Australia's unemployment rate rose from 5.1 to 5.3 per cent in January, but it was because more people were looking for work not because jobs were being cut.

Key points: ABS figures show 13,500 jobs were created last month — 46,200 full-time jobs were added while 32,700 part-time jobs were lost

ABS figures show 13,500 jobs were created last month — 46,200 full-time jobs were added while 32,700 part-time jobs were lost The participation rate rose to 66.1 per cent, causing the unemployment rate to rise as more people joined the search for work

The participation rate rose to 66.1 per cent, causing the unemployment rate to rise as more people joined the search for work Economists say the jobs numbers are consistent with weak annual wage growth of 2.2 per cent last year

Even as the jobless rate rose, employment increased by 13,500, with the creation of 46,200 full-time jobs more than offsetting the loss of 32,700 part-time workers.

The key factor that caused the seasonally-adjusted unemployment rate to climb was a rise in participation — the proportion of the over-15-year-old population in work or looking for it — from 66 to 66.1 per cent, which is around record levels.

This is reflected in the trend unemployment rate, which smooths out monthly statistical bumps, and has remained steady at 5.2 per cent since September, according to Australian Bureau of Statistics chief economist Bruce Hockman.

However, he noted that underemployment was higher over the month, seasonally adjusted, and had edged up over the past year.

"The underemployment rate continues to remain high, but is still below the levels from 2016-17," Mr Hockman noted.

With unemployment at 5.3 per cent and underemployment at 8.6 per cent, the ABS figures show 13.9 per cent of the workforce are underutilised, the highest level in about one-and-a-half years.

However, the ABS added that its analysis of the data showed "there was no notable impact on labour force statistics from recent bushfires".

Wages growth remains low; women's pay continues to lag

EY chief economist Jo Masters pointed out that today's jobs data are consistent with annual wage growth of just 2.2 per cent over 2019, reported in ABS figures released yesterday.

"There is clearly plenty of spare capacity in the labour market, suggesting little progress in lifting wage growth any time soon," Ms Masters noted.

Yesterday's ABS figures also highlighted the effect of public sector wage caps on pay growth, with the quarterly increase in private sector wages exceeding the public sector for the first time since 2012.

"Annually, both private and public sector wages rose 2.2 per cent; this was the lowest public sector growth rate since the commencement of the index in December quarter 1997," Mr Hockman added.

Separately, analysis by the Workplace Gender Equality Agency (WGEA) showed the national gender pay gap was 13.9 per cent. It has declined from 14.1 per cent this time last year.

Based on full-time average weekly earnings (using Australian Bureau of Statistics data) the difference in pay between women and men is $242.90.

On average, women working full-time earned $1,508.50, while men working full-time earned $1,751.40.

Libby Lyons, Director of the Workplace Gender Equality Agency, said the result was "disappointing" and she was worried that a "degree of complacency is creeping back into the Australian business community".

"Closing the gender pay gap is, at its heart, a human rights issue," Ms Lyons said.

Professor Rae Cooper from the University of Sydney Business School agreed that not enough progress was being made.

"With chronically depressed wages for men alongside high educational attainment rates for women, Australia should be closing the pay gap rather than plateauing as today's results have shown."

If unemployment keeps rising, interest rates will fall again

Capital Economics analyst Ben Udy said the jobs data are volatile from month-to-month and these figures are unlikely to prompt the Reserve Bank to cut interest rates in March.

"But we expect the unemployment rate to continue to climb in the coming months," he added.

"Business surveys are once again pointing to weaker employment growth this year, and household surveys are consistent with our forecast of the unemployment rate rising to 5.5 per cent by the middle of this year.

"If we are right, we think that will be enough to convince the RBA to cut rates by 25 basis points in April and July."

That would take the official Australian cash rate down to a fresh record low of just 0.25 per cent, at which point the RBA would likely need to consider unconventional policy moves, such as quantitative easing, if the economy remained weak.