How might the Iran conflict impact Australian jobs?

The US-Israel attack on Iran and the subsequent regional and geopolitical conflict that has ensued are already having ripple effects on the global economy. While it is too soon to definitively say what the outcomes will be, Australian businesses and their HR teams should be wary of repercussions for employment Down Under.

On Tuesday (17 March), the board of the Reserve Bank of Australia opted to increase the cash rate by 25 basis points for the second time in a row, taking the rate to 4.1 per cent. In the board’s statement announcing the decision, it said that, on top of existing inflationary factors, the conflict in the Middle East “has resulted in sharply higher fuel prices, which, if sustained, will add to inflation”.

“Short-term measures of inflation expectations have already risen. As a result, the board judged that there is a material risk that inflation will remain above target for longer than previously anticipated,” therefore choosing to increase rates.

This decision was followed, two days later, by new data from the Australian Bureau of Statistics (ABS), showing that the unemployment rate had risen to 4.3 per cent, having dropped to 4.1 per cent earlier this year, and holding steady at that level in February.

Taken together, the macro environment may well give pause to employers and their HR professionals as to the longer-term impacts on the job market in Australia. It is not too alarmist to presume that, should the conflict in the Middle East continue for a prolonged period, the chain reaction could well be a slowdown in global hiring, sector-based layoffs, or even recession-driven unemployment.

Chain reaction from energy shocks

As has been widely reported, the conflict has disrupted approximately 20 per cent of the global supply of oil and gas, thereby significantly increasing prices – not just for energy, but also for production, transport, and household expenses.

This matters for jobs because, as Al Jazeera recently noted, the International Monetary Fund (IMF) estimates that every increase of 10 per cent in oil prices cuts global growth by around 0.15 percentage points, with such slowed growth usually leading to reduced hiring, layoffs, or recruitment freezes. Recession and stagflation are, of course, also inherent risks here.

Supply chain disruption, specifically in the Strait of Hormuz, means that manufacturing sectors, export-dependent industries, and logistics and shipping are disrupted, cutting production and jobs, all of which may feed inflation, giving rise to higher fuel and food prices.

From here, financial belt-tightening (both by households and businesses) could result in lower revenues, which would precipitate delayed hiring decisions, reduced hours for staff, or even layoffs in discretionary sectors.

If the conflict-inspired disruption is short-lived, the consequences for employment may be mild, or even non-existent. However, if the conflict rages for months to come, the jobs market could well be hit hard.

Potential implications for Australian employment levels

Right now, with unemployment at 4.3 per cent, demand for workers clearly remains intact, even if the jobless number has ticked up. Of course, the RBA is intent on curbing inflation and slowing growth to within its target 2 to 3 per cent bracket. Should this materialise, we could see fewer job ads and slower hiring.

Consumer-facing sectors, which, of course, depend on individual spending, would be the first hit, such as retail, hospitality, and tourism. The construction and housing sectors wouldn’t be far behind, with higher interest rates seeing fewer houses being built, developers delaying projects, and less demand for trades. In the realm of white-collar jobs, business loans are now more expensive, and if businesses opt to delay expansion or scaling, there could be slower hiring and fewer entry-level roles in sectors like tech and finance.

Certain workers will no doubt be more vulnerable to all this: mortgage holders, younger and casual employees are chief among them.

Looking into the crystal ball, the worst-case scenario for jobs in Australia right now is that continually high oil prices and interest rate hikes will see the nation enter a recession, likely leading to a sharp increase in unemployment, with these sectors being hit the hardest. The impact may well be gradual – particularly given we are in the early days of a geopolitical conflict, the end date for which is decidedly unclear – but the longer-term outcomes can reasonably be extrapolated.

What it means for HR

At the risk of looking too far ahead of a conflict that is still only weeks old, human resources teams and professionals Down Under may need to view such unstable market conditions as cause for a pivot in strategic priorities.

This could – and perhaps should – look like shifting from a growth mindset to striking a balance between cost mitigation and workforce stability.

On the talent front, HR will likely need to be more deliberate in whom it looks to hire, rather than hiring for business expansion. It will also be pertinent to establish oneself as a central player in the financial strategy of the businesses, rather than being siloed to people management. Regarding the latter, however, the employee experience may well become harder to navigate in the face of financial strain, with HR having to manage lower morale, burnout, and possibly turnover. Our already active industrial relations climate could produce increased disputes, enterprise bargaining negotiations, and union activity.

In the face of this, HR should: transition to workforce planning (not just hiring), prioritise retention of top talent, consider revamping compensation and incentive offerings, focus on the continued development of workers’ skills to increase productivity, and lean into better communication for the sake of workplace trust. Being proactive, rather than reactive, will be essential.

The latest Middle East conflict provides an opportunity for HR teams and professionals to manage looming business and worker tension by positioning themselves as an immovable core function. If nothing else, should the conflict end tomorrow, the undertaking of such steps can only be to the benefit of the business and the professionals within it.