Higher unemployment may be needed, Bullock says. What does this mean for HR?

In the face of potential rises in unemployment and an almost-certain increase in interest rates next week, businesses are being urged to consider the impact on their workforces – both structurally and with regard to wellbeing.

Ahead of the September Reserve Bank of Australia (RBA) meeting and expected rate rise decision, RBA governor Michele Bullock has warned that the unemployment rate may need to rise to as high as 4.5 per cent to five per cent to curb inflation.

According to Bullock, who spoke earlier this week to the Committee for Economic Development of Australia (CEDA), a moderate rise in unemployment may be the necessary trade-off to cool the labour market in light of multiple economic shocks from the COVID-19 pandemic, the Russian invasion of Ukraine, changes to tariff and trade agreements, and the Middle East conflict.

Bullock said: “So it's not that I can say I will only tolerate an unemployment rate of, say, 4.5 per cent at the moment. At the moment, we think that's a bit tight. So the question really is not what can I tolerate or what can the Board tolerate, but what level of unemployment eases the pressure on the supply side of the economy?”

“The whole point about inflation being too high at the moment is it’s reflecting the fact that the demand side of the economy is outstripping the ability of the economy to supply the goods and services, and one evidence of that is that the labour market looks tight”.

The statement has been met with strong criticism that the perspective only addresses part of the problem whilst framing job loss as collateral damage.

Australian Council of Trade Unions (ACTU) secretary Melissa Donnelly told HR Leader “more workers out of work is not the answer to the current cost-of-living pressures.”

“In fact, the RBA’s approach is going to make it even harder for working people, who are already doing it tough, to make ends meet. It is not workers who are driving inflation, it’s excessive corporate profits,” Donnelly said.

“The RBA should remember it has a legislated objective to maintain full employment, which it seems to have forgotten.”

HR Leader spoke to management consulting experts to explore how employers should approach workforce management amid increasing unemployment.

According to Shilo People co-founder Sharna Peters, employers should not take Bullock’s statements as a signal that talent attraction will be easier.

Peters said: “While a modest rise in unemployment may ease some of the pressure we’ve seen in Australia’s labour market over recent years, it would be a mistake to assume that talent challenges will simply disappear.”

“The reality is that higher unemployment may increase the supply of labour, but it doesn’t necessarily increase the supply of the skills organisations need most. Capabilities such as AI fluency, digital literacy, cyber security expertise, critical thinking, change leadership, commercial acumen and adaptability will remain in high demand.”

She urged business leaders to understand that skills shortages are structural challenges that are unlikely to be resolved by changes to unemployment, and that prioritisation should be shifted from workforce size to capability.

“The organisations that perform best during periods of labour market softening are rarely those that simply reduce costs. They are the ones that use the opportunity to strengthen capability, improve productivity, invest in future skills and prepare for long-term growth,” Peters said.

“Ultimately, the organisations that succeed will be those that continue investing in critical capabilities and workforce resilience, regardless of labour market conditions. Competitive advantage will increasingly come not from access to people, but from access to the right skills and the ability to deploy them effectively.”

Further, director of people advisory at We Are Charlotte, Tim Guille, said uncertainty, as anticipated by increased unemployment, will always necessitate care and support from employers.

“That can take a few different forms, but at its core it’s about communication and connection. Keep in-person check-ins and staff meetings and traditions going. Keep an eye on absenteeism increases. Educate teams about the power of connecting, checking in and practising self-care,” Guille said.

“And if there is a change or decision you need to communicate, focus on transparent communication and the reasoning behind it, along with continual consultation, to help people understand and feel properly informed.”

“While there’s a lot outside of our control, we can keep people’s experience of change and uncertainty at the heart of decision-making.”

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