Gallup's annual State of the Global Workplace report has confirmed that global employee engagement declined for the second consecutive year in 2025, reaching its lowest point since 2020. Each percentage point lost represents approximately 21 million fewer engaged employees worldwide. Gallup estimates the productivity cost at around $10 trillion — roughly 9% of global GDP.
For most regions, the decline was gradual. For Australia and New Zealand, it was not.
The Australian and New Zealand Picture
From 2022 to 2024, Australia and New Zealand ranked first globally in employee job market perceptions — a measure of how confident workers feel about their options and prospects. That position reflected a labour market that, coming out of the pandemic, was relatively tight and worker-favourable.
In 2025, the region recorded a 12-percentage-point drop in job market optimism — one of the steepest declines in the study. It now ranks second, behind Southeast Asia. The US and Canada experienced a similar trajectory, having fallen 23 points since 2019.
The decline was not uniform across work arrangements. Remote workers recorded a five-point drop in optimism. Remote-capable employees required to work fully on-site fell 14 points. Hybrid workers showed no change. Fully on-site workers in roles that were never remote-capable improved slightly.
Alongside this, global engagement fell most sharply among managers — not frontline employees. In South Asia, manager engagement dropped eight points in a single year. The pattern appears connected to organisational flattening: as management layers are reduced, remaining managers carry larger teams and broader responsibilities. Gallup's research is consistent that manager engagement declines as spans of control grow beyond the point where meaningful individual connection is sustainable.
Why Is This Happening?
Several forces appear to be converging.
The post-pandemic adjustment is complete — and the mood has shifted. The sense of possibility that characterised labour markets in 2022 and 2023 has given way to something more cautious. In Australia, this reflects a combination of cost-of-living pressure, a softer jobs market in some sectors, and reduced leverage for workers who may have benefited from tight conditions in earlier years.
Return-to-office policies are creating a specific friction point. The data is fairly clear: employees who know their role is compatible with flexible work, and who no longer have access to it, are registering lower optimism than either fully remote workers or those whose roles were always on-site. This is not simply a preference issue — it reflects a perceived loss of something that was previously available, and that perception shapes engagement.
Managers are being asked to do more with less. Organisational flattening has been a widespread response to cost pressures and post-pandemic restructuring. Where it results in managers carrying significantly larger teams without additional support, training, or adjustment to other responsibilities, the evidence suggests it erodes their engagement over time. A manager stretched across too many people, too many competing demands, and too little development investment is unlikely to be performing the relational work that keeps teams connected and psychologically safe.
AI is introducing genuine uncertainty. A separate Gallup US survey from Q1 2026 found that 18% of employees believe it is somewhat or very likely their job will be eliminated in the next five years due to AI or automation — up from 15% in prior years. In organisations where AI has already been implemented, that figure rises to 23%. Employees who are uncertain about their future tend to conserve energy rather than invest it. The same survey found that the strongest predictor of whether employees actually use AI tools — beyond technical access — is whether their direct manager actively champions it. Disengaged managers are unlikely to be effective advocates for change.
Inclusion and engagement are not separate problems. Declining engagement tends not to affect all employees equally. Those who already navigate additional barriers — cultural or linguistic difference, being in a non-majority group, working arrangements that fall outside the assumed norm — are often more exposed when engagement-supporting conditions deteriorate. Where manager engagement falls and psychological safety weakens, the employees with the least structural support tend to feel it first.
What This Means for Organisations
The implications of sustained engagement decline extend well beyond employee satisfaction scores.
Disengaged employees are more likely to leave when labour markets improve — and more likely to underperform when they don't. Either outcome carries significant cost. Gallup's research consistently links disengagement to higher turnover, lower productivity, more workplace incidents, and reduced customer outcomes.
For Australian employers specifically, the engagement picture intersects with a regulatory environment that is becoming more demanding. The Positive Duty under Australia's Sex Discrimination Act requires organisations to proactively prevent harm — not merely respond to complaints. State and territory work health and safety frameworks now explicitly recognise psychosocial hazards, including the conditions that produce disengagement: high job demands without adequate support, poor leadership, interpersonal conflict, and low role clarity. Engagement is no longer simply an HR metric. It is a risk indicator.
The finding that manager engagement is declining is particularly consequential in this context. Managers are the primary vehicle through which organisational obligations are either fulfilled or not. A disengaged manager is less likely to notice early warning signs of distress in their team, less likely to respond consistently to interpersonal conflict, and less likely to model the behaviours that create genuinely respectful and inclusive team cultures. The systemic risks associated with disengaged management are not theoretical.
Strategies for Addressing Declining Engagement
Gallup notes that global trends are not organisational destiny. Some organisations sustain manager engagement at four times the global average. The differentiator is investment — and specifically, investment in the right things.
Diagnose before you intervene. Aggregate engagement data tells you there is a problem. It rarely tells you where, why, or for whom. Organisations that respond most effectively to engagement decline invest first in understanding the specific conditions driving it in their context — by team, by leader, by work arrangement, by demographic group. Pulse surveys, focus groups, and exit data analysed together provide a more actionable picture than a single annual score.
Treat manager development as a substantive investment, not a compliance exercise. The evidence is clear that manager capability is the single most influential lever for team-level engagement. That capability is not just about setting goals or managing performance. It includes the ability to create psychologically safe team environments, to lead inclusively, to support employee wellbeing, and to navigate uncertainty in ways that build rather than erode trust. Where organisations have reduced management layers, they need to examine honestly whether the remaining managers have been equipped for what is now being asked of them — and whether spans of control are genuinely sustainable.
Attend to the conditions that drive disengagement, not just the symptoms. Where engagement data clusters around particular leaders, teams, or business units, the response should involve examining structural factors — role clarity, workload distribution, access to resources, quality of leadership — not simply individual behaviour. Bullying, conflict, and disengagement are often symptoms of systemic conditions: unclear responsibilities, pressure without support, competitive cultures where exclusion becomes normalised. Addressing those conditions requires more than training; it requires a willingness to examine how work is organised and led.
Take flexibility seriously as an engagement lever. The data on remote-capable employees working fully on-site is a signal worth examining. Where return-to-office requirements are contributing to declining optimism in this cohort, organisations should weigh the engagement and retention implications against the rationale for the policy — and consider whether hybrid arrangements could achieve the same organisational goals with less friction.
Connect engagement strategy to inclusion strategy. These are not parallel workstreams. Inclusion — the extent to which all employees, across all backgrounds and identities, experience the conditions that support full contribution — is essentially engagement contextualised by diversity. Where engagement is declining, the question is not just "how many employees are disengaged?" but "which employees, and why?" Disaggregating engagement data by demographic group, role type, and work arrangement surfaces the equity dimensions of what might otherwise look like a uniform problem.
Build accountability at the senior level. Engagement outcomes reflect leadership decisions, not just team dynamics. Organisations that sustain high engagement over time tend to have senior leaders who treat it as a genuine accountability — not a metric that HR manages. This means including engagement and inclusion outcomes in executive performance frameworks, ensuring board-level visibility of psychosocial risk indicators, and ensuring that senior leaders model the behaviours they expect from their managers.
The Critical Question
The Gallup findings are a prompt for honest organisational assessment. The question is not whether global engagement is declining. It is whether your organisation understands the specific conditions driving disengagement in your context — and whether the response is proportionate to what the data is telling you.
Organisations that treat this moment as an opportunity to strengthen their investment in people leadership — in manager capability, in inclusive team cultures, in genuine listening — are better placed to weather disruption than those waiting for conditions to improve on their own.
Felicity Menzies is the CEO and Principal Consultant of Culture Plus Consulting, a specialist practice focused on building respectful, safe, and inclusive workplace cultures across corporate and government organisations in Australia. Culture Plus Consulting provides workplace culture diagnostics and tailored interventions to help organisations understand and address the conditions driving disengagement, exclusion, and psychosocial risk.