Labour force participation rate

IBISWorld forecasts the labour force participation rate to inch downwards by 0.21 percentage points in 2025-26, to 66.78%. This slump follows strong growth over the past few years. A rise in the unemployment rate, coupled with negative business confidence in 2025-26, reflects a cooling economy, as earlier interest rate hikes, persistent inflation and slower output growth weaken labour demand and make firms more cautious about hiring. These conditions are contributing to the slight decline in the labour force participation rate by discouraging some jobseekers and delaying recruitment decisions. Yet, many Australians are actively looking for work, fuelled by the growth in the cost-of-living pressures. In a bid to get ahead of these rising costs, many young Australians are seeking to enter the labour force earlier. These factors are limiting drops in the labour force participation rate in the current year.

The COVID-19 pandemic caused the largest fall in the labour force participation rate in 2019-20 since 1991-92, when Australia faced the early 1990s recession. The Federal Government's restrictions on inbound travel and non-essential activity in response to the COVID-19 pandemic constrained growth in the total labour force. In addition, many people who were suddenly unemployed were not actively looking for a job, due to the lack of available roles, which removed them from the labour force. The Federal Government's easing of the eligibility requirements of the JobSeeker program has supported individuals suddenly out of work during the pandemic and reduced the urgency of unemployed people to try and find a new job. Despite this shock, the labour force participation rate has trended higher over the past five years. Structural changes, including more flexible workplace arrangements and policies that encourage diverse forms of employment, have supported job creation and helped bring more people into the labour market. The rebound in migration as borders reopened has also expanded the working-age population and boosted the pool of potential workers, contributing to a recovery in participation over the past few years.

The trend of domestic manufacturers moving operations to countries with lower operating costs, particularly in Asia, has subdued overall manufacturing activity over the past five years, weighing on the participation rate. In contrast, medical advances and technological advances have increased life expectancy, encouraging many older Australians to remain in the workforce longer to accumulate additional retirement savings, while younger cohorts continue to enter the workforce. These demographic trends have supported participation, but the broader ageing of the population has simultaneously constrained how quickly the overall participation rate can rise, as more baby boomers reach retirement age and exit the labour force. Overall, IBISWorld forecasts the participation rate to increase at an average annual rate of 0.27 percentage points over the five years through 2025-26.