Low rates of job switching could be an issue in the labour market

Job switching can actually be beneficial to the labour market. However, various obstacles prevent workers, firms, and the economy from reaping the rewards.

According to the government: “Higher rates of job switching improve the matching of employees with employers which, in turn, contributes to improved productivity for employers, and higher wages and job satisfaction for workers.”

Despite this, new research from e61 Institute has revealed that the number of workers who are changing their jobs to try and secure an improved pay has dwindled.

These obstacles are headlined by workplace regulatory hurdles and the lingering effect of the COVID-19 pandemic, thus suggesting that these barriers to job mobility may be holding back wage gains that usually come from job switching.

e61 senior research economist Aaron Wong said: “The rate at which workers move between jobs has declined in recent decades. Despite the strongest labour market in decades, job switching rates have only recently risen to a little above the pre-pandemic level (8.5 per cent in 2019 to 9.5 per cent in 2023).”

“If people aren’t switching to better jobs in a record-setting labour market, it suggests that there are fundamental issues in the Australian labour market.”

The research found that workers who managed to switch jobs received a 9-percentage-point wage increase compared to those in the same role who remained at their same job. For the average worker who pursues a job switch on the median wage, the percentage point wage increase comes to around $5,700.

Furthermore, the research shows that younger workers (21–34), when they switch jobs, gain more wage growth, with their annual pay rise being $7,500. Another insight from the research showed that there is also a difference between pursuing a job switch in the city compared to rural or regional areas. A worker earning the median wage in a capital city was $6,300 from a job switch, whereas regional workers gained $4,300.

Given there are clear wage benefits from switching jobs, there must be some barriers preventing Australians from recognising these gains. The e61 Institute research showed that unnecessary and artificial legislative and regulatory barriers to job mobility could be an issue halting wage growth.

Michael Brennan, chief executive of e61 Institute, said: “This research suggests that workplace laws could be a barrier to job mobility, which impacts the ability of workers to benefit from job switching. We have raised the issue of non-compete clauses in employment contracts as possibly discouraging workers from moving to a better job.”

“Complex occupational licensing and other credentialing requirements across different states and territories are also likely to affect workers’ ability to switch jobs.”

Mr Wong also provided further comments, stating: “Policy changes to encourage firms to compete more actively for the best workers and make it easier for workers to move between employers would increase workers’ gains from switching and make it easier for top-performing firms to match with the most suitable workers.”

“Government policies that encourage more entrepreneurship and start-up firms may create more new jobs that better match workers’ skills, driving wage growth. If people aren’t switching to better jobs in a record-setting labour market, it suggests that there are fundamental issues in the Australian labour market.”

If these unnecessary legislative and regulatory barriers that are halting wage growth aren’t amended, they could continue to pose challenges for workers who are seeking to improve their financial position, which, in a cost-of-living crisis, is a difficult setback.

Kace O'Neill

Kace O'Neill is a Graduate Journalist for HR Leader. Kace studied Media Communications and Maori studies at the University of Otago, he has a passion for sports and storytelling.