Response to COVID-19

The impact of COVID-19 on the labour market

The COVID-19 pandemic initially had a significant, negative impact on the Australian labour market, with employment falling much more quickly and dramatically than in previous recessions. Between March 2020 (when Australia recorded its 100th COVID-19 case) and the trough in the labour market in May 2020, the number of people employed in Australia fell by 856,900 (or 6.6%). Many businesses also reduced the hours of their workers as an early response to the pandemic, with monthly hours worked falling by 157.2 million hours (or 8.9%) between March and May 2020.

The shutdown of non-essential services, closure of schools and introduction of trading restrictions initially had a particularly large impact on employment in service industries, such as Accommodation and Food Services, Education and Training and Arts and Recreation Services. Reflecting the composition of employment in these industries, among other factors, part-time employment decreased by 535,600 (or 13.0%), between March and May 2020, while full-time employment declined by 321,300 (or 3.6%). Women, who tend to be concentrated in the above industries, were also disproportionately affected, with employment falling sharply, by 476,400 (or 7.7%), compared with a somewhat less pronounced fall of 380,500 (or 5.6%) recorded for males.

Rising COVID-19 cases and associated restrictions during this period also resulted in 663,900 people leaving the labour force between March and May 2020, pushing the participation rate down, from 65.9% in March 2020, to 62.6% in May 2020. The decrease in the participation rate was stronger for females (down by 3.7 percentage points) than males (down by 2.7 percentage points), reflecting the greater tendency of women to take on caring roles during school and childcare closures.

The unemployment rate rose from 5.3% in March 2020, to 7.0% in May 2020, significantly above the peak recorded after the Global Financial Crisis, although it would have drifted much higher if it weren’t for the large fall in labour force participation and the introduction of JobKeeper.

While the decline in employment following the onset of COVID-19 was sharp, the labour market subsequently rebounded quickly, as a result of the significant decline in coronavirus cases and an associated easing of restrictions in most jurisdictions, at the time.

Change in employment since start of downturn (%)

Changes in employment since start of downturn (%)
Number of months since start of downturn 80s recession 90s recession GFC COVID-19
0 0 0 0 0
1 -0.5 -0.4 0.1 -4.6
2 -0.7 -0.7 0 -6.6
3 -0.5 -0.9 0.1 -4.8
4 0.1 -1.1 0.1 -4
5 -0.1 -1.1 0.2 -2.8
6 -0.2 -1.9 -0.1 -3.2
7 -0.1 -1.8 0.1 -1.9
8 -0.4 -2.5 0 -1.3
9 -0.6 -2.6 -0.2 -1
10 -0.6 -2.6 0.2 -0.8
11 -0.7 -3 0.1 -0.2
12 -0.9 -3.4 0.3 0.4
13 -0.9 -3.3 0.4 0.1
14 -1.8 -3.2 0.7 1
15 -2.5 -3.6 1 1.2
16 -2.6 -3.8 1.5 1.2
17 -2.6 -3.6 1.3
18 -3.1 -3.4 1.4
19 -3.5 -3.1 1.5
20 -3 -3.4 1.5
21 -2.9 -3.5 2
22 -2.8 -3.5 2.2
23 -2.7 -3.3 2.6
24 -2.2 -3.1
25 -2.2 -2.9
26 -1.6 -3.3
27 -1.2 -3.2
28 -1.3 -4.2
29 -1 -3.8
30 -0.2 -3.1
31 -0.1 -4
32 0.3 -3.4
33 0.7 -3.6
34 0.8 -3.6
35 0.8 -3.4
36 1.2 -3.4

Employment increased by 1,018,500 (or 8.4%) between May 2020 (the trough in the labour market) and July 2021, and is now at a record high, standing 161,600 (or 1.2%) above its pre-pandemic level. Both full-time employment (up by 147,400 or 1.7%) and part-time employment (up by 14,200 or 0.3%) have recovered to be above the levels recorded in March 2020.

Further, despite being initially harder-hit, female employment has increased by 554,100 (or 9.8%) since May 2020 and at July 2021 is 77,700 (or 1.3%) above its pre-pandemic level. Male employment also rose between May 2020 and July 2021 (up by 464,400 or 7.2%) and is 83,900 (or 1.2%) above the level recorded in March 2020, standing at a record high in July 2021.

The unemployment rate fell by 2.4 percentage points over the same period, to 4.6% in July 2021, below the 5.3% recorded in March 2020, while the participation rate rose by 3.4 percentage points between May 2020 and July 2021, to 66.0%.

The recent escalation of COVID-19 cases and subsequent lockdowns, however, particularly in New South Wales, resulted in 37,700 people leaving the labour force nationally in July 2021, while the number of hours worked declined by 3.1 million hours (or 0.2 per cent) over the month. In addition, the number of people who worked zero hours for economic and ‘lockdown-related’ reasons increased by 82,000 (or 26.8 per cent) in July, to 388,400. This is likely to increase further in the period ahead, as the impact of Victoria returning to lockdown in August and the more widespread restrictions in NSW take effect.

Labour market conditions for youth

Youth (persons aged 15 to 24 years) were particularly hard-hit by the pandemic, as they are overrepresented in the service industries that were most severely affected by the initial impact of COVID-19. In addition, young people are particularly vulnerable during economic downturns, as they tend to have fewer skills and less experience than their older counterparts and are often the first to be retrenched by employers in times of economic difficulty.

Between March and May 2020, employment for youth decreased by 329,100 (or 17.0%), accounting for 38.4% of the total contraction in overall employment over the period, despite the cohort comprising just 14.9% of overall employment in March 2020. Against this weaker backdrop, the youth unemployment rate rose sharply, from 11.6% in March 2020, to a peak of 16.4% in July 2020. The rise in the unemployment rate occurred in conjunction with a decrease in the youth participation rate, from 68.2% in March 2020, to a low of 59.7% in May 2020.

In line with the strengthening in overall labour market conditions since May 2020, the youth labour market has also improved. Youth employment rose by 314,200 (or 19.6%) between May 2020 and July 2021, exceeding the growth rate (in percentage terms) of 8.4% recorded in overall employment. Despite this strong rise, youth employment remained 14,900 (or 0.8%) below the level recorded in March 2020. It is important to note, however, that this occurred in conjunction with a substantial fall in the youth population (of 131,800 since March 2020), following the closure of international borders.

Change in employment since start of downturn (%)

The youth unemployment rate decreased to 10.2% in July 2021, the equal lowest rate recorded since January 2009, although it remained more than double the rate recorded for all persons (of 4.6%). In addition, the youth participation rate, at 69.4% in July 2021, was higher than the 68.2% recorded in March 2020.

That said, a large degree of uncertainty remains around the outlook for young people, particularly in light of recent COVID-19 outbreaks. Indeed, it is worth noting that youth employment fell by 10,900 (or 0.6%) over the month to July, alone, while the number of hours worked by youth declined by 0.7% over the period.