Statement on Monetary Policy – February 2025Box C: Health Care Employment and its Impact on Broader Labour Market Conditions

The health care industry has contributed significantly to aggregate employment growth over the past year. This Box discusses the interlinkages between the health care industry and other parts of the labour market, which suggest that the growth in health care employment has likely contributed to tight labour market conditions in other industries. This emphasises the need to consider aggregate labour market conditions when assessing the outlook for wages and inflation.

The health care industry has been a key contributor to aggregate employment growth in recent years.

Employment growth in the health care industry has trended up since the COVID-19 pandemic and has now reached a historically high rate. This has supported aggregate employment outcomes, with over half of overall employment growth over the year to the September quarter of 2024 attributed to health care (Graph C.1). Strong employment growth in the health care industry has also been observed overseas in recent years, and health care employment has risen as a share of total employment in a range of peer economies, such as the United States, the United Kingdom and Germany. That said, the rise has been considerably faster in Australia in the post-pandemic period (Graph C.2).

Graph C.1
A combined bar and line chart that shows year-ended employment growth decomposed into contributions from health care, and all other industries. The graph shows how aggregate employment growth slowed from late 2022 but has increased more recently. The bars show that health care employment has contributed to over half of aggregate employment growth over the past year.
Graph C.2
A line chart that shows the change over time in employment in the health care industry as a share of total employment in Australia (relative to December 2019), with other advanced economies shown as a grey range. The share of employment in health care increased in Australia over 2016-2019, and then increased even more rapidly over 2020-2024. Other economies have shown a much more modest upward trend over 2016-2024 than Australia.

Rapid employment growth in the health care industry has affected the broader labour market.

Strong demand for labour in the health care industry has drawn in workers from other industries, as well as some who were not previously employed. Growth in health care jobs has partly reflected inflows of workers from other industries (Graph C.3). These workers have tended to come from the administrative services and household services industries, including hospitality, arts and recreation, and education (Graph C.4). This movement of workers between industries has also been noted by some firms in the liaison program.

Graph C.3
A two-panel line graph showing cumulative employment growth in health care and non-health care industries since September 2021. It displays the contributions from net hires from non-employment and net hires from other sectors. The left panel displays employment growth in health care, which has been steadily accumulating since 2021. It shows that net hires from non-employment and net hires from other sectors have contributed a similar amount to aggregate healthcare employment. The right panel shows employment growth for all non-health care industries, which has been growing but by less than in health care. It shows that employment in other industries has come from net hires from non-employment, and that net hires from other sectors has detracted from employment growth.
Graph C.4
A bar graph that shows the share of employees within an industry that flow into the health care industry per month, on average. It shows that the administration and support industry has the largest flows into health care, followed by industries in the household services industries including hospitality, other services, arts and recreation, and education.

The strength in employment growth in the health care industry has likely contributed to tighter conditions in competing industries. The share of firms reporting that availability of labour is a significant constraint on output remains above average in all industries (Graph C.5). This is most pronounced for firms in the ‘recreation and personal services’ category, which includes the health care industry as well as the industries that have been competing most with the health care industry for labour (yellow bars in Graph C.4). Job vacancy rates also remain above pre-pandemic levels in most industries including hospitality, other household services and arts and recreation, where there have been greater outflows of workers to the health care industry. However, firms in other industries have also reported difficulty finding labour, consistent with the overall labour market being tight.

Graph C.5
A bar graph that shows the percentage point deviation from long-run average for the share of firms reporting labour as a significant constraint, by industry. It shows that recreational and personal services industries have the largest positive deviation from average, followed by construction, manufacturing and transport, which have similar deviations from average while the deviations in finance and retail are still positive but smaller.

Despite strong labour demand in the health care industry, wages growth has been similar to aggregate wages growth recently.

For the past few years, looking through the award wage increases in the September quarter of 2023, wages in the health care industry have been growing at around the same pace as the aggregate Wage Price Index despite labour demand growth having been significantly stronger (Graph C.6). Taken together with the evidence noted above on the flow of workers between industries, this is consistent with a well-functioning labour market in which tightness in one industry spills over to other industries as firms compete to attract and retain workers, helping to reduce the extent of disparities in wages growth. That in turn emphasises the importance of focusing on conditions in the labour market as a whole when assessing wage and inflationary pressures, in addition to industry-specific developments.

Graph C.6
A two-panel line graph showing year-ended employment and wages growth. The top panel shows total employment growth alongside employment growth in the health care industry. It shows that health care employment growth has been considerably stronger than aggregate in recent years. The bottom panel shows aggregate wages growth and health care wages growth, which are both currently growing at a similar rate.