Underemployment Equilibrium in Australia: Economic Risks & 2026 Policy Moves

Underemployment equilibrium describes a labour market scenario where a substantial portion of workers are employed, but not to their full capacity. This could mean part-time workers who want more hours, or skilled professionals stuck in lower-paid or insecure roles. The equilibrium arises when this situation becomes normalised — the economy settles into a state where neither market forces nor policy changes are enough to push underemployed workers into fuller or more meaningful employment without a major shift.

• Example: In early 2026, the ABS reported that while the official unemployment rate dipped to 3.8%, the underemployment rate remained stubbornly high at 6.5%. This signals a workforce that is present, but not fully productive or satisfied.

• Long-term risks: Persistent underemployment can stifle wage growth, dampen consumer spending, and erode workers’ skills over time.

Several trends are converging in 2026 to make underemployment equilibrium particularly relevant for Australia:

• Technology and Automation: As businesses accelerate digital transformation, demand is rising for highly skilled tech workers, while routine jobs are being casualised or automated. Many mid-career workers are left with fewer hours or must juggle multiple insecure gigs.

• Cost of Living: With inflation stubbornly above the RBA’s 2–3% target range and housing affordability at record lows, many workers need more hours to make ends meet. Yet employers remain cautious about expanding rosters due to economic uncertainty.

• Policy Shifts: The Albanese government’s 2026 Fair Work reforms have improved minimum standards for gig and casual workers, but haven’t fundamentally shifted the underemployment dynamic. For example, new rights to request more stable hours have helped some, but not all, insecure workers.

These factors combine to create a situation where businesses, workers, and policymakers are ‘stuck’—with little incentive or ability to break out of the underemployment equilibrium without more radical interventions.

So, what can be done to move Australia beyond underemployment equilibrium?

• Targeted Skills Investment: The 2026 Federal Budget includes expanded funding for digital reskilling and TAFE programs, especially for mid-career workers. The aim is to match labour market demand with worker capabilities, lifting more Australians into secure, full-time roles.

• Incentives for Full-Time Employment: Industry groups are pushing for payroll tax relief and wage subsidies to encourage businesses to convert casual and part-time roles to permanent positions.

• Better Workforce Data: The ABS is rolling out new metrics in 2026 to more accurately capture hidden underemployment, especially in the gig and platform economy. This data will help policymakers and employers better target interventions.

However, breaking underemployment equilibrium requires coordination across government, business, and the education sector — as well as a willingness to rethink traditional models of work.

For Australian households, underemployment equilibrium isn’t just a policy challenge — it has real consequences. If you’re underemployed, you may face income insecurity, limited access to credit, and fewer opportunities to build wealth. For businesses, a workforce stuck in underemployment can lead to lower productivity, higher turnover, and a less engaged team.

Signs you may be affected include:

• Working fewer hours than you’d like, despite requesting more from your employer

• Needing to take on multiple jobs or gig work to pay the bills

• Feeling overqualified for your current role but unable to move up

Addressing underemployment isn’t just about finding more jobs, but about creating better, more secure and meaningful work for all Australians.