Demand for labour will need to taper off further to tame inflation, with Australia's central bank expecting firms to trim staff hours and keep the handbrake on new hiring.
Reserve Bank assistant governor Sarah Hunter said Australia's labour market was still tight relative to what's known as "full employment".
The RBA says this is the maximum level of employment consistent with low and stable inflation.
"Conditions in the labour market have eased since late 2022, but our assessment is that the labour market is still tight relative to full employment," Dr Hunter said at the Barrenjoey Economic Forum in Sydney.
"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."
Some of this slowing demand is likely to be felt in a falling average hours as well as population growth outpacing increases in employment, the RBA expects.
A softer jobs market and higher unemployment are expected consequences of interest rate hikes designed to weakened the economy and beat inflation.
Consumers are becoming more worried about the state of the jobs market, surveying suggest, in line with a string of weak economic growth reports.
Dr Hunter said the first thing firms do when the economy begins to soften was pull back on hiring.
"That is, they recruit less intensely and put out fewer new job adverts, and cancel pre-existing vacancies," she said.
Firms can also cut back on staff hours.
Average hours worked had dropped off throughout much of 2023, but held broadly stable in 2024, which Dr Hunter took as a sign of ongoing strength in the labour market.
Layoffs were another way firms cut labour costs, particularly in more severe downturns.
They trended up recently but remained "very low" by historical standards.
"Past downturns tell us that firms resist laying off staff, if possible, as they try to avoid the costs associated with rehiring and reskilling workers as the economic outlook improves," Dr Hunter said.
Australia's labour market was also undergoing structural shifts.
The labour market had become more flexible, she said, which could be allowing firms to rein in labour costs while avoiding the costs of redundancies and rehiring.
"It has also meant fewer layoffs and smaller increases in the unemployment rate, which has kept more workers in jobs," she said.
Health, education and public administration sectors had also clocked far larger employment gains than other industries.
RBA analysis of the healthcare sector suggests it had been effective at drawing in those who were outside the labour force or unemployed, as well as enticing workers from other industries.
"The labour market appears to be doing a good job of facilitating this flow of workers to these industries," Dr Hunter said.
