SYDNEY -(Dow Jones)- Australia's record floods will squeeze the country's already tight labor market as contractors and mining companies rush to hire workers to help rebuild the devastated state of Queensland and reopen shuttered mines, leading industry experts warned Tuesday.
"There's a lot of work out there now and there's got to be an effect from this," said Peter Taylor, chief executive of industry group Engineers Australia. "Before the global financial crisis there was almost daily news about projects having to be deferred due to lack of staff. You can expect some of that again."
At least 5 billion Australian dollars (US$4.97 billion) will be needed for government-funded reconstruction alone in Queensland where at least 25 people have been killed in floods. Before river banks burst in the state capital Brisbane last week most of the damage and disruption to business had been centered on the state's mines, which provide a third of the thermal coal traded in the Pacific.
The government has already sent more than 1,200 troops to help in the cleaning and recovery effort, but thousands more workers from the private sector will be needed for rebuilding. This after wages across the country already rose by 3.6% for the year to September, outpacing a 2.8% increase in inflation, with economists forecasting a bigger pick-up next year.
The need for even more engineers and contractors at a time when the unemployment rate continues to fall, at 5.0% in December, has rekindled a call from local economists and business leaders for the government to open the gates for more short-term manual labor visas, or specific industry permits.
Finding workers to plug the gap in manual labor without some changes could be tough in a country with rigorous employment visa regulations, which make it tough for companies to recruit from overseas. Australia's resource-led boom means the nation has near full employment with state's like Western Australia having an unemployment rate even below the country's 5% level.
Even with the U.S. posting an unemployment rate of 9.1% and U.K. jobless near 8%, Australia's population growth is slowing.
Austalia's population increased at an average 1.4% a year over the past 40 years with entrants rising in each of those years. But new restrictions saw 1.6% fewer immigrants come to Australia in the year ending June 30, 2010 compared with the year before. Aside from more stringent visa restrictions, a 20% surge in the Australian dollar against the U.S. greenback last year, increasing inflation and a string of central bank interest rate rises have pushed up the cost of living.
To be sure, the country's biggest employers in the key mining industry like Rio Tinto Ltd. (RIO.AU) believe they can weather the wage pressure created by demand for workers to rebuild Queensland. The company plans to expand its iron ore production in Western Australia's Pilbara region by more than 50% to 333 million tons a year by 2015, arguing the project will be cushioned by its distance from the flood zone.
"In terms of the race for labour, obviously it adds to the pressure but we've had that for a long time," said a Rio Tinto spokesman. "The Pilbara is a separate micro-economy to the rest of the country, with its own unique wage pressures."
Notably, companies in Western Australia are already paying drivers of heavy trucks six-figure salaries, while experienced crane operators can earn hundreds of thousands a year.
That surge in Australian mining wages has been a thorn in the industry's side for more than a decade. Wages across the industry in Australia have increased by 10% annually throughout much of the last decade even as flat wage growth was seen in other industries. This time, however, with immigration down and unemployment already pinched, the impact could be broader.
"We will see the new industrialization tested in a very tight labor market and whether those demand pressures will be contained in mining and not flow into other areas like retail is unlikely," said Scott Haslem, chief economist for UBS in Sydney.
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