3.1 The importance of scenario modelling

As we have seen through the development of the resilient occupations framework, it is important to use analytical approaches that are suitable for making sense of labour market trends in times of rapid change and uncertainty.

Scenario modelling is a forward-looking way of examining labour market trends that can help improve our understanding of possible trajectories for recovery from COVID-19. While economic activity is recovering across Australia, this recovery is proceeding at an uneven pace. In uncertain times, scenario modelling can improve understanding of a range of plausible possibilities that may arise, including comparisons of the impact on labour market outcomes.

Method used to examine the scenarios

The NSC partnered with the Centre of Policy Studies (Victoria University) and AlphaBeta Advisors to conduct the scenario modelling using the Victorian University Employment Forecasting (VUEF) model. The VUEF is a family of models centred on a computable general equilibrium (CGE) model of the Australian economy. The VUEF captures dynamic adjustment to a shock and the flow onto employment, industry, occupation and educational attainment.

Scenarios considered

The NSC developed a central Economic Restoration scenario which is broadly consistent with the macro economic outlook in the 2020–21 Budget. From this scenario, the NSC then examined three variations to determine potential different recovery pathways that could emerge.

Figure 18 outlines the major assumptions for each scenario, which were drawn from combinations of health and economic related factors as the main drivers of uncertainty during COVID-19.

These four scenarios were modelled to identify the impact of COVID-19 across industries and occupations from 2020 to 2025 and the associated skilling implications.

A base case scenario, representing a set of assumptions on long-term trends that may have been expected to continue if COVID-19 had not occurred, is used as a comparative benchmark.

Analysing the modelling results

The NSC analysis draws on the modelling results in 4 ways:

  1. Net difference or the impact on employment over time relative to the pre COVID-19 level.
  2. No COVID-19 base or the impacts on employment at a point in time compared with what might have happened if COVID-19 had not occurred.
  3. Comparative differences between scenarios as a basis for identifying compositional impacts such as by industry, occupation, age, gender and skill level.
  4. Time impacts analysis considers different periods from Q1 2020 to Q1 2025, with 1–2 years considered to be short term and 3–5 years considered to be medium term.

Figure 18: Overview of scenarios based on health and economic-related drivers

Scenario Health impacts Economic impacts
Decorative image

Economic Restoration

Virus is contained and international borders start to re-open from 2021 With social distancing measures wound back and borders re-opening, domestic and international activity resume, similar to pre-COVID-19 levels and patterns
Variations to the central Economic Restoration scenario

Decorative image

Fortress Australia

Virus is supressed domestically not suppressed globally with international borders closed until 2022 With international borders closed, declines in tourism and international education are partly offset by increased local manufacturing and a smaller labour force due to lower net overseas migration

Decorative image

Impeded Recovery

Virus is contained and international borders start to re-open from 2021 Pandemic dampens household consumption and business investment, impeding the recovery.

Decorative image

Accelerated Digitisation

Virus is contained and international borders start to re-open from 2021 Increased rates of working from home and the adoption of digital technologies and processes leads to positive spill-overs

Source: NSC.

Further details on the assumptions and inputs to the 4 scenarios are provided in Appendix A.