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

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Latest Updates

Retirement

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

Shares

Boom, bubble or alarm?

After a stellar 2025 to date for equities, warning signs - from speculative froth to stretched valuations - suggest the market’s calm may be masking deeper fragilities. Strategic rebalancing feels increasingly timely.

Property

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Economy

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Shares

Is the iPhone nearing its Blackberry moment?

Blackberry clung on to the superiority of keyboards at the beginning of the touchscreen era and paid the ultimate price. Could the rise of agentic AI and a new generation of hardware do something similar to Apple?

Fixed interest

Things may finally be turning for the bond market

The bond market is quietly regaining strength. As rate cuts loom and economic growth moderates, high-quality credit and global fixed income present renewed opportunities for investors seeking income and stability. 

Shares

The wisdom of buying absurdly expensive stocks (or not!)

Companies trading at over 10x revenue now account for over 20% of the MSCI World index, levels not seen since the dotcom bubble. Can these shares create lasting value, or are they destined to unravel?

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.