White-collar workers face hiring cliff as rate rises bite

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The post-pandemic jobs boom for white-collar workers is coming to an abrupt halt, as rising interest rates and a slowing economy dampen hiring across the financial services sector.

From finance, to professional services such as consulting, to technology, there are clear signs some employers have been swinging the axe, while new hiring has also dropped sharply.

Australia’s big banks, like Westpac, have cut thousands of workers over the last year. Credit: Paul Jeffers

According to the Finance Sector Union, around 3000 jobs have gone across the banking sector in Australia this year with Westpac and Commonwealth Bank leading the charge. The job cuts, which compare with the big four’s total Australian staff numbers of more than 120,000 people, come as banks look to rein in their costs, a trend the union says is stoking anxiety within the workforce.

“Most banking staff are worried about meeting unreasonable work demands while trying to keep up with rising cost of living pressures while having the constant worry that they may be next to lose their jobs,” FSU National Secretary Julia Angrisano says.

There is no single cause of the job-cutting in finance, but experts say it reflects a combination of softening operating conditions and technological change, as banking becomes increasingly digital.

Banking profits are also thought to have peaked earlier this year at about $32 billion for the big four, and analysts expect lower returns in 2024 amid stiff competition.

Morningstar banking analyst Nathan Zaia says banks will inevitably look to contain costs as their profitability is squeezed, and the shift towards digital banking also means lenders may need fewer staff over the longer term.

“When you’re facing revenue pressure, you’ve got to be a little bit more careful about your costs,” Zaia says. “If more of their customers are engaging with the bank digitally, then over time the staff that you need might come down too.”

The key reason for banking’s margin squeeze is a mortgage price war, with CBA chief executive Matt Comyn last month saying some rivals had experienced what could be “the biggest negative margin erosion in banking history.”

Among the big four of CBA, Westpac, NAB and ANZ, there has been a steady flow of reports of redundancies throughout the year.

For example, CBA in October told the Finance Sector Union (FSU) that 192 jobs will be cut from back office operations in Sydney, Melbourne and Perth. A CBA bank spokesman said at the time: “As part of our focus on constant business improvement, we regularly review the skills we need and how we organised. That means from time to time some roles and work will change or no longer be required.”

Credit: Marija Ercegovac

In September, it was NAB which announced 222 redundancies across its personal lending, technology and operations, and corporate finance departments. It also announced a further $400 million in cost-cutting which will almost certainly mean further redundancies. A NAB spokeswoman at the time pointed to the changing operating environment, saying the bank needed to make sure it had the right capabilities and skills. “This means certain roles may no longer be required or need to be moved to support other teams,” she said.

There have also been redundancies at Macquarie Group, according to reports, though its total Australian staff numbers edged higher in the September half.

The sobering thought for the white-collar sector is that 2023 has not been a bad year. Around 100,000 white-collar jobs were expected to be added this year which is the long-term average. More generally, Australia’s labour market has been surprisingly resilient, with an unemployment rate of 3.7 per cent.

The bad news is, Deloitte Access Economics forecasts that new hiring in white-collar jobs is now falling off a cliff with just 21,000 white-collar jobs expected to be added in 2024, which would be the weakest growth since 2017. This compares to the 778,800 workers added in 2021 and 2022.

“We’re expecting the worst quarters to be the December quarter that we’re in now and the March quarter of next year for white-collar jobs,” says Deloitte Access Economics partner David Rumbens.

He expects the pullback to be particularly harsh in professional services, finance, education and training.

For Seek’s senior economist Matt Cowgill, it’s not hard to see the trends in its job ads data when comparing the current environment to pre-COVID.

“We’ve seen white collar professional parts of the economy struggling a bit more than others,” Cowgill says.

“The biggest declines in job ads are in banking, and financial services, in ICT (Information and communication technologies), as well as insurance, and superannuation.”

Interestingly, he has also noted that higher paid occupations have fared worse than lower and middle white-collar jobs.

“If I divide occupations into five groups based on the average salary, in the highest-paid group we have about 18 per cent fewer ads than we had immediately pre-COVID, and in the lowest paid fifth of all occupations, we have 41 per cent more job ads than we had immediately pre-COVID,” Cowgill says.

The story is quite different when you look at specific sectors. Australia’s tech giants were not immune to the global carnage early this year which saw Microsoft cut 10,000 employees globally in January and more in July.

Within one week early this year, Atlassian and Xero let go of 1300 staff which represented an abrupt turnaround for the former’s recent hiring spree.

The end of the zero interest rate policy (ZIRP) was partly blamed for the chill wind blowing through the pampered corridors of the tech sector which had flourished in the loss-making era of free money.

Higher interest rates are part of the common set of factors around inflation that is impacting on the jobs climate, Rumbens says.

The first is the inflationary impact on wages, which he describes as one of the key dimensions of the cost-of-living crisis.

“We’ve had real wages falling for three years in a row,” he says.

The other factor is the impact of higher interest rates bleeding through the economy.

“We’ve seen residential construction falling further and a lot of business failures. But I would say that that’s now bleeding into other sectors as well, the broader consumer slowdown is then affecting supply chains, manufacturing and transport and then broader business activity,” Rumbens says.

This has fed through into legal services, with the Australian Financial Review Law Partnership Survey reporting this week that partnership numbers dropped at five of Australia’s big six law firms over the last half year.

Other sectors have had their own specific issues to deal with too.

The major consulting firms have been roiled by the tax scandal which saw a former PwC partner banned for allegedly using confidential government tax plans for commercial gain.

It was just what the doctor ordered for an Albanese government that was looking to drastically cut the public service’s multi-billion dollar addiction to external consultants.

As many as 1000 highly paid employees are being let go this year across the major consulting firms. Although the economic slowdown – and its impact on corporate deal-making – was also a significant factor.

Partnership promotions have been delayed and new graduate recruits have had their start dates delayed to help stem the financial woes at PwC.

And keep in mind, this does not take into account the potential impact of artificial intelligence – which some fear could wipe out huge numbers of skilled jobs.

IBM chief executive Arvind Krishna may have offered a glimpse of this future for our big banks when he said generative AI meant companies will be able to get the same work done with fewer people.

“I actually believe that the first set of roles that will get impacted are — what I call — back office, white-collar work,” he said.

So far, the local banks have argued they are mainly focused on using AI to free up their staff to concentrate on higher-value tasks. But others suggest the effect of AI on white-collar jobs could be far more dramatic. Specifically for IBM, in May, Krishna said he could see 30 per cent of the company’s 26,000 non-customer-facing roles being replaced by automation and AI functions over the coming years.

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