Lockton Monthly Macro Series: Labour market risks and response

In short:

  • Wage growth was 2.6% from June 2021 to June 2022 and weekly earnings growth was 3.0% from May 2021 to May 2022.

  • In the third edition of Lockton’s Monthly Macro Series, our trade credit insurance and risk experts explore labour market risks in the short-term and the impacts on businesses.

  • Learn some key risk management actions to take, including understanding the total costs of employee absence.

  • See why businesses are using trade credit insurance.

What is driving employment?

  • Delays in visa approvals of skilled workers following the reopening of the international borders

  • Skilled workers leaving sectors, like healthcare/FIFO due to burnout coupled with difficulty attracting new workers to the sectors

  • Low numbers of arrival of international students and transient workers which usually support the tourism and hospitality, trades and manufacturing sectors

  • Global competition for in-demand skilled workers

  • Very high levels of job vacancies and advertisements with nearly as many vacancies as there are unemployed people

What are the impacts of labour market shortages?

  • The tightened labour market has urged growth in wage levels, which is especially important now due to inflationary pressures.

  • Businesses may need to look at hiring less-qualified or less-experienced staff than before which can lead to lower productivity and increased operational risks

  • Lack of suitable labour can have a significant constraint on productivity levels, leading to sustained supply chain challenges and delays on raw materials, goods, and services

  • High inflation and a tight labour market will see an increasing number of staff leaving their employers in pursuit of higher remuneration

  • Wage growth impacting margins for businesses already struggling with rising operational costs.

Spotlight on construction

Construction recorded the highest quarterly (1.4%) and annual rise (3.4%) in wages. This was the highest quarterly rate for the industry since June quarter 2008 and the highest annual rate of growth since December quarter 2012. The sector has been grappling with supply chain disruptions, the rising cost of raw materials, project delays, a tight labour market, and increasing wages. With little evidence of these pressures easing, the sector is expected to continue to face these challenges for some time into the future. The last 12 months has seen the sector lose a number of players, large and small, leaving sub-contractors and suppliers vulnerable and carrying the unpaid debts. This can have a detrimental impact on their own businesses’ ability to continue to pay their staff and suppliers.

Hear what Workpac has to say…

Workpac Group is Australia’s largest privately owned workforce services business, delivering end-to-end solutions which encompass recruitment, placement, skills development, and career development across all industries.

“A booming job market, candidate short labour market, and Australian’s having confidence to look at switching jobs, have added to business pressures. While workers benefit from such a tight labour market on the back of increased wage growth, attracting and retaining talent for our clients remains our biggest challenge.

In such a tight hiring market, we are putting more emphasis on attracting and retaining employees with strong wage growth to meet market demands. We’re also educating clients around making significant investments in training, and how they can build workforce skills more systematically with investment in trainees and apprentices.

None of the industries we operate across are currently immune to these impacts, but one that stands out above and beyond are the Health Care sectors."

- WorkPac, a Lockton Trade Credit client

Risk management actions to take

Organisations can consider taking the following five risk management actions in response to the current labour market:

1. Manage absenteeism with current employees

Employees absent for over 70 days typically have a 35% chance of ever returning to work. Lockton’s Waking Up to Absence Report (opens a new window) helps organisations understand workforce participation rates.

2. Manage labour turnover

Employees sometimes leave because they do not know what other opportunities exist elsewhere in the business.

3. Flexible working post COVID-19

A robust WFH policy is required to remain competitive. Flexible working arrangements are voted the most important employee benefit by 59% of Australian employees.

4. Strengthen employee value proposition

Place greater emphasis on Employee Benefits as other aspects of the EVP have been affected. Examples include subsidised medical insurance, wellness programs, complimentary meals, and salary protection.

5. Invest in culture

Invest in creating a positive company culture, encourage collaboration andnew ideas. 31% of Australians plan to quit this year based on altered expectations and workplace culture.
This is the third edition of Lockton’s Lockton Monthly Macro Series with a spotlight on labour market risks and how businesses can respond. If you have any feedback, you can contact our experts.

Learn more about trade credit insurance

Increasingly, businesses are using trade credit insurance to respond for:

1. Accounts receivable protection

Access to real-time insights that allow them to understand the credit strength of current and potential customers.

2. Enhanced credit risk management strategy

Access to trade credit insurers’ comprehensive databases, monitoring systems, collections services, credit checks.

3. Protect cash flow and profit

Get claims paid quickly, enabling them to confidently continue to trade and pay their employees and suppliers.