The Australian labour market is showing signs of strain as we approach the end of 2025, with recent data painting a picture of softening conditions that has caught many economists and policymakers by surprise. This shift represents a notable departure from the resilient employment conditions that characterised much of the post-pandemic recovery.
The most striking development comes from October 2025, when Australia's unemployment rate jumped unexpectedly to 4.5%, marking a four-year high. This represents a 0.2 percentage point increase from the previous month and signals a faster deterioration in labour market conditions than the Reserve Bank of Australia (RBA) had anticipated.
The unemployment rate now sits above 4% in every state and territory, with Victoria experiencing the highest rate at 4.7%. New South Wales has seen a particularly concerning reversal, losing 22,100 jobs in the first nine months of 2025 compared to creating over 57,000 jobs during the same period in 2024. Even traditional employment powerhouses Queensland and Western Australia are showing sharp slowdowns, with WA adding just 400 jobs so far this year.
While employment increased by approximately 15,000 in September 2025, the number of people out of work rose by 33,000 during the same period. This divergence highlights the changing dynamics of the labour market, where job creation is no longer keeping pace with the growing pool of job seekers.
The rate of job creation has slowed dramatically to 1.3% from 3% at the start of the year. Underemployment – which tracks workers who would like more hours – has also lifted sharply, suggesting that even those with jobs are finding it increasingly difficult to secure the hours they need.
The September 2025 SEEK Employment Report reveals that job advertisements rose 0.8% month-on-month, representing the fourth consecutive monthly increase. However, the annual decline of 1.1% tells a more sobering story – this is the slowest rate of decline since November 2022, but it remains negative nonetheless.
At the state level, New South Wales and Victoria both recorded 1.1% monthly growth in September after rising 1.2% in August. South Australia (3.9%) and Western Australia (0.4%) were the only states recording annual growth in job advertisements.
From an industry perspective, demand for Retail & Consumer Products workers rose the quickest in September, up 2.4% month-on-month. The Trades & Services and Manufacturing, Transport & Logistics industries were the largest contributors to overall job ad growth. However, Professional Services was the only sector that didn't grow month-on-month, with declines in Insurance & Superannuation (down 2.9%) and Banking & Financial Services (declining for the fifth consecutive month).
Applications per job ad rose 0.6% month-on-month and have reached a new peak, demonstrating that candidate interest persists even as job ad volumes rise. This indicates increased competition for available positions as more workers seek employment.
The wage picture presents a mixed bag for Australian workers. The SEEK Advertised Salary Index shows that advertised salary growth rose by 0.3% month-on-month for the second consecutive month in September 2025. Annual advertised salary growth ticked back up to 3.5%, having sat between 3.3% and 3.7% since October of the previous year.
According to SEEK Senior Economist Dr. Blair Chapman, labour market conditions are no longer as supportive of fast advertised salary growth as seen in early 2024, with a slowdown in employment growth alongside a decline in participation this year. However, the decision by the Fair Work Commission to increase the National Minimum Wage and all modern award minimum wage rates by 3.5% from July 2025 likely contributed to the increase in advertised salaries.
Positively, advertised salaries have still grown faster than the price of goods and services so far this year, which is good news for those who have been able to take advantage of higher salary offers. Variable mortgage rate holders have also likely benefited from reductions in their loan repayments, allowing them to spend or save more.
The RBA's October 2025 research bulletin introduced a new measure called the Searchers Index (SI), which provides a more comprehensive view of spare capacity in the labour market. Unlike traditional measures that only consider the unemployed, the SI accounts for all effective job searchers, including those employed but looking for better opportunities and those outside the labour force who are available to work.
The SI reveals important insights about current labour market conditions. While it generally moves together with the unemployment rate, it's considerably less cyclical. This is because the SI captures other labour market cohorts who help dampen the cyclicality of unemployment figures. For instance, during a downturn, while unemployment rises, there could also be a decline in on-the-job searchers, meaning the SI may not rise as much as the unemployment rate alone would suggest.
Interestingly, while the SI has declined since early 2024, the unemployment rate has risen over this period. This implies that although there were more unemployed effective searchers, there was also an offsetting reduction in searchers outside of unemployment, such that the measure of effective searchers declined in aggregate.
The vacancies-to-searchers (V-S) ratio, constructed using the SI, provides an alternative measure of labour market tightness. Both the V-S and the traditional vacancies-to-unemployed (V-U) ratios suggest that labour market tightness increased significantly after mid-2020, reaching a record high in mid-2022 before subsequently easing. However, the V-S ratio has stabilized somewhat while the V-U ratio has declined further. Both ratios remain at levels above pre-pandemic outcomes, providing evidence that conditions in the labour market remain somewhat tight despite the recent increases in unemployment.
The unexpected deterioration in labour market conditions has intensified pressure on the RBA to cut interest rates. Financial markets now believe there's a two-in-three chance the RBA will reduce the official cash rate from 4.1% to 3.35% at its November meeting, up from less than 40% probability before the October employment data was released.
The Australian dollar fell almost half a cent against the US dollar following the jobs report, while the ASX 200 reached a fresh record high on expectations of rate cuts to protect the economy.
RBA Governor Michele Bullock had previously indicated that the labour market still showed tightness, which was contributing to inflationary pressures. However, economists are now arguing that the central bank should be more concerned about the softening jobs market than short-term fluctuations in the inflation rate.
AMP economist My Bui expects the bank to cut rates in November and follow with a further reduction in February 2026, noting that "the consumer sector is still rather fragile with purchases boosted by one-offs such as promotions or weather events, and with the labour market easing and wages growth stabilising, it is hard to see demand-led inflation a cause for concern for the Reserve Bank in the near future."
While Treasurer Jim Chalmers emphasised that unemployment remains low by historical standards and participation is high, the trajectory is clearly concerning. The government's 2025-26 budget outlined proposed tax cuts designed to increase take-home pay and ease cost-of-living pressures, particularly for low-income Australians. The first marginal personal income tax rate will reduce from 16% to 14% over two years from July 2026, bringing this rate to its lowest level in over 50 years.
These tax cuts are expected to boost hours worked, especially for low-income and part-time workers, who are predominantly women. Combined with the Cheaper Childcare policy, the tax cuts should increase the financial reward from working additional days, particularly for secondary earners in households.
However, as Dr. Chapman notes, "September's data reveals Australia's demand for workers is broadly stable, with job ads rising 0.8%. The annual job ad decline has slowed to 1.1%, the slowest since November 2022. However, as the recent rise in the unemployment rate and the slowdown in employment growth indicates, the labour market remains challenging."
The coming months will be critical in determining whether Australia's labour market can stabilise or if further deterioration lies ahead. With applications per job ad rising alongside growing demand, the market remains tough for job seekers, even as economic indicators suggest the need for policy intervention to support employment growth and economic activity.
Read our follow up article: Navigating the Shift: Strategic Workforce Planning for Australia's Changing Labour Market