Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 101

Soft labour market's impact on retirement outcomes

The ‘economics of retirement outcomes’ is a concept that explores how economic developments can affect retirement outcomes. Not everything in retirement is subject to market returns or the decisions of individuals, financial planners or super funds. The current soft labour market is a case in point.

Soft labour markets: unemployment increasing and negative wage growth

Currently labour market conditions in Australia are soft. It is one of the more significant challenges faced by the Australian economy. Our unemployment rate recently touched 6.4% (the highest level in 12 years) before dropping back marginally to 6.3%. Just 18 months ago the unemployment rate was 4.9%.

The unemployment rate is well-covered by mainstream media. What is less well-known is that real wage growth in Australia is negative. The purchasing power of Australian wages is heading backwards, and part-time workers are being squeezed particularly hard.

Negative real wage growth is reasonably rare in Australia. The chart below, which plots annual wage growth and inflation, shows that the last time that inflation exceeded wage growth was in 2000.

Also of note is that productivity remains at fair levels relative to history. It’s reasonable to expect that workers would at least participate in some of the benefits of productivity via wage growth, although the relationship is pretty loose, as shown in the chart below. The last three years are a story of workers experiencing little participation in the productivity gains that have been derived, adding further detail to the story of labour market softness.

How do soft labour markets affect retirement outcomes?

To understand the impact of soft labour market conditions on retirement outcomes we need to consider both the micro and the macro effects.

Micro perspectives take account of the individual, including:

  • Risk of unemployment resulting in no employer contributions, no voluntary contributions and a drawdown in savings and even an increase in debt to fund life’s necessities
  • Lower real wages which mean a reduced propensity to save
  • Lower age pension payments than expected, as increases in the age pension are currently indexed to the maximum of inflation, wage growth and a measure of inflation of a pensioner’s likely goods and services (wage growth would generally be expected to be the highest of these three in a normal environment). At the time of writing, the government’s proposal to drop wage indexation looks like it will be rejected by the senate.

However we should also consider the macro perspectives as well. Here a longer term environment of soft labour market conditions could also have important impacts:

  • Lower savings levels and so greater reliance on the age pension by the population
  • A lower than forecast payment level (due to indexation being lower than expected)
  • A weakened federal budget position (all else equal) due to lower income tax revenues and greater unemployment benefits.

Note that the first point above has a negative impact on the budget while the second point has a positive impact.

We have seen that the economic environment does not always align with the market environment (something Ashley Owen’s articles make clear). However we can see that there is more to retirement outcomes than just market returns, with a range of economic variables affecting retirement outcomes. The soft labour market is one such factor, and in this case it has largely negative effects at both a micro and macro level. Let’s hope that new sources of economic growth will soon emerge in Australia.

 

David Bell is Chief Investment Officer at AUSCOAL Super. He is working towards a PhD at University of New South Wales.

 

RELATED ARTICLES

Are older Australians re-assessing the job market?

Australia's economic report card heading into the polls

Federal budget forecast errors need greater scrutiny

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Latest Updates

Shares

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Superannuation

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

Have Apple and Google reached the beginning of the end?

It might be hard to imagine a world where Apple and Google aren’t dominant, but disruption often starts with tiny cracks. AI's emergence into the mainstream might have set the stage for a new generation of leaders.

Superannuation

Did retirees lose out when they accepted defined benefit schemes?

Defined benefit pensions were designed to offer security in retirement. But new tax policies and arbitrary limits now erode their value - especially for Australians who contributed their own savings to these plans.

Property

Why Australia's agricultural land boom has stalled

Farmland prices have flatlined, bringing one of the most dramatic rural property cycles in Australian history to an end. The market for agricultural land now seems to be entering a new and more nuanced phase.

Property

The retail property niche offering income and growth

Neighbourhood shopping centres have fought off one perceived threat after another. What's more, they continue to offer secure income from blue-chip firms and other tenants linked mostly to essential spending.

ASX plans to attract more IPOs don’t go far enough

High-profile Australian stock market listings, like Guzman Y Gomez's IPO in 2024, are rare. ASIC aims to streamline the IPO process to boost listings, but faces barriers like share structures and governance.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.