Sarah Hunter[*], Assistant Governor (Economic)
Keynote Address to the Barrenjoey Economic Forum
Sydney – 11 September 2024
Underlying dynamics of the labour market
As many of you will know, when the economy begins to soften, the first thing firms generally do is to pull back
on unmet demand for workers. That is, they recruit less intensely and put out fewer new job adverts, and cancel
pre-existing vacancies. A softening of the labour market through this channel is not captured in data series such
as the level of employment or the unemployment rate. Overall demand for labour can be falling even when
employment is rising.
During the current cycle, we first observed declines in both job vacancies and measures of employment
intentions from business surveys and the RBA’s liaison program in 2022. At the time, conditions were very tight
and there were many vacant positions. As momentum in demand started to moderate, firms responded to the
slowing in momentum by withdrawing positions or posting fewer vacancies. The vacancy rate has subsequently
fallen since mid-2022 but remains above its pre-pandemic level.
To date, the decline in vacancies has coincided with only a modest increase in the unemployment rate. The
typically inverse relationship between vacancies and unemployment is what economists call the ‘Beveridge
curve’. The economy appears to have been operating on the steeper portion of the curve of late, where a fall in
vacancies can occur without a large increase in unemployment . We also can’t see clear evidence that
the curve permanently shifted over the pandemic years. For example, if the curve had shifted out, this would
suggest that matching workers to jobs had become harder, which could be because firms are demanding new or
different skills, or because workers weren’t able to move to the sectors or regions where there are job openings.
Our current assessment, however, is that this hasn’t happened. In other words, we think the labour market today
is operating broadly the way it did prior to the pandemic.
