Australia and New Zealand face a confluence of workforce challenges that threaten economic growth and business competitiveness. While the region boasts a stable inflation rate and a booming economy, companies still grapple with persistent skills shortages, mounting pressures for productivity gains, and the need to retain employees in a highly mobile talent landscape.

Looking ahead to 2025, economic uncertainty—driven by a shifting geopolitical landscape and technological disruptions—is expected to heighten the demand for productive, skilled employees. Businesses must revamp their value propositions to better attract and retain talent, support employee growth, and build workplaces that address mental well-being concerns.

To navigate these challenges, HR leaders in the region require a tech-enabled, multi-pronged approach that balances long-term strategic investments with immediate tactical interventions.

 

Skills and Talent Shortage: A Structural Constraint

 

Despite historically low unemployment rates—hovering around 3.9% in Australia and 3.6% in New Zealand as of late 2024—the region continues to suffer from acute labor shortages. Key sectors, including healthcare, construction, technology, and professional services, are struggling to find skilled workers. A recent report by the Australian Computer Society (ACS) estimates that Australia will need an additional 312,000 workers by 2030 to capitalize on the digital economy’s sustained and exponential growth.

Aging demographics exacerbate the issue. In New Zealand, nearly one in five workers is over 55, while Australia’s workforce is projected to shrink relative to its retiree population. These factors highlight the urgent need for companies to proactively address skill shortages and implement workforce planning strategies.

While there is a regional focus on creating attractive employment opportunities for foreign talent, the reliance on migration to fill critical gaps is constrained by global competition for talent and domestic political pressures to balance immigration levels.

To mitigate these challenges, HR leaders across ANZ are exploring ways to strengthen skilling programs. Technology solutions will play a critical role in enabling HR teams to address these needs.

The SHRPA State of the HR Industry Report, which examined APAC markets and the evolving technology landscape, found that talent upskilling will see the largest increase in investments. Technological innovations, particularly in AI and analytics, are also helping employees develop the right skills and enhance productivity levels.

 

Time to Rethink the Employee Value Proposition?

 

Beyond skilling, a key challenge for companies in the region is their ability to attract and retain qualified employees. With a labor market increasingly shaped by hybrid work and talent mobility, companies across ANZ face intense competition for hiring and retaining employees.

The way forward is to rethink the employee value proposition (EVP) to better address employee concerns and enhance the overall work experience. With limited flexibility to increase direct compensation, organizations are focusing on maximizing returns from their investments in employee experience. Rather than relying solely on salary hikes, many companies are strengthening their overall value proposition to remain competitive in the talent market.

One key approach is enhancing what KPMG, in a recent report, calls the "emotional salary"—a combination of benefits, work-life balance, career development, and personal fulfillment. Employees today place greater importance on how, where, and when they work, as well as opportunities for growth and their connection to an organization’s purpose and societal impact. As these factors become essential drivers of engagement and retention, companies must ensure their employee experience aligns with evolving workforce expectations.

 

Raising AI Adoption

 

The labor market in Australia and New Zealand has become increasingly employee-centric, forcing businesses to refine how they engage their people. This shift requires companies to move away from traditional HR practices and instead focus on how they can add value to employees.

One way to achieve this is by leveraging technologies like analytics and AI. Data-backed talent decision-making, paired with intelligent AI-driven systems, reduces workload, streamlines processes, and helps companies curate the right employee experience. These platforms can also empower employees to navigate complex work ecosystems and seamlessly access workplace safety and health benefits.

While AI and analytics have the potential to enhance HR’s effectiveness, adoption in Australia and New Zealand has been slow. Reports indicate that HR leaders have been hesitant to adopt AI or provide strategic advice on its use due to a limited understanding of the technology. There is a clear need to educate and upskill HR professionals on AI’s capabilities and applications.

Additionally, while tech integration can significantly improve HR’s impact on business success and talent performance, HR professionals must ensure that these systems are scalable, sustainable, and employee-centric. HR leaders must also prioritize data privacy, cybersecurity, and transparency to successfully implement new technologies while maintaining employee trust and effective execution of key priorities.