2022 Australian Economic Outlook

ChapmanCG was delighted to host a highly thought-provoking HR Leaders Forum on 24 February 2022 on 2022 Australian Economic Outlook: Talent Shortages, Productivity and Employee Experience.  Our guest speakers were from EY Australia: Jo Masters, Chief Economist & Partner and Dr Juliet Andrews, Partner People Advisory Services. Their insights were very popular with over 240 HR Leaders from around Australia, New Zealand and Asia in attendance to hear the latest Australian economic outlook and new perspectives on employee experience arising as a result of labour shortages. 

2022 Economic Outlook: A Jobs Rich Recovery is Not All Plain Sailing

The outlook for the Australian economy and the path to recovery from the pandemic looks solid. Jo Masters outlined that whilst consumer confidence and business confidence decreased last year as a result of Omicron, the Australian economy is getting better at absorbing the impact of disruption and lockdowns. Whilst hours worked in January decreased by 8%, employers chose not to let people go and this has enabled a faster recovery than we experienced in 2020.

The Australian economic outlook for the next 12-18 months is quite strong because:

• Australian households have accumulated a “war chest” of savings during the pandemic. $240 billion has been saved since the start of the pandemic and $80 billion has been saved in mortgage offset accounts. Much of the money that would otherwise have been spent on overseas travel or entertainment/dining locally has been saved. Consumers now have the confidence to spend this windfall.

• Property prices and equity markets have also increased. Australians experienced a 20% increase in household net wealth in the last 12 months.

• Job confidence is high due to labour market shortages. Unemployment is currently at 4.2% and is expected to go below 4% which would take it to 50 year lows.

With regards to business investment, there is an increased number of firms who are saying there is enough demand for their products or services but the constraint is on the supply side in that the availability of labour and materials is constrained.  

Labour shortages are being experienced across all industries. Tightness of labour supply is three times greater than the historical average.

Jo Masters, Chief Economist at EY Australia

Many might ask whether labour shortages are the result of a “Great Resignation” in Australia. The data does not support a great resignation but more of a reshuffle and reshaping of the workforce. The Great Resignation occurred in the USA because many older workers have not returned to the workforce and many women have not been able to go back to work because preschools and schools have been closed. This has not been the case in Australia.

There is a high level of labour mobility demonstrated by the fact that 300,000 people changed jobs in Q4 2021. People moved for a variety of reasons including flexibility, lifestyle, fit with the company, pay, belonging or purpose. Border closures cut off the supply of inbound talent and highlighted the shortage of labour in the Australian market. The high demand for talent, layoffs not occurring during Omicron and high levels of household savings has led to increased confidence in changing jobs. Whilst people felt they worked long and hard during the pandemic, the data does not indicate the workforce produced a higher level of productivity.

Once you’ve implemented cutting edge technology, you can’t do that every year.  To increase productivity, businesses need to find ways to get more out of their people.

Jo Masters, Chief Economist at EY Australia

Historically, and recently, Australia has experienced 2.2% year-on-year wage growth. Higher wage growth is anticipated as a result of labour shortages. There is a time lag on anticipated wage rises due to the rigid nature of a large proportion of the labour market’s work agreements. 40% of the workforce operate on minimum wage or min wage plus contracts, a high proportion of employees are in the public sector and many fall under enterprise agreements. Pay is only negotiated in these environments every year, or few years.

Inflation is currently running at 3% annually. Wage growth is the number one contributor to a sustained increase in inflation. Whilst the labour shortage and anticipated wage rises are a challenge for businesses, it does increase household income and productivity which stimulates the economy. This all points to Australia recovering from the effects of the pandemic and starting to chip away at the massive national debt burden from the pandemic.

Enhancing Employee Experience: Now, Next and Beyond

The pandemic has created significant workforce turbulence and in doing so accelerated many aspects of employee experience. There is a big opportunity for organisations to capitalise on what we have learned through the last two years in enriching employee experience and conducting more sophisticated workforce planning and workforce analytics.

In addition to the pandemic, global megatrends such as technology, globalisation, changing demographics and environment/climate change create unprecedented complexity for organisations. In Australia, the ageing population means we have less people coming into the labour market than those who are leaving it (retiring).

This is compounded by a tight labour market across every sector. There are acute shortages in job categories such as software engineering, data engineering, artificial intelligence, robotics, data scientists and people and culture.

The workforce profile is changing, as some workforces increase in size while others decrease. Most organisations are immature in how they analyse and understand capability and productivity. They need to invest in strategic workforce planning and analytics so they have current insight into the skills they have and the skills they need. It is essential that large employers facilitate an increase in learning and development of their people as skill requirements continue to shift and evolve rapidly.

By 2040 the average Australian will spend an additional three hours per week on education and training. This will result in an increase of 33% across their lifetime.

Dr Juliet Andrews, Partner, People Advisory, EY Australia

The most valuable skills will be those that complement automation and artificial intelligence and it’s the human traits that are important such as adaptability, teamwork, integrity and creativity.

In addition to investing in learning and development, organisations need to create a more compelling employee experience. An uplift in pay is not a sustainable way to attract and retain talent. Organisations must create an employee experience that meets the needs of the talent. If the employee experience doesn’t meet the promise, people will move to other roles.

There are many reasons people move. People move because they didn’t feel valued or recognised, they want greater flexibility, better culture and leadership, career development, well-being/burnout or a new challenge. How an employer is responding to the environment and climate change is increasingly important to employees who are looking for authentic values, vision and results. If organisations focused on employee experience the way they have focused on customer experience they would be able to move the dial on retention and productivity significantly. Companies can respond to employees with differentiated offerings and treat them as individuals.

Conclusion

Thank you to Jo Masters and Dr Juliet Andrews, Partners at EY Australia, for providing these thought-provoking insights into Australia’s economic outlook and new perspectives on employee experience. At ChapmanCG we have seen an increase in demand for workforce planning, capability and learning, organisational development and talent management leaders in Australia and around the world. These roles are highly specialised and in many cases have sought individuals to urgently build talent supply strategies to address acute workforce shortages. As a result, the human resources profession will play a pivotal role in ensuring organisations have a sustainable future.