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The easing job market had been impacting wage growth, which has reached its peak and was expected to slow down. Pixabay

Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter said Wednesday that even though conditions in the labor market have improved since 2022, it remained "tight" when compared to full employment.

Hunter added, however, that the labor market was gradually moving towards balance.

"Conditions in the labour market have eased since late 2022, but our assessment is that the labor market is still tight relative to full employment. We expect the demand for labour to grow at a slower pace relative to the supply of labour in the coming quarters, gradually bringing the labour market into better balance. Our view is that some of this slowing in labour demand is likely to occur via a decline in average hours," Hunter said, while speaking at the Barrenjoey Economic Forum.

The rise of unemployment from 3.5% last year to 4.2% in July revealed the labor market has been softening. The RBA expected the trend to continue as population growth was faster than the number of new jobs created, and companies were cutting back on the hours they offered, Reuters reported.

Hunter, who headed RBA's economics unit, said, "Overall, our current assessment is that the recent easing in labor market conditions has, to date, been similar to mild downturns in Australian history."

Before the COVID pandemic, economic slowdowns affected job markets and reduced the working hours in the 1980s and 1990s than they did in the 2000s and 2010s. Then, the drop in working hours were due to fewer jobs and average hours people worked.

However, in the current downturn, the drop in total hours worked was mainly due to the reduced hours worked rather than job losses. This allowed the companies to manage costs and retain workers. As a result, there have been fewer layoffs and smaller rises in the unemployment rate.

The easing job market had been impacting wage growth, which has reached its peak and was expected to slow down, Hunter said. She attributed the trend of record participation rate, unlike in peer economies, to more women joining the workforce and steady rise in people taking up multiple jobs, in addition to the increased migration after Australia eased COVID restrictions.

"It is also possible that our assessment is wrong in the other direction. Conditions may be tighter than we expect, or demand for labor could grow more strongly than we anticipate," Hunter reasoned.

In the recent months, the labor market in Australia has been resilient, with new jobs being added at a fast pace.

The RBA has maintained the interest rates at 4.35% to tame inflation, with experts predicting a cut in December.