The strength of Australia's jobs market is being overstated by a surge in casual positions and an inability by workers to secure more hours.

While the unemployment rate fell to 5.7 per cent in July from 6.3 per cent a year earlier, 87 per cent of the jobs created in that period were part-time: a definition that covers anything from 1 hour a week to 35 hours. At the same time, the underemployment rate is stuck near a record high of 8.5 per cent.

Australia's underemployment rate is stuck near a record high of 8.5 per cent, Credit:Louie Douvis

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The changing labour market reflects more jobs generated in services industries -- which rely less on full-time employees -- amid the waning of a mining-investment boom. The resulting lift in part-time jobs, along with a rise in underemployment, has seen a sharp slowdown in wage growth. The flow-on effect: weak inflation that spurred the Reserve Bank of Australia to cut rates to a record-low 1.5 per cent last month.

"The kick to economic growth from the lift in headline employment has been weaker than usual" because of the prevalence of part-time jobs, said Gareth Aird, a senior economist at Commonwealth Bank of Australia. "We think that inflation will continue to dominate the bank's near-term decisions and we think that more policy easing is coming."