Hours worked in the Australian economy were crunched by 8.8% in January as the Omicron wave surged. Staff shortages due to illness and isolation requirements were compounded by a higher-than-usual number of Australians taking summer holidays. Despite these disruptions, underlying labour market conditions were much more resilient than in earlier waves of the pandemic, and with labour demand remaining strong, indications are that the labour market can tighten further.
Labour Force Survey — January | By the numbers
- Employment increased by a net 12.9k in January against expectations for a flat outcome. December's rise in employment was left unrevised at 64.8k.
- Australia's unemployment rate remained at 4.2%, as expected, at 13-year lows.
- Labour force participation firmed from 66.1% to 66.2%.
- Hours worked fell by 8.8% in January, weighed by Omicron isolation requirements and summer holidays.
Labour Force Survey — January | The details
The surge of the Omicron waved caused significant disruption in the Australian labour market in January as illness and isolation requirements prevented many people from going to work, while a higher-than-usual number of Australians taking summer holidays compounded staff shortages for businesses early in the year. Very high rates of vaccination have allowed lockdowns to be avoided in this wave, but hours worked still fell very sharply contracting by 8.8% in January, a decline exceeded only by the 9.6% fall seen during the national lockdown at the outset of the pandemic. This left total hours in January 6% down on pre-pandemic levels. Hours by part-time workers (-9.1%m/m) showed a slightly larger fall than in the full time segment (-8.7%m/m).
Around 5.2m Australians reported working zero or fewer hours than usual due to being on holiday — a significantly higher number for January than in recent years. As Omicron surged many were required to enter isolation either from falling ill or from being a close contact. An extraordinary rise was seen in the number of Australians working fewer hours than usual due to sick leave, lifting from 439.9k in December to 743.5k in January, with nearly 450k unable to work any hours at all due to being in isolation.
Given the high level of absences, many businesses were faced with significant staff shortages in January and more disruption than at earlier stages of the pandemic. Last week's ABS Conditions and Sentiment survey reported 22% of firms were affected by COVID-related absences in January, with medium and large businesses the most impacted.
Across the states, New South Wales (-13.5%) and Victoria (-13.2%) saw the largest falls in hours worked in January, reflecting the higher caseloads there. On a pre-pandemic comparison, hours in NSW had fallen to a new low (-11.8%) while hours in Victoria were close to the depths seen during its second wave lockdown in mid 2020. Total hours across the other states and territories fell by 2.4% in the month but remained above their pre-pandemic level. Western Australia's low caseloads saw hours worked rise by 1.7%, providing some offset to falls in the other states (Qld -2.9%, SA -7%, Tas -5.1%, ACT -3% and NT -1.3%) as Omicron started to spread after the borders reopened.
Around the disruptions from Omicron, broader labour market conditions held up fairly well in January. Employment lifted by a net 12.9k, with a 30k rise in part time employment more than offsetting a 17k fall in full time employment. Employment outcomes were weakest in NSW (-22.8k) and Vic (-15.6k). Overall, this left total employment 2% above its pre-pandemic level. Compared with March 2020, full time employment (2.4%) has seen a sharper increase than part time employment (1.2%), mostly because the latter has been more vulnerable to job losses from successive waves of the pandemic.
Encouragingly, the participation rate lifted slightly in January to 66.2%, which should give some comfort to businesses facing staff shortages that they are not in the position of having to wait for Australians to return to the labour force, as is the case in the US and the UK. However, it is notable that there remains a shortfall in participation in NSW (64.8%) relative to its pre-Delta highs (around 66%). Meanwhile, the employment to population ratio reached a new high at 63.4%.
With the size of the labour force increasing only modestly and employment rising in the month, overall spare capacity in the labour market remained at similar levels to December. The unemployment rate held at 4.2% (though it edged higher when taken at 2 decimal places). Underemployment lifted fractionally to 6.7% despite the large fall in hours worked; clearly, it is difficult to take on additional hours when many were in isolation. Overall underutilisation in the labour market was 10.9% in January, only a little higher than in December.
Labour Force Survey — January | Insights
The surge of the Omicron wave during the peak summer holiday period led to an unavoidably large fall in hours worked in January, leaving many businesses short staffed. However, unlike in earlier waves, broader labour market conditions were much more resilient on this occasion, reaffirming the resilience the Australian economy has established in coping with the pandemic. In a tight labour market, businesses are keen to retain staff. Meanwhile, prospects for further progress towards full employment look positive given the 4.4% rise reported in job vacancies in January, indicating underlying labour demand remained strong despite Omicron.
