3.2 Key findings from the central Economic Restoration scenario

The Economic Restoration scenario outlines a pathway of recovery for Australia

The Economic Restoration scenario is the central scenario examined by the NSC. This scenario is broadly consistent with the macro economic outlook in the 2020–21 Budget and forms the baseline from which all other scenarios are examined.

The Economic Restoration scenario assumes the virus is largely suppressed domestically by 2021 and that it is contained globally by 2022 due to the development of a vaccine or effective quarantine and treatments. This allows borders to re-open and triggers a recovery in travel, migration and global imports and exports. With social distancing measures wound back and borders re-opening, domestic and international activity resumes, similar to pre-COVID-19 levels and patterns.

While the Economic Restoration scenario provides a clear recovery pathway, the shock of COVID-19 is felt across the economy. The level of total employment also remains below where it otherwise would have been if COVID-19 had not occurred – even with the unemployment rate having returned to pre-COVID-19 levels – primarily due to border closures, causing migration and thus population growth to be lower than previously expected.

Importantly, the baseline that underpins the Economic Restoration scenario assumes that long-term trend changes in the structure of the economy continue to play out in the years ahead. This includes the shift towards services, particularly with employment in the Health Care and Social Assistance sector projected to increase strongly with the ageing of the population, as well as the response to the COVID-19 pandemic. The shift towards higher skilled jobs that has occurred in recent decades is also expected to continue. These two key trends dominate much of the expected future path for the Australian labour market and are not disrupted over the medium term by the shock of COVID-19.

Impacts on occupational employment will flatten out over time.

Although the impacts of COVID-19 are stark in the short-term, over time the impacts are likely to be more evenly distributed. This is demonstrated by Figure 19, which shows the change in employment relative to a no-COVID-19 baseline for each occupation examined by the NSC. This figure shows employment growth by occupation in the short term (to 2021Q2, as indicated by the light green bars) and long-term (to 2025Q1, as indicated by the dark blue bars) relative to employment growth in that occupation had COVID-19 not occurred.

This figure shows that although the difference between the worst and best performing occupations is initially large, by 2025 this disparity is less obvious. As expected, the impacts of COVID-19 are initially felt by occupations affected by public health measures including Hospitality, Accommodation and Transport professionals.

As noted above, the level of total employment also remains below where it otherwise would have been if COVID-19 had not occurred – even with the unemployment rate having returned to pre-COVID-19 levels – primarily due to border closures, causing lower migration and population growth and a smaller labour force than previously expected.

Many occupations will recover

While the figure above focuses on comparisons with the no-COVID-19 baseline, it is important to consider the overall net change in employment. While many occupations are severely impacted in the short-term, many of these occupations are expected to have a strong growth trajectory in the longer-term. This means they could see a strong recovery in the coming years.

Table 6 highlights a number of occupations which have been particularly impacted in the short term but are still expected to have more people employed in 2025 than prior to the onset of COVID-19. For example, although employment for Air Transport Professionals declined by 20.4% between February and May, it is important to remember that this occupation had been growing very strongly prior to COVID-19. As such, under the Economic Restoration scenario this occupation is still expected to grow by 4.8% over the period Q1 2020 to Q1 2025, demonstrating its longer-term resilience even if the near-term outcomes are weaker.

Table 6: Percentage change in employment by selected occupation, actual initial impact compared with projected growth under Economic Restoration scenario for period 2020Q1 to 2025Q1

Selected occupation Change in employment Feb 2020 to May 2020 Total projected employment growth 2020Q1 to 2025Q1 - Economic Restoration Scenario
Air and Marine Transport Professionals - 20.4 % + 4.8 %
Hospitality Workers - 56.8 % + 5.2 %
Accommodation and Hospitality Managers - 22.8 % + 3.2 %

Source: NSC analysis of scenarios produced in partnership with the Centre of Policy Studies and AlphaBeta Advisors. ABS Labour Force Survey, NSC seasonally adjusted data.

Occupations that were performing well before COVID-19 are expected to grow

Under the Economic Restoration scenario, existing trends in the labour market broadly continue. Figure 21 divides all examined occupations into three groups based on their performance in the five years prior to the onset of pandemic – the top, middle and bottom performing occupations. As demonstrated below, the top third of occupations prior to the onset of COVID-19 are expected to grow the strongest from 2021 to 2025 under the Economic Restoration scenario.

Structure of labour market unlikely to change significantly

Consistent with the impacts at the occupational level, the long-term industry composition of the labour market is not expected to substantially change. Once again, although the impacts of COVID-19 are stark in the short-term, over time the impacts are expected to be more evenly distributed across industries.

Health, education and professional services will continue to dominate growth

With the composition of the labour market not expected to significantly change, growth is likely to continue to be led by health, education and professional services related industries.

Employment growth is expected to be dominated by Health Care and Social Assistance (up by 205,900 or 11.6%), Education and Training (up by 85,100 or 7.9%) and Professional, Scientific and Technical Services (up by 65,800 or 5.7%) over the 5 years to 2025.

By contrast, employment is expected to be more subdued for Mining (down by 27,000 or 11.2%) and Construction (down by 25,000 or 2.1%, largely driven by lower population growth) as well as Manufacturing (down by 23,200 or 2.5%) and Agriculture, Forestry and Fishing (down by 16,400 or 4.9%).

Of course, this more subdued outlook does not necessarily translate into each occupation within those sectors. As this report has previously noted (see Parts 1 and 2), despite the falls in employment in the Construction industry over the three months to both May and August there are a number of occupations within Construction that rank highly on the resilience framework outlined in Part 2.

Additionally, policy measures could also have a significant impact on individual sectors and see actual outcomes diverge from the modelling results.

As noted above, the modelling sees the Mining sector experiencing the largest decline in employment over the medium-term. This result appears to be at odds with recent labour market data, which indicate the mining sector has been relatively strong despite the disruption to the global economy. This outcome is a function of the underlying assumptions of the modelling. The modelling draws on forecasts from the International Monetary Fund, which project a fall in world economic growth and in turn a dampening impact on export demand. Over time, this weakness can be expected to impact on the mining sector. Further, the relative strength of the Australian economy compared to other countries causes the exchange rate to appreciate in the model, making Australian mining outputs more expensive in foreign currency terms, further reducing demand and employment in the sector. In this context, the projected fall in Mining employment is not unexpected, however further interrogation of data in the coming months will enable us to assess whether this outcome is likely to emerge.

The labour market will continue to shift towards higher skilled jobs

Prior to the onset of COVID-19, the labour market had been continuing to shift towards higher skilled jobs. This was reflected in employment associated with Bachelor degree or higher level qualifications growing strongly prior to the onset of COVID-19 (up by 27.7% over the 10 years to November 2019), while employment for jobs requiring a Certificate I or secondary education had recorded relatively weak employment growth (up by just 6.4% over the 10 years to November 2019).

Looking ahead, this feature of the Australian labour market is expected to continue under the Economic Restoration scenario – consistent with both trends prior to the onset of COVID-19 as well as the no-COVID-19 baseline projections.

Reflecting the overall trend towards higher skilled jobs, the top occupations identified under the Economic Restoration scenario are heavily weighted towards occupations generally requiring high level qualifications. Even so, there will be a high number of opportunities for other jobs such as Personal Carers & Assistants and General Clerks because of the absolute size of these occupations and the projections for future growth.

Table 7: Top occupations by expected growth, from 2020Q1 to 2025Q1, Economic Restoration scenario

Position Occupation Expected growth 5 years to 2025Q1(%) Expected growth 5 years to 2025Q1(000s)
Largest percentage increase Medical Practitioners 16.8 19,100
Health Therapy Professionals 15.3 14,400
Social and Welfare Professionals 14.8 25,800
13.1 45,300
Information and Organisation Professionals 11.6 22,000
Largest increase in thousands Midwifery and Nursing Professionals 13.1 45,300
Personal Carers and Assistants 11.3 37,100
School Teachers 7.0 30,800
General Clerks 9.9 26,800
Social and Welfare Professionals 14.8 25,800

Source: NSC analysis of scenarios produced in partnership with the Centre of Policy Studies and AlphaBeta Advisors.