The Australian labour force is currently enjoying a five year high in employment levels. That is fantastic for working people, who benefit from better wages and increased job security, but what does it mean for the wider economy? The answer is more complicated than you might think.

Recovering from the slowdown

Although the lucky country didn’t get hit as hard by the 2008 global economic recession as countries in the northern hemisphere, it did experience a slowdown, and it’s partially the recovery from that slowdown that is seeing employment grow now. Although many people expect recoveries to develop in a straight line, with employment increasing steadily throughout, the reality is that there’s often a lag followed by uneven progress. That is because taking on new employees requires a business to have not just money but confidence, and confidence depends on being persuaded that economic growth is going to continue. As more people decide to go for it, growth becomes stronger, confidence increases, employment increases, and a positive cycle is established.

The balance of power: employers and employees

The availability of more jobs changes the balance of power between employers and employees. Because there are fewer people looking for work, employers are more likely to have difficulty finding the talent they need. They’re much more hesitant to let people go and they can be pressured into making concessions in order to hold onto their most valued employees. As a rule, this means that working conditions improve and wages go up. As a result, employees are happier and have more disposable income, as well as increased confidence about spending.

Economic stimulus

The result of all this is that employees become much more relaxed about casual spending. That helps to keep inflation in check, allowing the government the option of increased public spending, which can be used, for instance, to fund infrastructure investments that help keep economic growth on track. Employee spending directly puts more money into business, increasing its profitability and enabling further growth – and, that in turn, allows businesses to take on more employees. Further to this, individuals also save more money, which, though it can reduce spending in the immediate term, provides a mechanism whereby the effects of future downturns can be slowed as people then dig into their savings in order to maintain their lifestyle.

People are also more likely to be looking for investment opportunities in a stronger economy. The Bull share tips and advice online, and offer information on which sectors are doing well. This is particularly useful if you’re looking at the value of Australian stocks.

The balance of power: banks and borrowers

As well as spending more, employees whose incomes have increased also pay off their debts more easily. That alters the balance of power between banks and borrowers. The reduction of debt means less is being spent on interest, which boosts consumer spending over the longer term. The reduction of the income stream that debt interest represents for lenders means that they tend to start offering more favourable rates on loans in order to encourage more borrowing. This enables consumers to start making the big purchases they put off when the economy was weaker – everything from cars to cookers – which delivers a further wave of economic stimulus, helping a different set of businesses to start growing. Those businesses, in their turn, will also seek to take on more employees as they expand. Although people only need to make so many large purchases, so this buying practice doesn’t continue at the same pace over time, it’s a significant factor in anchoring the process of recovery.

Employment, politics and the economy

One of the single biggest factors that leads to governments being unseated is unemployment. When employment levels are high, prospects are more secure for incumbent parties, and furthermore, if voters seek to replace them for other reasons then they want the replacement party to have similar economic policies. Either way, this promises economic stability, which business responds well to because it makes it easier to plan for the future – so the political effect of high employment also works in favour of continued growth.

High employment isn’t without its problems. The decrease in jobseekers also decreases economic flexibility, and ultimately it creates a situation in which businesses may struggle to expand because they can’t find the staff they need. Immigration can help with that, as can bringing more Australians into the job market, for instance by introducing measures that improve access to work for disabled people or single parents. With careful management, high employment can be a boon for everybody – not just employees – and can help the economy to continue getting stronger.