of Bunnings, Kmart and Officeworks.”

Mr Scott on Friday urged the government to consider more immigration and said that due to the skilled labour shortage and higher costs, it was difficult for the $54.7 billion Wesfarmers group to commit to key projects such as doubling the capacity at its Mount Holland lithium mine.

Suncorp CEO Steve Johnston also singled out technology experts, particularly digital specialists, as the hardest workers to find due to strong competition for them in Australia. “I think all companies are focused on digital-type activities,” he said.

To try to attract people to join the company, Suncorp has told prospective employees that they could help rebuild the nation’s east coast after severe floods when it was recruiting about 1000 people for recovery projects.

“The big differentiator these days is … purpose,” Mr Johnston told The Australian Financial Review.

AGL Energy CEO Graeme Hunt is also having difficulty finding people with technology skills.

“At AGL we have a diverse workforce and, like many businesses, one of the challenges at the moment is recruiting people in the technology and cybersecurity areas,” he said. “These areas are always highly competitive areas, and we’re finding this is the case now more than ever.”

At Nuix, CEO Jonathan Rubinsztein says the group’s specialist software services help it attract technology architects and that hiring people is becoming easier as the economy weakens and start-up companies scale back.

Global reach

Dig Howitt, CEO of medical device group Cochlear, said it was not surprising that finding people with data, digital tools and software skills was difficult given the shift to a more virtual and connected world.

“We’re fortunate that we do have a global reach and we can hire outside of Australia,” he said.

Paul Perreault, boss of biotech group CSL, said finding good scientists and researchers was always hard. “Right now we’re looking for experts in vaccinology because we’re expanding the flu business with our new products.”

The company’s seasonal influenza vaccine sales surged 16 per cent, hitting a record volume of 135 million doses distributed and propelling US vaccine sales above the $US1 billion threshold for the first time.

CSL also needs people specialised in therapeutic goods, including nephrology and implants.

In the engineering and construction industry, contractors have been struggling to find enough workers to build an enormous pipeline of infrastructure projects.

Downer EDI CEO Grant Fenn supports an increase in skilled migration. He says the company, which provides services from running Melbourne trams to fixing roads and building wind farms, usually has about 2000 jobs vacant but now has more than 3000 jobs open.

These include people with electrical skills who can work on energy networks. “These are difficult skills to introduce because you’ve got to be accredited,” Mr Fenn said.

To fulfil its commitments, Downer has asked some staff to work longer hours and is paying overtime, and is also using more labour-hire agencies and subcontractors.

Monadelphous CEO Rob Velletri said the Perth-based engineering group was going to be more selective in the contracts it took on and prioritise projects that provided secure, long-term returns because “there’s more work to do than people that are available”.

The company employs almost 8000 people including subcontractors and labour is its biggest cost. It is trying to hire people locally to reduce its reliance on fly-in, fly-out workers and improve the productivity of existing employees.

Flexible working

But while the federal government is expected to increase the permanent migration cap to 200,000 places from 160,000 in its October budget to help fill jobs, Mr Velletri said the forecast increase would not be sufficient to end labour shortages.

Cement manufacturer Adbri is also struggling to find workers and has 100 vacancies across its business, according to CEO Nick Miller.

Kevin Gallagher, CEO of oil and gas producer Santos, said companies were having to pay more attention to their working environments, including flexible working policies and office fit-outs, to find and retain staff.

This is in addition to managing ongoing disruption in workforces due to people isolating with COVID-19, he said.

“It comes back to not trying to do all your projects at once because you’ve got to staff effectively and stay focused on your delivery, your execution,” Mr Gallagher said.

Intellectual property services group IPH is making more of an effort to explain why workers should join the firm, says CEO Andrew Blattman.

“Professional services in Australia or anywhere in the world is becoming harder in terms of people’s career opportunities,” he said.

“The track towards what was the corner office and partner [is lengthening] What was five years becomes 10, becomes 15. But we can use the equity, the public markets, the IPO as part of that story.”

Transurban chairman Lindsay Maxsted said that while skills shortages were not getting any worse, they were not getting any better either.

Low unemployment meant Australia could absorb more migrants, Mr Maxsted said. “I think we can deal very positively with an influx of immigration ... there’s room for everybody.”

Salaries for jobs advertised on online hiring platform Seek surged 4.1 per cent in July compared to a year earlier, adding to wide-ranging evidence that wages are picking up strongly in the second half of the year.

Seek’s inaugural Advertised Salary Index measuring the growth in salaries across the 200,000 listings posted each month suggests that the ultra-low 3.4 per cent unemployment rate is forcing employers to offer fatter pay packets to secure workers.

The higher pay rises for people switching jobs is happening across a wide range of white and blue-collar industries, for lower end and higher end jobs.

Advertised salaries for designers and architects jumped 7.3 per cent to an average of almost $90,000 over the last 12 months, while information and communication technology pay rose 6.2 per cent to an average of $130,000 annually.

Advertised salaries for mining, resources and energy salaries increased 5.7 per cent to $126,783, real estate pay jumped 5.7 per cent to $81,081, manufacturing, transport and logistics rose 5.2 per cent to $69,197, accounting was up 4.9 per cent to $90,993, and marketing and communications increased 4.7 per cent to $93,693.

Job ad salaries for tradies rose 6.1 per cent to $71,797 and administrative and office support workers’ pay increased 5.8 per cent to $63,516.

The survey, to be launched on Monday, is an indicator of future wage growth.

The Seek data for the new financial year in July is more recent than the official Australian Bureau of Statistics wage price index which showed wages rising modestly for all workers by 2.6 per cent in the June quarter.

Seek senior economist Matt Cowgill said it was “clear” wages and salaries were picking up.

“Competition for talent is fierce, with the unemployment rate at a near 50-year low. The pick-up in advertised salary growth has been broad-based. Most types of jobs are seeing annual advertised salary growth greater than 3 per cent,” he said.

The data adds to evidence that wages growth is picking up.

The minimum wage and award wages rose between 4.6 per cent and 5.2 per cent for 2.7 million workers in July.

For the 15 per cent of workers who scored a pay rise in the June quarter, the average increase was a healthy 3.8 per cent (excluding a superannuation increase), the highest since the mining investment boom in 2012, according to the ABS.

Adding in the 0.5 of a percentage point increase in the superannuation guarantee to 10.5 per cent from July, these bonus-and-commission-incentivised workers received a 4.3 per cent remuneration increase.

Compelling evidence

State governments have also lifted their public sector pay caps.

The Reserve Bank of Australia’s business liaison program suggests that more than half of employers will award pay increases of more than 3 per cent over the next 12 months, while the National Australia Bank business survey, business leaders and union pay claims are also pointing to bigger wage rises.

Business Council of Australia chief economist Stephen Walters said: “Wages are increasing and there is a lot of compelling evidence that wages are going to be picking up over the next six to 12 months.”

When companies list an ad on Seek they include a salary range for the position (which may or may not be visible to the candidate), giving the job site a wide cross-section of data across industries, seniority and geography.

Advertised salaries grew across all states and industries in the 12 months to July 2022, with the lift in advertised salaries likely to precede a broader increase in wages growth across the economy.

The public service, healthcare, and education and training experienced slower growth in advertised salaries.

“Government and industries where there is strong government involvement, either as an employer or indirectly as a funder, are tending to see lower growth and advertise salary,” Mr Cowgill said.

While Seek’s ASI and the ABS wage price index were on a similar trajectory before the pandemic, Mr Cowgill noted the advertised salaries tended to fluctuate more than the ABS wages measure.

“If you think through from the perspective of an employer, you’re much more able to adjust salary – in both directions – that you are offering for new starters than you are to adjust the wages for existing staff,” Mr Cowgill said.

“When things change, like the unemployment rate has been on kind of a roller-coaster the last few years, advertised salaries are much quicker to adjust to those changes in the labour market in the economy than overall wages.”

‘Apples with apples comparison’

When the pandemic hit, growth in advertised salaries slowed rapidly, nearing zero and started growing more rapidly in mid-to-late 2021, as the economy reopened.

The survey is an “apples with apples” comparison of pay by monitoring salaries for the same types of advertised jobs over time.

The data will be released monthly, more frequently than the quarterly ABS wage price index.

Advertised salaries grew the fastest in the Northern Territory (5 per cent), followed by Western Australia (4.9 per cent), Tasmania (4.8 per cent) and Queensland (4.7 per cent).

South Australia (1.9 per cent) and the ACT (1.8 per cent) were the only two states or territories to record relatively modest advertised salary growth.

A blowout US jobs report for July means the Federal Reserve will need to keep going with the most aggressive rate hikes in decades to curb demand and inflation.

US employers added 528,000 jobs last month, more than all estimates, the unemployment rate fell to a five-decade low of 3.5 per cent, and wage growth accelerated, the Labor Department said.

The data add impetus for the Federal Open Market Committee to raise interest rates by 0.75 percentage point when it meets in September, matching the moves it made in June and July as it works to cool an inflation rate that’s running at a 40-year-high. The strong momentum could also suggest the central bank will need to keep rates higher for longer, contrary to market expectations for rate cuts in 2023.

The labour market is “still sizzling” and that can feed into inflation, said Diane Swonk, the chief economist at KPMG LLP. “This argues for another 75 basis point hike by the Fed.”

At a press conference last week, Fed chairman Jerome Powell said another large rate rise at the September meeting was possible, but he gave no specific forward guidance and said future increases would depend on data. Investors interpreted the remarks as a pivot to a less aggressive posture and markets rallied in response.

Fed presidents this week have strongly countered that impression, arguing the central bank wasn’t intending a pivot away from aggressive hikes and that it would take significant news to alter their posture.

Friday’s jobs data, while important, was just one of four key reports that will shape the FOMC decision next month. There will be one more employment print and two consumer-price index readouts, with the July data out on August 10. That report should show slowing inflation because of plunging gas and commodities prices.

“If we get to September with things being where they are today – and that’s a big if – 75 basis points and signals of the risk of another 75 basis points, that’s what you’ll see,” said Mohamed El-Erian, chief economic adviser to Allianz.

Ultimately, it’s the inflation data, which could also be affected by falling commodity prices and supply chain improvements, that will decide the September move, said Julia Coronado, co-founder of MacroPolicy Perspectives and a former Fed economist.

All else equal, the jobs’ data “would lean in favour of either a 75 basis-point hike or a longer hiking cycle because we are not seeing moderating job growth”, she said.

Yields on two-year Treasuries surged in response to the jobs report, a reflection of the expected Fed rates over that period. Market pricing indicated a 75 basis-point increase to the Fed’s key rate is now seen as a more likely outcome at the central bank’s September meeting than 50 basis points.

Powell has described the labour market as “tight to an unhealthy level”, and has been seeking a moderation to help bring demand for products and services more in line with supplies that have been constrained by COVID-19 disruptions. He and other Fed leaders are worried about the potential for a wage-price spiral, with higher wages feeding into inflation in a cycle that is hard to break.

“This number is so comprehensively strong with a pretty significant uptick in wages,” said Mark Spindel, chief investment officer at MBB Capital Partners in Chicago. “Companies are paying up for labour. Income matters most. When you look at the breadth of the employment report, and the earnings, this is an enormous tailwind for income.”

The upper bound of the Fed’s benchmark is now at 2.5 per cent. Policymakers will have to get the target rate to the region of 4 per cent and hold it there for some time to quell inflation and price expectations, said Randall Kroszner, a former governor at the central bank.

“You’ve really got to make sure that inflation and inflation expectations have come down and are out of the system,” Kroszner, an economics professor at the University of Chicago Booth School of Business, said on Bloomberg Television. After the jobs report, he said that a 75 basis-point increase “will be on the table for the next meeting”.

 

Business leaders are pressing the federal government to use its jobs summit to quickly boost the number of workers in the country and ramp up skills levels, pushing back at union calls for the meeting to canvass sweeping changes to the nation’s economic pillars.

As shadow treasurer Angus Taylor said the ACTU’s plans for the summit would amount to a “wrecking ball” through the economy, business organisations said there needed to be short and long-term policies agreed upon at the September meeting.

The government is bringing 100 people from the public and private sectors to its September jobs and skills summit to canvass ways to keep unemployment low, boost productivity and increase real incomes.

The Australian Council of Trade Unions on Wednesday revealed it wanted the summit to canvass a radical agenda, stretching from changes to the Reserve Bank’s operational strategy to government control of prices for goods and services in particular sectors such as energy and telecommunications.

The ACTU is pressing for the government to abandon the already legislated stage-three tax cuts and introduce an excess profits tax on businesses enjoying windfall gains due to current high inflation.

Australian Chamber of Commerce and Industry chief executive officer Andrew McKellar said he agreed with the ACTU’s warning that the summit could not just tinker around the edges of economic policy change.

He said the chamber’s focus would be on issues around skills, participation, migration and industrial relations, noting there had to be agreement on proposals that could be implemented almost immediately and some that would form part of the October budget.

“We need to be ambitious, pragmatic and well-informed. So we will look at ideas from all groups,” he said.

McKellar said he did not believe the Reserve Bank charter should be part of the jobs summit, but noted the business sector held its own concerns about the tightening of monetary policy to deal with inflation.

“From a business point of view, we do have concerns. We don’t want the policy response to be excessively reliant on monetary policy. We don’t see the issue as an overhang of excess demand, there are issues around supply chains and monetary policy can’t solve that,” he said.

Australian Industry Group chief executive Innes Willox said maintaining full employment should remain a key objective of economic policy, but that also had to include finding ways to boost workforce participation levels.

He said his organisation was concerned about the ACTU’s calls for re-regulating part of the industrial relations system, arguing a return to centrally approved employment contracts would reduce participation.

“More people are wanting to work part-time; many are looking to transition to retirement and approaching their employer seeking to convert to casual contracts; others want to control their own hours and operate as sole traders; and very few employees are taking advantage of provisions that allow them to request a conversion of their casual employment contract into a permanent position,” he said.

Willox also pushed back against the ACTU’s tax agenda, saying an excess profits tax would be difficult to design with no sign it would reduce inflationary pressures. A financial penalty on businesses if they channelled money back to shareholders would also have unintended economic consequences.

“Such measures would trap profits in companies regardless of the business’s options for reinvestment and they would dampen the efficient allocation of capital in the broader economy,” he said.

Taylor, who will not attend the summit, said the ACTU’s plans would cause enormous economic damage to the country.

“This is a plan for higher taxes, higher inflation and heavy-handed government and it would be a wrecking ball through the economy,” he said.

Taylor said maintaining the Reserve Bank’s independence was pivotal to keeping inflation low and the jobs market strong.

Opposition Leader Peter Dutton has rejected an invitation from the government to the summit, to be held September 1 and 2.

But Nationals’ leader David Littleproud said he would go if invited, arguing regional Australia needed its voice heard.

“I think it’s important we do have a voice at whatever forum is provided,” he told SBS Television.

Treasurer Jim Chalmers on Wednesday afternoon issued a formal invitation to Littleproud, noting his position was at odds with Dutton and Taylor. Chalmers said Dutton’s decision not to attend reflected his resistance to finding solutions to Australia’s economic challenges.

“Peter Dutton is always looking for an excuse to trash consensus and to trash collaborative efforts everyone else is engaged in,” he said.

“His position does not reflect the position of mainstream Australia, the position taken by the business community, by the union movement, by different levels of government, different political
persuasions of state governments and local councils.”

Greens treasury spokesman Nick McKim said the ACTU’s position increased the pressure on the government to abandon the stage-three tax cuts.

He said the performance of the Commonwealth Bank, which on Wednesday reported an 11 per cent increase in its cash profits to $9.6 billion, was further evidence of the need for a super profits tax.

“While the government and the RBA are asking workers to take more pain, big corporations are filling their shareholders’ pockets,” he said.

“Super profits taxes are needed to curb corporate profiteering that is exacerbating inflation and to fund cost of living relief for Australians who are struggling to make ends meet.”

Inflation could turn negative by late next year as petrol prices decline and supply chain pressures ease, allowing the Reserve Bank of Australia to avoid being too aggressive on interest rate rises.

Economists expect some major global inflationary pressures to be temporary and Australia’s quarterly headline inflation to be low or negative by the final quarter of calendar 2023.

An expected easing of inflation pressures next year meant the RBA should not lift the cash rate too far above the estimated 2.5 per cent neutral rate, said Outlook Economics director Peter Downes.

The sharp rise in the cost of oil, shipping, freight and manufacturing stems from Russia’s war on Ukraine driving up energy prices, China’s COVID-19 restrictions choking global supply chains, ultra-loose monetary policy and government spending.

“These special factors will begin to reverse,” Mr Downes said.

“If global growth slows and global oil prices fall back to around $US60 a barrel, fruit and vegetable prices fall back, freight rates return to pre covid rates as they are already most of the way there and building costs return to some sort of normality, then the through the year headline rate could be negative by the end of next year.”

Bond traders have reduced the outlook for long-term interest rates in response to central banks worldwide aggressively raising rates towards “neutral” – the theoretical rate that is neither stimulatory, nor restrictive.

The RBA meets on Tuesday and is widely expected to increase the 1.35 per cent cash rate by another 0.5 of a percentage point to 1.85 per cent, with more increases to follow in coming months.

The 6.1 per cent annual inflation rate for the June quarter reported on Wednesday meant a 0.5 of a percentage point rise was likely on for next week, said Commonwealth Bank of Australia economist Gareth Aird.

“We believe the case to move the cash rate by more than 50 basis points at the August board meeting is weak,” Mr Aird said.

“The inflation data did not surprise to the upside.

“And whilst the annual rate increased, the quarterly pulse of inflation did not accelerate.”

Treasurer Jim Chalmers and Reserve Bank of Australia governor Philip Lowe have warned inflation will spike above 7 per cent by late this year, but expect inflation to ease next year.

A negative quarterly headline inflation rate was “not out of the question” later next year if the global price of oil and petrol prices fell significantly, said ANZ economist David Plank.

However, Mr Plank said the RBA would be more concerned about underlying inflation, which ANZ tips to eventually fall below 3 per cent in annual terms by mid-2024. Annual underlying inflation was 4.9 per cent to June 30, the Australian Bureau of Statistics said this week.

Key will be wages

“The real inflation key will be the behaviour of wages if the unemployment falls below 3 per cent as we are now forecasting,” Mr Plank said. In June, Australia’s jobless rate fell to a 48-year low of 3.5 per cent, the ABS said.

It is possible that headline quarterly inflation could turn negative late next year if the oil price plunged, but the RBA’s more important measure of underlying inflation would still be firm, said HSBC Australia chief economist Paul Bloxham.

“The important part is domestic non-tradables inflation, which will remain above target given the tight labour market and likely momentum in wages growth by next year.”

Mr Bloxham tipped the RBA cash rate to hit 2.6 per cent by this December.

The RBA could get “lucky” next year as global inflationary forces recede, if the bank managed to keep a lid on inflation expectations, he said.

While Dr Lowe appears confident much of the supply-side inflation pressures from overseas will ease, he is keeping a close eye to make sure a wage-price spiral doesn’t develop to underpin a new burst of inflation.

He has said it is important to keep a lid on inflation expectations, to deter businesses from rising prices too much and workers making excessive wage claims.

Globally, a big jump in soft commodity prices such as corn, wheat, canola, cotton, live cattle, lamb and pork has driven food inflation. After surging, prices for most of these farm products have declined.

The Albanese government will prioritise the processing of almost 60,000 permanent visa applications lodged by skilled workers based overseas, in a bid to rapidly reduce areas of dire shortage such as health, education and aged care.

The move is a down payment on an anticipated increase to the size and composition of the permanent migration intake, to be announced following the September jobs and skills summit.

“We’ve got to get the system moving again, and then we have to have the deeper conversation,” Home Affairs Minister Clare O’Neil told The Australian Financial Review.

“There’s a really important conversation to be had about the size and composition of the migration program.”

In the immediate term, stretched departmental resources will be diverted from processing the generally lower skilled permanent visa applications lodged by temporary visa holders already in Australia, so applications by more highly skilled workers overseas can go to the front of the queue.

Senior business leaders are backing Reserve Bank governor Phil Lowe’s position that an inflation target band should remain a key objective of the central bank in monetary policy.

At The Australian’s Strategic Business Summit on Wednesday, BHP’s chief financial officer, David Lamont, said what business wanted was certainty.

“In the volatile world we live in, to have some certainty around targets that have been set enables us to then plan,” he said.

“And we need to plan not for tomorrow but for five, 10, 15, 20 years’ time. So, having that gives us a lot more certainty to invest back into the country.”

National Australia Bank chief executive Ross McEwan welcomed the timing of the review under the new government and the inclusive spirit it had pitched – but on the target band he was clear.

“I’d be very surprised if we walked away from an inflationary band that we operated in,” he said.

“Is 2 to 3 per cent the right number? We will leave the experts to work that through, but it has certainly changed from 20 years ago.

“ And the last six to 12 months have shown that we are in a difficult period of high inflation that we haven’t seen for decades.”

Incitec Pivot chief executive Jeanne Johns called the target band an important part of monetary policy and expressed surprise that it would be thrown in to the review.

“It’s really about making sure that it’s fit for purpose in these times and how it gets measured but, clearly, we don’t want to go through a big inflation cycle which tends to run away from itself,” she said.

Business support will be welcome news for Dr Lowe. While all the talk is co-operation around the review, he and his board can hardly be thrilled. They have already run what the governor calls the bank’s internal continuous review after considerable criticism over signals to the market and timing of rate rises. The independent review is expected to test the need for a target band, probing the time ahead of the pandemic when inflation sits sullenly below the band.

Addressing the summit earlier in the morning, Dr Lowe responded to the government’s formal launch of the review with a speech dominated by the task of returning inflation to within the 2 to 3 per cent band.

Yes, too much insurance might have been taken out against pandemic risk and contributed to inflation pressures. That is the nature of insurance, he argued.

He mused on the neutral real interest rate that neither stimulates nor contracts the economy and he stressed the bank was watching for any shift in inflation psychology that would make it harder to return to the target band. The 1970s went that way and ended badly, he warned.

“The key consideration in the outlook for interest rates is how confident are we that inflation will come back to 2 to 3 per cent over time,” he said.

Asked what he would do if the review found that the target needed revising or should be scrapped altogether, Dr Lowe would not prejudge the review but he noted: “In most other countries that have reviewed their inflation target arrangement, they have come to the conclusion that a flexible inflation target centred somewhere around the 2 per cent of that mark is the best we can do.”

That general conclusion is a pretty robust conclusion, he said.

“If the review panel comes to a different conclusion, we have to assess that and discuss it with the government.” For companies heading into the results season and deliberating over guidance, McEwan admits it is a difficult time, facing into a higher inflationary period. But he said Australia compared well to other countries with much higher and more intractable inflation.

“I have a fear we are coming down on this economy too hard. We are predicting next year GDP growth of 1.8 per cent but even if it is less than that, we are in pretty good shape. Our biggest problem is that every business I talk to cannot get labour.”

On Tuesday, Prime Minister Anthony Albanese told The Australian he was hopeful of real wages growth within this term of parliament.

Johns said that was going to be a challenge. She is focused on the longer-term productivity that will deliver real wage increases both in Australia and the US where Incitec Pivot has half its business.

“In the US, we work with a major copper mine and we can show how we can lower their explosives costs and lower their drilling costs and make them much more productive,” she said.

“Those are the kinds of things that need to happen if we are going to get real wages up.”

Productivity growth will be big agenda item at the government’s September jobs summit along with often-competing interests of real wages growth, a skilled and unskilled worker crisis and a business sector crying out for industrial relations reform.

Yet, the resilience of many Australian companies through the pandemic, China tensions and the war in Ukraine is also striking.

McEwan points to mining, food and agriculture. On Wednesday, the Chinese government appeared to open the door to lifting its ban on Australian coal.

“I would hope for the Australian economy they do, not only for coal but for other commodities they have banned as well,” said Lamont. “But when the bans came into place, it showed the resilience across the Australian economy that we were able to find other markets for the goods we produce.”

On the iron ore front, however, China is steeling its posture, announcing a new state-backed company to centralise buying of iron ore.

The question is: Does China have the discipline among its steelmakers to wrest the pricing power of the big miners?

“History would say no,” said Lamont. “We believe that markets will sort out where the price needs to be based on supply and demand.

“We supply into that and we will meet what prices the overall economy will support. Our focus is the customer relationships that we have on the ground in China which are very robust.”

The winter COVID-19 spike and recent interest rate rises are making people nervous about switching jobs, prompting desperate employers to offer extra inducements such as sign-on bonuses.

The largest sign-on bonus advertised on the Seek website is $10,000 for truck and excavator operators for Thiess at the Peak Downs mine near Moranbah, Queensland, which pays $5500 a fortnight or $142,000 a year.

Other examples include $6000 to join Volkswagen as a mechanic in Sydney and $5000 to join a plumbing business in Newcastle. Then there is a $5000 bonus to take a job as a truck driver on the NSW South Coast and $5000 to become a nurse unit manager in Bunbury, Western Australia.

Seek surveys users about whether COVID-19 has made them more hesitant to change jobs. The proportion answering “yes” jumped to 20 per cent during the omicron wave in January, before falling to 8 per cent in May. But it jumped back up last month as the winter COVID-19 outbreak grew.

Seek’s ANZ managing director, Kendra Banks, said: “COVID-19 did make people very hesitant about changing jobs, that’s a normal reaction in times of uncertainty. When there’s a lot of uncertainty around, [they ask] ‘Do I want to introduce more by shifting employers? I have flexibility in this role. If I move, am I really going to be able to catch that again?’.“We are also seeing the cost of living starting to creep in. We were seeing optimism about people happy to change jobs, but that is now tinged with ‘Is this the right time to go?’.”

Seek asks people whether they are happy in their job. That slipped to below 40 per cent earlier this year but has jumped back to almost 45 per cent.

“During COVID-19, people were a lot more likely to say they were happy in their jobs – there was a lot of gratitude for being employed during an uncertain time. We started to see that slip early in the new year,” Ms Banks said. “Unfortunately, we saw a tick up again because there is this hesitancy driven by COVID-19.”

More than 80 per cent of employers keep the salary on offer secret, to avoid a wage outbreak among current employees, but salary ranges remain key to winning new staff.

And while only 4 per cent of employers explicitly mention working from home in their job ads, “work from home” has become the top keyword search on Seek’s website. Sixty-one per cent of jobseekers said they would resign if working from home was not an option.

“The talk about a great resignation or reshuffle, neither of those are true in Australia. Participation is higher than ever and we are not seeing people leaving the workplace in droves. Quite the opposite,” Ms Banks said.

Job ads up

Seek is calling the current environment the “great jobs boom”, with 59 per cent more ads on its platform than the pre-pandemic 2019 average.

The job ads are up in most sectors, including accounting, up 34 per cent year-on-year, education, up 39 per cent, hospitality and tourism, up 32 per cent, and manufacturing, transport and logistics, up 28 per cent.

Seek senior economist Matt Cowgill said: “We entered 2022 with a lot of ads, and for the first five months each month set a new all-time record. There was a slight decline in June but still higher than anything we have ever seen pre-pandemic.”

Mr Cowgill said wages were starting to pick up, which was shown most clearly with non-farm average hourly earnings. This was “a broader, simpler measure” and had picked up significantly, with an increase of more than 5 per cent in the March quarter, Australian Bureau of Statistics showed.

The growth in average advertised salaries in the year to June was almost 8 per cent for software engineers. At the lower-paid end, early childhood teachers’ pay jumped more than 6 per cent.

In March, the highest-paid jobs were revealed. These included directors in banking and finance, which had climbed 19 per cent to almost $200,000.

Other jobs offered at close to $200,000 were jumbo operators in the mining industry, staff specialists in the healthcare sector, general managers in construction and CFOs.