Speech by Adam Boyton to the ITECA 2022 VET Business Summit

Speech by Adam Boyton to the ITECA 2022 VET Business Summit

The National Skills Commissioner, Adam Boyton, addressed the ITECA 2022 VET Business Summit on April 22, 2022. Below is an edited transcript of his speech.

Introduction

I would like to acknowledge the traditional custodians of the lands we are meeting on here today and pay my respect to Elders past, present and emerging.

I intend to speak about labour and skills shortages; and offer some perspectives on both – now and into the future.  

Current state of the labour market

I’ll start, however, with some observations on the state of the labour market.

The most recent monthly labour force survey from the Australian Bureau of Statistics – and data the National Skills Commission collects on recruitment difficulty and job vacancies – points to a tight labour market.

The unemployment rate – at 4.0% in March is the equal lowest rate recorded since November 1974.

Australia's unemployment rate

Source: ABS, Labour Force, Australia, March 2022, seasonally adjusted data

The participation rate remained steady in March, at an equal record high of 66.4%. The combination of a record high participation rate and strong growth in employment means that the employment to population ratio was also at a record high in February and March (of 63.8%).

The employment to population ratio

Source: ABS, Labour Force, Australia, March 2022, seasonally adjusted data

The underemployment rate fell by 0.2 percentage points in March 2022 to 6.3%, the lowest rate recorded since November 2008 and well below the 8.8% recorded in March 2020.

Underutilised hours across the underemployed and unemployed

Chart showing underutilisation, unemployment and underemployment rising sharply with the onset of COVID-19, then reducing back to pre-COVID levels
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Source: ABS, RBA

In fact, using data supplied to us by the RBA, the number of hours that the unemployed and underemployed are seeking to supply as a share of total potential hours in the labour force – that is, an hours based under‑utilisation rate – is also at very low levels (noting that these data are as at February 2022).

Job vacancies have also increased strongly relative to levels prevailing prior to the pandemic – such that the number of unemployed persons per job vacancy is at very low levels.

Unemployed persons per job vacancy

Source: NSC Internet Vacancy Index, March 2022; ABS, Labour Force, Australia, February 2022, seasonally adjusted data; ABS, Job Vacancies, Australia, February 2022, seasonally adjusted data

On almost any measure the labour market would therefore seem to have recovered very strongly from the pandemic, with conditions as tight as they have been for some time.

One of the consequences of that tightness in the labour market is a historically high rate of recruitment difficulty.

Recruitment difficulty

The NSC collects and publishes a range of data on recruitment difficulty, sourced from contact with around 14,000 employers each year through our Recruitment Experiences and Outlook Survey (REOS).

Proportion of recruiting employers who experienced difficulty with their most recent recruitment

Source: Survey of Employers' Recruitment Experiences (2016-2019), Recruitment Experiences and Outlook Survey (2020-2022)

The first time that recruitment difficulty in rest-of-state areas exceeded that recorded for capital cities was in 2020, likely reflecting the disruption caused by the pandemic to economic activity.

However, with lockdowns having eased and activity in the major cities picking up, recruitment difficulty in the capital cities has over 2022 to date been just as pronounced as in regional areas. And in both cases the rate of recruitment difficulty over 2022 has (to date) exceed that seen in prior years.

Rates of recruitment and recruitment difficulty do vary by individual Rest of State and Capital City areas. For each region, this chart shows the proportion of employers that recruited on the y-axis; and the proportion of recruiting employers that had difficulty on the x-axis.

This chart shows not only the regional variation that we have seen on average over the past 12-months, but also that there tends to be a correlation between the share of employers that are looking to recruit and recruitment difficulty – something that should not surprise.

Rates of recruitment and recruitment difficulty by region (12 months to March 2022)

Source: Recruitment Experiences and Outlook Survey (12 months to March 2022)

Over 2021 and into this year the increase in demand for labour – reflected in data such as our internet vacancy series – has also been reflected in the proportion of employers who have reported recruitment difficulty.  

I should note here that the recruitment difficulty rate doesn’t relate to all employers, just those currently recruiting or who had recruited in the previous month.

Over the 12 months to March 2022 an average of 46% of employers were currently recruiting or had recruited in the previous month.

Recruiting employers are then asked if they had difficulty filling their most recent vacancies.

Of those employers that were recruiting, 56% of employers experienced difficulty in their most recent recruitment.

That then corresponds to an average of 26% of all employers recruiting and also having difficulty filling their most recent vacancies in any given month (46% of employers recruited and, of those, 56% of employers experienced difficulty in their most recent recruitment).

However, recruitment difficulty doesn’t necessarily mean that positions go unfilled. Over the 12 months to March 2022 of those employers that cited recruitment difficulty:

  • 18% of employers nonetheless filled vacancies within a month;
  • 23% filled vacancies but it took longer than a month;
  • 18% had not yet filled vacancies but had been looking for less than a month; and
  • 40% had unfilled vacancies for more than a month.

That said, some employers who fill jobs within a few weeks do indicate that they found it difficult to recruit staff with the right skills. This may mean employers have had to compromise or be more flexible in who they hire – such as hiring less experienced applicants and training on the job or changing the nature of a role to suit those applicants that are available.

The REOS also asks employers why they think they are experiencing recruitment difficulty. The most common reasons employers cite include a lack of suitable applicants, not enough applicants, a lack of technical skills or a lack of experience. In regional areas a relatively high proportion of employers also cite their location as a barrier.

The NSC also has some insight into the nature of jobs that employers are finding it most difficult to recruit for. Generally, these are higher skill level jobs – where employment growth has also been the strongest since the start of the pandemic.

Focusing a little more on employment growth, this next chart shows the change in employment by industry over the three months to February 2022, and also relative to pre‑COVID.

Employment has increased in 11 industries and declined in eight since February 2020, representing the change in employment from before the declaration of COVID-19 as a global pandemic.

Employment growth by industry (‘000), February 2022

Source: ABS, Labour Force, Australia, Detailed, February 2022

Health Care and Social Assistance, Professional, Scientific and Technical Services, Financial and Insurance Services and Public Administration and Safety have seen the largest increases in employment growth.

In many ways that’s not particularly different from what we would have expected in the absence of a pandemic. Specifically, the Health Care and Social Assistance; and the Professional, Scientific and Technical Services industries typically produce strong gains in employment.

What we can also see here is the impact and recovery in other parts of the economy due to the pandemic. The clearest example would be Accommodation and Food Services where employment remains below pre‑COVID levels but has recovered strongly over the past six months and is likely to continue to recover.

Jobs growth during the pandemic

One notable feature of the pandemic on jobs growth across occupations has been the strength recorded in higher skill level occupations.

This shift towards higher skill levels through the COVID period has been an acceleration of a long-term trend.

Growth in employment and job advertisements (compared to pre-COVID) by Skill Level

Source: ABS Labour Force Detailed, February 2022, and NSC Internet Vacancy Index, March 2022, both seasonally adjusted data

Over the 10 years to February 2020, the share of employment in Skill Level 1 Occupations increased by 2.2 percentage points (to 32.4%), compared with a fall of 1.3 percentage points for Skill Level 5 Occupations (to 15.8%).

Turning to trends over the past two years: employment in Skill Level 1 and 2 Occupations increased through the pandemic, with employment for Skill Level 1 Occupations increasing by 497,900 (or 11.8%) and Skill Level 2 Occupations increasing by 43,000 (or 2.7%) since February 2020.

Decreases in employment since February 2020 were recorded for Skill Level 5 Occupations (down by 112,000, or 5.5%), followed by Skill Level 3 Occupations (34,400, or 1.8%) and Skill Level 4 Occupations (21,100 or 0.7%).

Somewhat counterintuitively, these employment growth trends are contrary to the percentage growth in job advertisements during the pandemic (where the lower Skill Levels have grown the most).

The conclusion I draw from this is that it's important to draw a distinction between where we might be seeing labour shortages reflective of a very tight labour market and other disruptions caused by the pandemic; versus more persistent skill shortages.

So, at the risk of some overgeneralisation: at lower skill levels, particularly Skill Level 5, it appears that labour shortages and a re‑engagement of workers following COVID related disruptions might be more at play; whereas at higher skill levels, and for a number of technical and trade-based occupations, skill shortages have been more persistent over time.

Skill shortages

To that point, one of the remits of the NSC is the identification of Skill Shortages. This work is ultimately reflected in the Skills Priority List. The Skills Priority List (SPL) outlines occupations that are currently in shortage as well as their expected future demand.

Proportion of occupations in shortage, by Major Occupation Group and Skill Level

Source: NSC Skills Priority List, 2021

In the list published last year shortages were identified in 153 occupations (19% of assessed occupations) nationally.

Shortages were most common in the Technicians and Trades Workers occupation group, with 42% of occupations assessed in shortage.

  • Large employing Technicians and Trades Worker occupations in shortage include Electrician (General), Carpenter, Chef and Fitter (General).

Elsewhere close to a fifth (19%) of assessed Professionals occupations were in shortage, notably IT and health related occupations.

Interestingly, while methodologies for assessing skills shortages vary between countries, international findings tend to suggest some degree of global, not just local skill shortages.

For example, the UK conducts a regular survey to identify skills needs. The most recent survey from 2019 shows that the most challenging occupation group to fill vacancies for was in the skilled trades.

The European Foundation for the Improvement of Living and Working Conditions and the European Commission analysed skill shortages in the Euro area after the start of the COVID-19 pandemic.

Their work found that in 2020, nurses and other health professionals were among the occupations with the most critical shortages in most Member States, followed by ICT professionals, skilled trades, technicians and heavy truck and lorry drivers.

Returning to Australia, our most recent surveys of employers who have recently advertised suggests that the labour market tightened during 2021 for both Professionals and Technicians and Trades Workers. Employers appear to have filled a smaller proportion of advertised vacancies across both occupation groups compared with the previous year. This result likely reflects both the strength of the labour market and shortages already evident.

Five-year employment projections

As I noted earlier, also included in the Skills Priority List are estimates of future demand for occupations. These future demand estimates are informed by our five-year employment projections, which were updated and published last month. Like all forecasts they are subject to a degree of uncertainty.

The employment projections provide data and insights about the likely trajectory of employment in sectors and occupations in the labour market; and are designed to help employers, job seekers and policy makers understand where the job opportunities are likely to be in the future.

Projected employment changes (000’s and percentage) by industry to November 2026

Source: NSC 2021 Employment Projections, five years to November 2026

Reflecting a diverse and resilient labour market, employment is projected to increase in all 19 broad industries over the five years to November 2026.

That said, four services industries are projected to provide almost two-thirds (65.4%) of total  employment growth: Health Care and Social Assistance, Professional, Scientific and Technical Services, Education and Training, and Accommodation and Food Service.

At the more detailed occupation level, employment is projected to grow in 291 out of 358 occupations over the five years to November 2026, with employment projected to exceed pre-COVID-19 levels for 212 occupations.

The importance of the 4 Cs (Care, Computing, Cognitive ability and Communication), outlined as some of the key skill needs of the future in the NSC’s report State of Australia’s Skills 2021: Now and into the future, are evident in the occupational projections.

For instance, the care sector occupations Aged and Disabled Carers (up by 74,900 or 28.0%) and Registered Nurses (up by 40,400 or 13.9%) are expected to record the largest and fourth largest increases in employment over the five years to November 2026, driven by Australia’s ageing population and the strong employment growth projected for the Health Care and Social Assistance industry.

Projected employment changes by occupation and skill level (‘000s and percentage growth)

Source: NSC 2021 Employment Projections, five years to November 2026

The importance of computing and cognitive skills is evident in the strong employment increases projected for Software and Application Programmers (up by 42,200 or 27.0%), Database and Systems Administrators, and ICT Security Specialists (up by 29,100 or 38.9%) and Management and Organisation Analysts (up by 28,200 or 32.2%).

It's also worth noting the distribution of expected employment growth by skill level.

We expect five out of ten jobs that will be created over the next five years will typically require a bachelor’s degree or higher, while four out of ten jobs would most typically have a VET pathway.

That underscores the importance of post-secondary education in a general sense, but also highlights the significant role the VET system has to play in meeting the future needs of the labour market.

Projected employment growth to November 2026 for skill levels, by occupation group

Source: NSC, 2021 Employment Projections, five years to November 2026

From occupations to skills

What I’ve just run through is an occupation‑based view of possible future labour market trends.

I also wanted to take you through a skills lens using the Australian Skills Classification.

Put most simply, the Skills Classification takes an occupation and turns into a collection of skills.

The way we do this is to break each occupation down into three core components:

  • technology tools
  • core competencies; and
  • around 2055 specialist tasks.

Specialist tasks may be unique to an occupation or shared across occupations. They group up into 284 skills clusters and 29 skills cluster families.

Australian Skills Classification

Some of the key skills for electricians: test electrical equipment or systems to ensure proper functioning, repair electrical equipment, install electrical components, equipment or systems.

By combining occupational based projections of future employment growth with the Skills Classification, we can assess the likely future growth of specific skills across the economy.

We can also compare the skills an occupation uses with that economy wide growth.

Projected economy wide growth to 2026 in skills used by Child Care Workers

Reflected in the bubbles are the various skills clusters that Child Care Workers use.

The vertical location of a bubble shows the percentage increase in the use of those skills across the economy over the five years to 2025 (based on our previous set of five‑year employment projections.)  

The size of the bubble indicates how much time a Child Care Worker spends on that skill; while the horizontal position shows how many additional hours we think will be spent on that skill across the economy.

For instance, ‘teach school students’ is a long way to the right on that horizontal axis. What that's telling us is although the percentage growth isn't that fast, because there are so many people that use that skill the number of hours spent on it across the economy will increase significantly.

Viewing the vertical and horizontal and the size of the bubble together, gives a strong sense of how transferable and in demand specific skills in an occupation might be across the economy more broadly.

For example, Child Care Workers spend a reasonable amount of their time on three very fast-growing skills, ‘assist individuals with accessibility needs’, ‘teach health management or hygiene practices’, and ‘assist and support clients’.

This slide shows intersecting skills between Child Care Workers, Education Aides, and Aged and Disabled Carers. It is not exclusive, of course. That is, I’m not suggesting that there are only a few occupations a Child Care Worker can easily transition into. Rather, I’m just highlighting some skills that might be common across that occupation and two others.

Some of them are obvious and intuitive. When we do this work in other areas, we find some less intuitive links.

Intersecting skills

Intersecting skills between aged or disabled carers, child care workers, and education aides.

Thinking about skills in this way is something I think we need to do a lot more of. In the skills space we have often been very focused on occupational based projections in the past. Thinking about transferable skills and skills needs in a literal fashion will be a useful complement to our occupational based analysis.

Looking further ahead

I thought I might conclude by making some observations around what not the next five, but say next fifty years might hold. Much of this material is drawn from the NSC’s report: The State of Australia’s Skills 2021: Now and into the future, released in December last year.

One the of observations we made in that report is that there are a number of divergent views about the future of work. A reasonable share of the debate centres around the issue of whether technology could threaten jobs in the future.

This is not new.

In 1921, The New York Times featured a book review entitled ‘Man devoured by his machines’, and in 1928 the same publication ran the headline ‘March of the machine makes idle hands; farm employment less with increased output’.

Narratives suggesting automation will wipe out large numbers of jobs were prevalent in the 1960s, 1980s and 2010s, each time suggesting the world was reaching a tipping point where machines would take over a large share of jobs.

More recently, narratives in 2010 responded to concerns that even highly skilled knowledge-based jobs soon would be threatened by advancements in AI, robotics, software bots and autonomous vehicles.

The conclusion that is often drawn from descriptions and characterisations about the future of work like these – albeit not always stated – is that the economy may end up with too little work, and hence the risk of higher levels of unemployment. The fear being that technology, AI and robots are taking, or will take, jobs.

That might be true if as a nation and society our demand for goods and services was fixed. However, history shows that our demand for goods and services is not fixed. We want our livings standards to rise over time and subsequent generations to enjoy a better quality of life. That makes the question or challenge not one of technology or jobs, but technology and jobs.

As the productivity commission noted in 2020:

The average Australian worker produces in one hour what took the typical worker seven hours at Federation, and this has been accompanied by an almost proportional increase in income. While the terms of trade or labour utilisation can make a difference, it is ultimately productivity growth that will determine our future living standards.

In contrast to the thinking of some future of work theorists, economic agencies are usually more inclined to worry not about a shortage of work, but a shortage of workers into the future.

This reflects a number of factors, but most significant is the changing demographic profile of the population. As an example, Treasury’s most recent Intergenerational Report noted:

The number of working-age people (aged 15 to 64) as a share of the population is projected to fall over the next 40 years, in line with an increasing share of people aged over 65. The ratio of working-age people to those over 65 is known as the old-age dependency ratio. In 1981-82, for every person aged over 65, there were 6.6 working-age people. In 2019-20, for every person aged over 65, there were 4.0 working-age people. This ratio is projected to fall further – by 2060-61, for every person aged over 65, there will only be 2.7 working-age people.

That declining share of working age people compared with the entire population has significant implications for future economic growth. And it is these implications for growth that stem from demographic change which see a divergence between some of the more alarmist views about the future of work versus the analysis of economic agencies.

These divergences reflect the need – as expressed in the succession of intergenerational reports over almost two decades – to increase participation in the labour market. It’s also reflected in a positive view around technology, with the 2015 Intergenerational Report making the following reflection:

Technology is changing the way we interact with each other and how we live our lives. It is changing the face of business, markets, governments and social engagement. In the 1970s, the Internet, mobile phones and social media did not exist as we know them today. Now they are integral parts of our lives and IT-related industries employ nearly as many people in Australia as the mining industry.

These sentiments aren’t unique to the series of Intergenerational Reports from the Treasury. In a 2015 speech the then Governor of the Reserve Bank, Glenn Stevens argued that:

There are no prizes for guessing that the share of services in most economies will continue to increase. Health and aged care are obvious areas for expansion – another effect of demographics. It may be that jobs will be ‘robotised’. But on the other hand, in the long run we may need that to some extent. Demographic factors suggest strongly that, all other things equal, the problem isn’t going to be a shortage of jobs, but instead a shortage of workers.

Conclusion

While I’m not necessarily suggesting that future is with us today – cyclical dynamics appear more at play than a sudden acceleration of demographic trends in the context of current labour shortages – we may nonetheless over coming decades increasingly bump up against labour shortages as demographic factors impact over time.

If that does become the case, it will present new and different challenges. To provide some perspective, over much of the past five decades policy makers have been wrestling with the challenge of unemployment – too many workers for the available jobs.  

If, over the next five decades the challenge becomes one of finding enough workers for the available jobs that would be an enormous paradigm shift.

In such a world, skilling, retaining, adaptation and adoption of new technology and new ways of doing things will be critical in ensuring labour shortages don’t limit our economic potential.

Such a world would also underscore the importance of education and training in making adaptation and adoption of new technologies and ways of doing things possible.

Thank you for the opportunity to speak with you today.

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