Unemployment Rate In Australia: What It Is And How It Works

In simple terms, the unemployment rate is the percentage of people in the labour market—that is, people who are willing and available to work—who don’t have a job. The ABS is responsible for collecting and reporting labour market data each month via the Labour Market Survey to identify the size of Australia’s labour force and how many people are actively employed.

The survey asks a representative sample of around 50,000 people about their participation in the workforce to determine how many people are:

• Employed: people who work in a paid job for more than one hour per week
• Unemployed: people who are not in a paid job, but are actively looking for work
• Not in the labour force: people who are not in a paid job and not looking for work. This could include people who are caregivers, studying, retired, or who are unable to work.

The ABS calculates the size of the labour force by adding together the number of employed people and unemployed people. The unemployment rate is the percentage of people in the labour force who are unemployed.

Of course, working one hour per week isn’t generally going to earn you enough income to live on and the ABS calculates an underemployment rate to account for people who are employed but would like to work more hours. Australia’s October underemployment rate was 6.2%.

Jeff Borland, a professor of economics at the University of Melbourne, describes the current unemployment rate as “at an historically low level”.

“For the years prior to Covid-19, the rate was about 5.5% to 6.5%, compared to 3.5% to 4% more recently,” he says. “You need to go back to the early 1970s to find another period of 30 consecutive months when the rate of unemployment was below 5%.”

By contrast, the unemployment rate reached an all-time high of 11.22% in December 1992 during Australia’s last major recession. It peaked again at 7.5% in July 2020 at the height of the pandemic lockdowns.

Full employment is defined as when there are enough jobs for everyone willing and able to work, but it doesn’t mean the unemployment rate will be 0%. People might be unemployed because of a skills mismatch or they are transitioning between jobs. In fact, a low rate of unemployment is important to maintain some flexibility in the workforce.

The RBA believes that if the unemployment rate drops too low, it will trigger excessive wage growth as businesses become desperate for workers, which will, in turn, cause inflation to rise. The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is the lowest unemployment rate that can be sustained without accelerating inflation. The RBA uses different statistical models to estimate the NAIRU and the figures fluctuate but the most recent research puts Australia’s “ideal” unemployment rate at around 4.5%.

Jericho believes the RBA places too much emphasis on the NAIRU and says the economy has proven it can sustain a lower rate of unemployment—around 4%.

“There’s this belief that once you go below that level [of around 4.5%]… so many people have got a job and there’s so much money in the system that we’ll all be out there spending madly,” he says.

“A major part of [the RBA’s] strategy to raise interest rates is to force us to be able to pay off more on our mortgages so we’ve got less money to spend. Business owners are thinking: ‘It’s a bit quiet, I won’t hire any more new workers and I might even start cutting back on shifts’ and that raises the unemployment rate.

“But here we are at 4.1%, we’ve been there for a long time, and we’re seeing wage growth actually slowing, which to me suggests that there’s not all those pressures in the system that the Reserve Bank is worried about.”

The average unemployment rate for the 38 countries in the Organisation for Economic Cooperation and Development (OECD) countries is hovering at 4.9% with most countries reporting relatively stable figures in recent months.

In October, the US reported a 4.1% unemployment rate for the second month in a row, while Canada’s rate was also unchanged at 6.5%. The United Kingdom’s unemployment rate is 4.3% for the September quarter, while Spain has the highest unemployment rate of OECD countries at 11.9% and Japan the lowest at 2.4%.

Most economists predict we’ll see a slight increase in Australia’s unemployment rate in early 2025, but nowhere near pre-pandemic levels.

“Based on what has been happening in the labour market in recent times, it wouldn’t be surprising to see some increase in the rate; but it would be surprising if that were more than 0.5%,” Borland says.

Jericho is optimistic that Australia can keep unemployment figures below 4.5% but adds the election of Donald Trump as president of the United States has cast plenty of uncertainty over global economic markets in 2025.

“I think the unemployment rate has remained very resilient and it would be shocking if [the RBA] were to raise interest rates any further,” he says.

“The only reason they’d do that is if the impact of anything Donald Trump does creates an inflationary drive throughout the world’s economy. And that’s a bit hard to predict because we don’t know if he’ll follow through on what he says he’s going to do.

“I think the Reserve Bank is waiting to see what happens. Probably by March they’ll have a bit more confidence. He’ll have been in [office] for a few months and we’ll get a sense of how serious he is.”

Additional editing: Kevin Pratt