Australian labour market – unemployment continues to rise as a deliberate policy choice

August 20, 2026
bill
Labour Force
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Last month, I noted that the sharp shift towards part-time work was the first signal that a labour market contraction was coming. The latest data released today confirms that the contraction is now eating into overall employment and pushing the unemployment rate up. The Australian Bureau of Statistics (ABS) released the latest labour force data today (August 20, 2026) – Labour Force, Australia – for July 2026 – which showed that the labour market deteriorated in July. Employment growth was negative although the economy added full-time jobs, which offsets some of the severity of the decline. Overall working hours contracted sharply. Official unemployment increased but the increase would have been larger had the participation rate not decelined by 0.2 points. Had the participation rate not declined in July, the official unemployment rate would be around 4.7 per cent rather than the published rate of 4.5 per cent. There are now 10.8 per cent of available labour not being used (either unemployed or underemployed), which makes a farce of the RBA’s claims that the labour market is tight. There is substantial scope for more job creation given the slack that is present. There is substantial scope for more job creation given the slack that is present.

The ABS press release – Unemployment rate rises to 4.5% in July – noted that:

he seasonally adjusted unemployment rate rose to 4.5 per cent in July …

In July, we recorded a 16,000 person fall in employment, whilst the number of unemployed people rose by 4,000 …

The majority of the fall in employment came from males, which fell by 11,000 people. There were 10,000 fewer males employed part-time, and 1,000 fewer in full-time employment in July …

The employment-to-population ratio and the participation rate both fell 0.2 percentage points, to 63.9 per cent and 66.9 per cent respectively.

The underemployment rate was 6.4 per cent in July.

Hours worked down 0.6 per cent in July

“There were 12 million less hours worked this month, with those employed full-time working 7 million less hours, and those employed part-time working 5 million less hours”, Mr Crick said.

New South Wales and Western Australia were the main drivers of this fall, both down 8 million hours.
Trend unemployment rate rises marginally to 4.5 per cent

Trend employment grew by 0.2 per cent while hours worked fell by 0.1 per cent in July.

… underutilisation rate grew by 0.1 percentage points to 10.8 per cent.

Summary

1. Last month, the adjustment was to shed full-time work and offer increased part-time opportunities – which is often a precursor to jobs being eliminated.

2. This month, employment growth was negative.

3. The rise in unemployment was muted because participation also fell – less working active.

4. The broad labour underutilisation (sum of unemployment and underemployment) is now at 10.9 per cent.

3. That is a very slack labour market.

Employment growth negative in July

Employment fell 15,800 (-0.1 per cent).

Full-time employment rose 16,300 (0.2 per cent).

Part-time employment fell 32,200 (-0.7 per cent).

The following graph shows the growth in total, full-time, and part-time employment for the last 24 months.

The following table shows the shifts over the last 6 months which helps to see the underlying trend.

The Employment-to-Population ratio provides a measure of the state of the labour market that is independent of the supply shifts in the labour market (driven by the shifts in the participation rate).

The underlying working age population grows steadily while the labour force shifts with both underlying population growth and the participation swings.

The following graph shows the Employment-Population ratio rose 0.2 points to 64 per cent in July.

The next graphs show the average monthly change in total employment (first graph) and full- and part-time employment (second graph).

For total employment the monthly average changes were:

2022 – 46 thousand
2023 – 30.7 thousand
2024 – 30.3 thousand
2025 – 12.6 thousand
2026 to date – 20.8 thousand

Monthly hours worked fell 12 million (-0.64 per cent) in July 2026

The following graph shows the growth in monthly hours worked for the last 24 months, with the straight line being a simple linear regression to indicate trend.

Unemployment rose by 4,200 to 691,500 persons

The unemployment rate rose 0.1 point to 4.5 per cent, but the increase would have been much larger had not the participation rate fell (see below for analysis).

In effect, the contraction is seeing official unemployment and hidden unemployment both rising.

The following graph shows the evolution of the official unemployment rate since 1980.

What was the impact of the declining participation rate on unemployment in July 2026

Labour force participation fell 0.2 points in July.

The question is what would the unemployment rate have been, given the employment decline in April, if the participation rate had not also fallen?

These concepts help us answer this type of question:

The labour force is a subset of the working-age population (those above 15 years old). The proportion of the working-age population that constitutes the labour force is called the labour force participation rate. Thus changes in the labour force can impact on the official unemployment rate, and, as a result, movements in the latter need to be interpreted carefully. A rising unemployment rate may not indicate a recessing economy.
The labour force can expand as a result of general population growth and/or increases in the labour force participation rates (and vice versa).

The following Table shows the breakdown in the changes to the main aggregates (Labour Force, Employment and Unemployment) and the impact of the fall in the participation rate.

The change in the labour force in July 2026 was the outcome of two separate factors:

The underlying population growth added 24.9 thousand persons to the labour force. The population growth impact on the labour force aggregate is relatively steady from month to month; and
The fall in the participation rate meant that there were 36.5 thousand LESS workers in the labour force (relative to what would have occurred had the participation rate remained unchanged).
The net result was that the labour force fell 11.7 thousand.

Assessment:

1. If the participation rate had not have fallen in July 2026, total unemployment, given the current employment level, would have been 728.1 thousand rather than the official count of 691.5 thousand as recorded by the ABS – a difference of36.5 thousand workers (the ‘participation effect’).

2. Without the fall in the participation rate, the official unemployment rate would have been 4.7 per cent rather than its current official value of 4.5 per cent.

3. The labour market is considerably weaker in July.

Broad labour underutilisation – at 10.8 per cent in July 2026

Underemployment was stable at 6.4 per cent (after rounding) – falling 14.4 thousand to 985.9 thousand.

The Broad Labour Underutilisation rate (the sum of unemployment and underemployment) fell 0.1 point (rounded) to 10.8 per cent.

Overall, there are 1677.4 thousand people either unemployed or underemployed.

The following graph shows the evolution of underemployment and the Broad labour underutilisation rate since 1980.

Teenage labour market – significant job losses in July

There was a substantial decline in part-time employment for teenagers in July, offset somewhat by the improvement in full-time employment.

Full-time employment rose 14.1 thousand (7.5 per cent).
Part-time employment fell 24.4 thousand (-3.6 per cent).
Total teenage (15-19) employment fell 10.3 thousand (-1.2 per cent).

The following table summarises the shifts in the teenage labour market for the month and over the last 12 months.

To put these changes into a scale perspective (that is, relative to size of the teenage labour force) the following data reports the shifts in the Employment-Population ratio for teenagers.

The Teenage Employment-Population ratios and their monthly changes in July 2026 were:

Females: 51.9 per cent – down 0.4 points.
Total: 49.2 per cent – down 0.7 points.

Conclusion

My standard warning to take care in interpreting monthly labour force changes – they can fluctuate for a number of reasons and it is imprudent to jump to conclusions on the back of a single month’s data.

The labour market deteriorated in July.
Employment growth was negative although the economy added full-time jobs, which offsets some of the severity of the decline.
Overall working hours contracted sharply.
Official unemployment increased but the increase would have been larger had the participation rate not decelined by 0.2 points.
Had the participation rate not declined in July, the official unemployment rate would be around 4.7 per cent rather than the published rate of 4.5 per cent.
There are now 10.8 per cent of available labour not being used (either unemployed or underemployment), which makes a farce of the RBA’s claims that the labour market is tight.
There is substantial scope for more job creation given the slack that is present.

That is enough for today!