New findings link job mobility hurdles to stagnant wage growth

By Newsdesk

February 16 2024
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Recent research from the e61 Institute has unearthed significant links between slow wage growth in Australia and obstacles to job mobility, including non-compete clauses, complicated occupational licensing rules, and the affordability of housing.

New findings link job mobility hurdles to stagnant wage growth

These barriers could be limiting the potential economic benefits of job switching for workers, firms, and the overall economy.

The study highlights the surprisingly low number of workers seeking better pay through changing jobs, despite Australia experiencing one of its strongest labor markets in recent history. This trend is partly attributed to regulatory challenges and the ongoing impact of the COVID-19 pandemic. "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," e61's Senior Research Economist, Aaron Wong, conveyed.

Aaron Wong provided insight into the repercussions of such trends, stating, "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." This observation underscores a critical need for reassessment of current labor market dynamics and policies.

The research further revealed that workers who did switch jobs enjoyed a significant wage increase of 9 percentage points more than those who stayed put, equating to an average annual pay rise of approximately $5,700 for median-wage earners. The benefits appeared even more pronounced among younger workers (aged 21-34), who saw an average wage increase of $7,500 upon switching jobs. In addition, the analysis showed that job switchers in capital cities received higher wage gains compared to their counterparts in regional areas, attributed to the greater employment opportunities available in urban centers.

e61 Institute CEO Michael Brennan emphasized the impact of workplace laws on job mobility, suggesting that "This research suggests that workplace laws could be a barrier to job mobility, which impacts the ability of workers to benefit from job switching." The research pointed to specific impediments such as restrictive non-compete clauses in employment contracts and complex occupational licensing requirements that vary across states and territories.

Furthermore, the study advocated for policy reforms aimed at enhancing labor market dynamism and innovation. Aaron Wong argued for policy changes to "encourage firms to compete more actively for the best workers and make it easier for workers to move between employers," which could mutually benefit workers and employers by aligning top-performing firms with the most suitable workers. Additionally, he highlighted the potential for government policies aimed at fostering entrepreneurship and the startup ecosystem, thereby creating more job opportunities that align with workers' skills and propelling wage growth.

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