Increases in salary

The Australian job market is currently in an incredibly volatile place. There is optimism that the economy is improving after the Covid-19 pandemic at the same time as predictions of a potential recession.

Unemployment is at a record low, businesses are prioritising employee retention, we’re struggling through a cost of living crisis and salaries are on the rise. So, what’s the cause?

Reasons for rising salaries

It’s been reported that ‘private sector wages rose 2.7% over the year to June quarter 2022, the highest seasonally adjusted rate of growth for the sector since September 2013’.

Why is this? And what does it mean for companies looking to hire in 2022?

Standing out from the crowd

One of the reasons for the increase in wages in 2022 is companies attempting to stand out from the crowd in a competitive job market.

In June 2022, Business NSW found that ‘93% of businesses were struggling to find the workers they needed to fill vital positions.’ And on top of this, the majority of these businesses reported that they hadn’t managed to successfully fill these vacant positions in twelve months.

In this environment, candidates hold all the negotiating power, so as Employment and Workplace Relations Minister, Tony Burke, predicted, there has been upward pressure on wages.

Offering generous wages is one way for employers to stand out from the crowd and differentiate their vacant positions from the many other unfilled roles on the market. Of course, this then drives the average salaries up across the board and leaves some companies struggling to afford the cost of hiring new team members or meeting the salary expectations of existing employees.

This also explains the trend toward focusing on employee engagement. Generous salaries are an important aspect of attracting and retaining employees, but they’re not the only thing. In 2022, people want to work for companies that respect their time, invest in their future, and look out for their well-being. If you’re struggling to hire new team members, don’t simply focus on salary expectations but try to take a more rounded look at the benefits you offer and your employer brand [1] as a whole.

Optimism that the market will recover from Covid-19

After a few years of instability, uncertainty and pessimism throughout the Covid-19 pandemic, McKinsey has reported a ‘cautious optimism’ amongst consumers in 2022 that the Australian economy is recovering.

It’s been a very stop-start road to recovery but Australian citizens are ‘reporting 5 percent more optimism and 5 percent less pessimism in outlook’ than they were in 2020. Consumers are resuming their pre-pandemic spending and activities and there is some hope for a return to normalcy.

This rise in optimism also aligns with an increase in job mobility in 2022. As expected, the start of the pandemic saw a decrease in job mobility likely due to a reluctance from people to change jobs in such a difficult and unpredictable time, however, in early 2022, job mobility in Australia was at its highest level in over a decade.

With reports of a ‘Great Resignation’ globally, as people have left jobs en masse where they feel underappreciated, overworked, and underpaid, Treasurer, Josh Frydenberg has claimed that Australia is experiencing a ‘Great Reshuffle’ instead.

With so many people changing jobs, wages are increasing across industries as there is usually a pay rise of between 8 and 10% for employees who switch jobs.

Minimum wage increase

On top of this, in July 2022 the National Minimum Wage increased by 5.2% which makes a $40 per week pay rise. The Fair Work Commission made this decision amidst a rising cost of living and inflation.

Previously, the Labor Government had called on the Commission that low-paid workers should not ‘go backward’ as costs increased, requesting a 5.1% wage increase in line with inflation.

This will, of course, add significantly to employer’s costs but is so important for workers and families on minimum wage incomes and can only be a good thing for the Australian economy as a whole. However, inflation is still predicted to rise more than the 5.2% wage increase so employers are encouraged to aim to increase wages as close to the rate of inflation as they can to support struggling workers.

Other ways to support workers through a cost of living crisis which will see many experience fuel poverty and struggles to make rent are to provide benefit packages that could offer discounts for food shopping and financial advice.

What does this all mean for your company?

There are many conflicting predictions about what the next five years will look like for the Australian and global job markets. From estimates that the job market will shrink by up to 11% as a result of automation to more optimistic predictions that wage growth is going to drive a stronger economy in the coming years, it’s hard to know where you stand.

If you’re looking to grow your team and bring on new hires in the next few years, it’s important to take a long-term view and plan for increasing wages. It might be incredibly difficult to fill vacant roles at the moment but as global markets stabilise there will be more workers coming from overseas, and despite changes in job roles due to evolving technology, there is predicted job growth at all skill levels.

You might be wondering if it’s a good time to take on new employees amidst increasing salaries and economic uncertainty. But if the last few years have taught us anything, it’s that necessity drives innovation.

Instead of a freezing hire, try to use this period of change to prioritise your long-term business goals, and think strategically about how you can manage areas of immediate need. In a job seeker's market and with salaries on the rise, it pays to think carefully about which job roles and skills are needed to help your company get to where it wants to be.