Why is the labour market so strong? Opportunity for First Nations Business

Written by Dr Siddharth Shirodkar, Principal Economist, IBA & Ben Ainsworth, Proud Gija man, Strategic Advisor, IBA

Economic Yarn Up – December 2024

Jobs are vital for supporting our families and communities. They bring more money into our communities, helping us live in harmony with our culture, values, and aspirations.

How can communities achieve greater job creation?

One effective way is by supporting First Nations businesses. According to our recently released Pathways Through Business report, there were around 29,200 Aboriginal and Torres Strait Islander business owners in 2021. ?These businesses are significantly more likely to hire First Nations workers, leading to profits being reinvested into the community. This reinvestment strengthens community and culture, expanding economic opportunities.

A strong economy is critical for businesses to create more jobs and build thriving communities. But the Australian economy has been weak for some time. Gross Domestic Product (GDP) has grown by less than 1% in the 12 months to September 2024, and it has fallen by 1.5% on a per-person basis.

But despite the slow economic growth, the Australian jobs market has been very resilient. Overall unemployment is at 3.9% and the employment to population ratio is sitting at 64.4% - historically close to our highest level (Chart 1).

Chart 1: Employment to population ratio and the unemployment rate, Nov 2014 – Nov 2024

So why is the job market still performing well while the economy is weak, and at a time when many families are struggling with the cost of living?

The answer presents a great opportunity for Aboriginal and Torres Strait Islander businesses.

It comes back to inflation.

Inflation is the increase in prices for goods and services. If inflation goes up and wages follow in lock-step, it means people can continue to afford the same things as before. But this wasn’t the case for the recent period of high inflation following the pandemic. In the three years to September 2024, prices grew by 16.2%, while wages only grew by 11.1%.?

The income growth we’ve seen on our payslip is known as nominal wage growth. What is arguably more important is our real wage growth. Real wages reflect the actual purchasing power of our incomes after adjusting for inflation (i.e. what we can afford to buy given we’ve had price growth).

Once we adjust for inflation, our real wages have fallen by 4.5% since September 2021 (Chart 2). For employers, it means the cost of hiring workers is cheaper.

It’s the reason why so many people feel less well off than a few years ago, even though they are employed. Our income growth isn’t fully covering the higher cost of living. While inflation has fallen, prices remain at higher levels.

Chart 2: Real wages and real Producer Price Index (PPI), Sept 2021 - Sept 2024

Real wages have fallen across all industries, but by the most in government and public safety, financial services, education, and mining. They have fallen the least in retail trade.

In comparison, total business costs (as measured by the Producer Price Index) have only fallen by 1.2% in real terms over the same period. So real wages have fallen by more than other business costs once we account for inflation.

That’s arguably why the labour market has held up so well, and businesses are still creating lots of jobs, despite overall economic weakness.

So where is the opportunity for First Nations business?

Since the cost of hiring workers having fallen more than other business costs, now could be a good time for First Nation businesses to take on more workers.

More jobs for mob mean more impact from your business.

First Nations employers can use extra workers to expand production and sales. It will get more mob participating in the economy and can help kickstart stronger economic growth across the country.

The flow-on social benefits of jobs growth are well known. First Nations employers are already doing the heavy lifting when it comes to employing Aboriginal and Torres Strait Islander workers. It’s because they know First Nations staff are their biggest asset. ?By investing in your people, you are increasing productivity and building stronger communities.

How long will hiring workers remain relatively more affordable? Given that wages growth is starting to slow in line with inflation, this situation may continue for some time.

If you are a First Nations entrepreneur and want help with growing your business, contact us on 1800 107 107 and we will put you through to one of our amazing business development officers.

And to find out more about the tremendous growth in the First Nations business sector, check out our Pathways Through Business report.

Legal Disclaimer

The information contained in this material is general in nature and not tailored to your particular circumstances, objectives or needs. If you are eligible and decide to apply for products or services from IBA you should obtain independent financial and legal advice before signing any documentation or making any significant financial decisions and you should rely upon your own independent advice and inquiries. While IBA has no reason to believe that the information in this material is inaccurate, the truth or accuracy of that information cannot be warranted or guaranteed and may have changed since it was prepared. IBA takes no responsibility for any damage or loss suffered by you in relying on the information in this material.

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