Australia’s Job Market Reset: Is the labour market stronger than suggested?

Australia’s labour market in 2025 is no longer defined by rapid expansion—it’s characterised by careful recalibration. Strategic restraint, internal mobility, and the rise of AI are reshaping how businesses hire, develop, and retain talent. After the post-pandemic boom, job ads have softened year-on-year, yet remain well above pre-COVID benchmarks. The shift signals a broader move away from high-volume hiring towards value-driven, efficiency-focused decisions, all against a backdrop of rising costs and persistent skills shortages.

On the AU Market Update, people2people Victoria Director Liz Punshon was joined by Brooke Lord, Head of Advocacy and Policy at RCSA, and Guy Davy, Senior Manager Talent Solutions at LinkedIn, to unpack the state of the Australian market. Lord described today’s environment as cautious but still highly competitive. Job ads are significantly down compared to last year, but demand remains far stronger than in pre-pandemic years. She noted that up to 35% of occupations remain in severe shortage—a reminder that “there’s still a race for talent.”

“Even if you’re not changing your job, your job’s changing on you.”

Davy echoed this sentiment, pointing to the shift from “growth to efficiency.” Hiring isn’t frozen; it’s filtered. Employers are scrutinising return on investment for every role, leaning into referrals, and moving away from discretionary hiring. “Every hire really counts,” he said.

With external hiring under pressure, the smartest employers are looking within. Internal mobility is up 7% year-on-year, with organisations increasingly mapping existing skills and investing in development pathways. “The question isn’t just ‘Who do we need to hire?’” Davy explained. “It’s ‘Who do we already have, and how can they grow into what’s next?’” This focus on adaptability is critical. As roles evolve, employees must evolve with them. Strategic thinking, communication, and AI proficiency are topping the in-demand skills list, while frontline, healthcare, trades, and ICT roles remain hot spots for recruitment.

Artificial intelligence is fast becoming a defining force in recruitment and workforce planning. Davy highlighted staggering growth: a 21x increase in job ads mentioning AI and a 140x increase in professionals listing AI skills on LinkedIn. AI isn’t eliminating jobs outright; it’s transforming tasks and workflows. “It’s not coming for your job—it’s coming for your tasks,” Davy said. This means efficiency gains for employers, but also new challenges. Lord cautioned that while AI can reduce bias when applied correctly, poor implementation risks amplifying it. The competitive edge will lie with employers and recruiters who adopt AI responsibly—balancing automation with human judgment.

Both Lord and Davy agree the next five years will see a pivot towards skills-based hiring. Credentials will matter less than demonstrable capabilities, with Millennials—who’ve held twice as many jobs as Gen X by the same age—now stepping into leadership roles. For them, adaptability, experience, and soft skills will carry as much weight as traditional qualifications.

For employers, the takeaways are clear. Prioritise upskilling and mobility to future-proof your workforce. Reframe recruitment around quality over quantity, especially in business-critical roles. Use AI to streamline processes, but invest in training to ensure it is applied ethically. Strengthen your employee value proposition by highlighting culture, flexibility, and purpose, and begin preparing for a skills-first future through real-time skills mapping and microlearning initiatives.

The Australian employment market may have shifted from growth to efficiency, but the race for talent is far from over. The real question for employers now is: will you compete on cost, or on capability?