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At just 3.5% the unemployment rate is the lowest it’s been since 1974 in Australia. We’ve essentially reached ‘full employment’. This doesn’t mean that everyone has a job but equates to their currently being almost one unemployed person per vacant job advertised. 

This is of course great news, however there can still be some unfavourable side effects of low unemployment that we’ll explore.

Three (potential) negatives of low unemployment

1.  Candidate arrogance

Low unemployment and a skills shortage have led to many companies struggling to find talent. Therefore, candidate bargaining power is stronger than usual. Talented and hard-working employees have a higher chance of securing better wages and job opportunities at the moment. Salaries and roles that are more befitting their aptitude. 

However, less skilled, hard-working and/or qualified employees also have increased opportunities at the moment. Because many organisations can’t find the right person to fill roles, they’re sometimes having to settle for a candidate a bit below the job requirements. Employers are expecting the hired person will be able to grow and develop to meet the job demands. This can be a fantastic opportunity for ambitious and hard-working candidates to step up in their career. However, there are also examples of candidates taking on roles above their pay and qualification bracket and not working hard to meet the new challenge. This can lead to detrimental results for the company as well as the individual’s job and career prospects long term.

2. Reduced productivity and wage inflation

Given there are less people available for jobs, employers will often have to increase wages to find (and keep) employees. Wage increases sound like a positive but if the organisation has had to settle for hiring a less talented candidate then the productivity of the company may be reduced overall. Given salaries are a major input cost for companies rising wages alongside reduced productivity can have a follow-on affect of higher prices for products and services in an economy.

3. Retention issues

Employers find it more difficult to retain talent at this time. This is mostly a positive pressure as it forces organisations to invest in employees and work hard to foster career growth and opportunities. However, at times of low unemployment, even companies who have created favourable workplaces may lose candidates who are poached or seek jobs with better pay. This can further contribute to organisations experiencing reduced productivity, which may also then apply inflationary stress on the economy.