Australia’s Unprecedented Worker Shortage: Causes And Solutions

Australia is currently facing an unprecedented, country-wide shortage of workers. This is undermining economic output and growth by limiting the ability of businesses to meet their production, and as a result there are flow-on effects on wages and government revenue.

Addressing this worker shortage should be a high priority for state and federal governments. Australia’s international borders have been re-opened since the beginning of 2022, yet worker shortages are still increasing, with the Australian Bureau of Statistics reporting 480,100 job vacancies in the May 2022 quarter. More than a quarter of businesses across the country report being affected by this issue.

Previous IPA research found that Australia’s total worker shortage sees $32 billion in forgone wages each year.

The forgone wages are causing a reduction to direct income tax revenue to the federal government of $127.2 million per week, or $6.62 billion per year.

This estimate is based on the current level of worker shortages (proxied by advertised job vacancies), and the associated forgone wages and therefore forgone income tax revenue.

Specifically, the calculation is based on the following methodology, with all data obtained from the Australian Bureau of Statistics:

• The number of job vacancies per industry is multiplied by the average wage rate for that industry, to derive the total forgone wages from the job vacancies.
• The forgone wages by industry are then multiplied by the average personal income tax rate to estimate the total forgone income tax from the current level of worker shortages.
• Job vacancy data was taken from the ABS’ Job Vacancies, Australia dataset. Average wages data were taken from the ABS’ Average Weekly Earnings, Australia dataset. Foregone personal income tax revenue was calculated based on average per worker weekly earnings in each industry using the Australian Taxation Office’s weekly tax table.