The National Skills Commissioner, Adam Boyton, addressed the NAEN Conference on March 17, 2022. Below is an edited transcript of his speech. Refer to the presentation for any charts and slides mentioned.

I wanted to address my remarks today around the conference theme of adaptation and opportunity. The adaptation we need to make in response to a very different labour market than might have been the case a few years ago. And the opportunities and challenges that presents.

I'd just like to share with you a graphical illustration of the volatility in the labour market over the past few years.

This chart shows the size of the labour force. The green line is where we'd be if the labour force had grown at its long-run rate over the past couple of years. The blue line is what we saw instead.

So, you can see a couple of things there. The first is just the incredible volatility in the labour market over the past 18 months to two years. And the second is that the size of the labour force is today a fair bit smaller than it otherwise would have been in the absence of the pandemic.

The key thing I'd like to impart about that second point is the fact that the labour force is smaller does not reflect people dropping out of the labour market. The participation rate today is just a fraction below the record high we saw around the middle of last year. (I should note that at 11.30 this morning, the Bureau of Statistics is going to release an update to the data contained in my first few slides, so things may be a little different at 11.31am.)

But as we stand, participation is just a fraction below the record high we saw around the middle of last year. That's actually not the case everywhere around the world. For example, in the United States labour force participation, and employment for that matter, is yet to get back to where they were pre-pandemic.

One thing that is common across a number of economies is just the surge in job vacancies relative to levels prevailing in 2020. Here we show the US, the UK, New Zealand and Australia - in the US some of this might reflect that phenomenon called ‘the great resignation’.

Some of you may have heard that term… a significant increase in people changing or leaving jobs. Interestingly, when we look at relevant data here in Australia, we can't yet find any sign that it's happening here.

If I turn to the point of adaptation and recap the previous two slides, we've got two things going on. We've got a smaller labour force than we did a few years ago and a surge in job vacancies.

And so, part of the way the economy adapts is shown in this next slide, and that is the share of those employed relative to the 15‑plus population is at a record high. That’s the blue line. It shows you the employment-to-population ratio.

At no other point in our past do we have a greater share of the 15-plus population employed. That is the labour market, in a very macro and aggregate sense, is responding to the combination of the population shock and very strong demand.

This is part of the story of adaptation.

But it also presents opportunities and challenges.

I'll come to the challenges in a moment. But let me just make a brief comment about the opportunity; and that is the current labour market presents those looking for jobs, those finishing their studies or those looking for a new job, enormous opportunity.

The flip side is the challenge.

This slide presents a chart on recruitment difficulty. It goes back around five years. Each month we survey a number of employers. In fact, over the course of the year, we'll contact around 14,000 employers, ask them a series of questions around recruitment and recruitment difficulty. What that chart shows is that in 2021 recruitment difficulty both in capital cities and regional areas was higher than at any point in the past five years.

It's important to note that recruitment difficulty relates to employers who are either recruiting or had recruited in the previous month. Typically over 2021, we found around 43% of employers in the capital cities, and 47% regionally, were recruiting in any given month.

We saw, through the course of last year, the labour market recovering and job vacancies picking up. Recruitment difficulty also moved higher along with that.

Importantly, recruitment difficulty doesn't mean the positions go unfilled. In capital cities, of those employers that cited recruitment difficulty: 19% of them filled vacancies within a month; 23% filled vacancies, but it took longer than a month; 20% had not yet filled vacancies but had been looking for less than a month; and 37% had unfilled vacancies for more than a month.

Having said that, employers who fill jobs within a few weeks do sometimes indicate that they find it hard to recruit staff with the right skills. This may mean employers need to be flexible in who they hire, perhaps hiring somebody less experienced and training on the job, or changing the nature of the role to suit those applicants that are available.

We also ask employers why they think they're experiencing recruitment difficulty. The most common reasons employers cite include: not enough applicants; the lack of suitable applicants; a lack of technical skills; or lack of experience. In regional areas a relatively high proportion of employers also cite their location as a barrier.

We also have some insight into the nature of jobs employers are finding it most difficult to recruit for and generally, these are often high skill level jobs, where employment growth has also been strongest over the past 18 months.

One other point I'd like to make around the recruitment difficulty is that unlike Australia, employment is lower today in the US compared to pre-pandemic, yet both Australia and the US have seen a significant surge in job vacancies.

That combination suggests to me that at least in Australia, relative to the US, the difficulty employers have in finding applicants and filling vacancies is more likely to reflect the strong labour market here than a deterioration in the ability of the labour market to match the unemployed, or those looking for a job, with a vacancy.

So that's a long‑winded way of saying, if I'm looking at this in the US, there’s been a significant deterioration, it would appear, in the ability of the labour market to match people to jobs.

We haven't seen that to the same extent here. What we're probably seeing more of here is just a generally tight labour market.

So across the country, where has employment grown? The point I take from this chart is – in most states and territories – and obviously very strong performance in W.A., Queensland and South Australia.

The ABS are reporting declines in employment in the Northern Territory and the ACT. That said, I am always a little cautious with some of the numbers for the smaller jurisdictions. The sample sizes in the labour force survey can get fairly small once you get to smaller states, and so it's possible that conditions may be a little bit stronger than indicated here. And certainly, the strength in employment in the public sector over the past 18 months might suggest a different trend for the ACT.

This chart shows us the change in employment by industry in November 2021 (which is the most recent data point available) versus the start of the pandemic, and also the change over the previous three months.

I’d make a couple of observations about this chart.

The first is that you’d pretty much well always expect Health Care and Social Assistance, and Professional, Scientific and Technical services to be toward the top.

Then, if you think about what's happened over the past 18 months to two years, the big fall in employment in Accommodation and Food Services makes sense – but encouragingly there has been a significant bounce in employment over the past few months as the economy recovers from lockdowns.

This next chart I find quite interesting. What it does is look at employment growth by skill level. Skill level one are occupations that require a degree, bachelor's degree minimum. Skill level three, for example, is a Certificate III or IV. Skill level five is no formal post-secondary education.

The chart is telling us that jobs growth since the start of the pandemic has been strongest among skill level one occupations. Those jobs that require a bachelor's degree or higher. While at the same time there's been a significant fall in employment among skill level five occupations, that is those occupations that essentially don't require any post-secondary qualifications.

Counter-intuitively to that, job vacancies trends have gone in the somewhat opposite direction.

This is part of the joy of being an economist, sometimes the data goes in different directions. And so, what the aqua line is showing is that for lower skill level jobs, our internet vacancies index is measuring a 100% increase versus the start of the pandemic, whereas for higher skill level jobs, we're not seeing anywhere near quite as significant an increase in job vacancies.

The conclusion I draw from this is that it's really important to draw a distinction between where we might be seeing labour shortages, reflective of a very tight labour market or the population shock the economy has seen on account of closed borders over the past 18 months or so, 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 five, it appears that labour shortages 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.

Which brings me to one of the remits at the National Skills Commission, which is the identification of skill shortages. That work is ultimately reflected in something called the Skills Priority List, which we publish around the middle of each year. The first one was published last year and looked at around 800 occupations.

The Skills Priority List does two things:

Firstly, an assessment of whether the occupation is in shortage now or not; and secondly an assessment of what are the future growth prospects for that occupation – looking at both the net change in employment, i.e., how much do we think the number of people employed in that occupation is likely to grow over the next five years, but also taking into account potential exits.

We find that shortages are most common in the Technicians and Trade Workers group with 42% of occupations in that group assessed as being in shortage. Large employing occupations in that group include electricians, carpenters, chefs and fitters.

Elsewhere, 19% of professional occupations are in shortage, notably in tech as well as health-related occupations.

Interestingly, while methodologies for assessing skill shortages differ around the world, there are some international findings that tend to suggest some of these shortages are not just local but are also global.

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

The European Foundation for the Improvement of Living and Working Conditions in the European Commission analysed skills shortages across European economies after the start of the pandemic. Their work found in 2020 that nurses and other health professionals were among the occupations with the most critical shortages in most member states, followed by health professionals, skilled trades technicians and heavy truck and lorry drivers.

A lot of these occupations are in shortage here too. So, skill shortages are not just a local, they're also a global challenge.

But returning to the local we have at the National Skills Commission recently developed and released estimates of employment by occupation and region. Three hundred plus occupations across 80 plus regions. So over 31,000 series all up that enable us to look at what occupations are growing or not in what regions.

Previously you had to wait five years for the release of the census data to get that information. It’s our first step at using big data and nowcasting techniques to provide a really detailed assessment of labour market trends. Our intent with this is to not, for example, attempt to forecast how many plumbers Launceston may need in ten years’ time. That's probably beyond the scope of forecasting models.

But until recently it's been beyond the scope of economic data to actually tell you, with a relatively high frequency, how many people are actually employed in occupations in regions.

Our hope is that by looking at changes in occupations in regions, by pulling in more and more data over time, we can provide quite a detailed and granular assessment of what's happening.

If we combine that with our internet vacancies data, we can start to look at where trends in employment and vacancies are diverging, which means we can look at skill shortages at a very localised and regional level.

Turning to the theme of opportunity, if we look at some occupations that might be of interest to this audience, we find strong opportunities.

What we've done here is show a number of occupations that have very high commencements across apprenticeships and traineeships. Whether or not they're in shortage on the skills priority list (they're all in shortage), and what the future growth prospects are.

The slide speaks for itself. Most occupations are in shortage and they all have either strong or moderate future growth prospects. This slide really speaks to the opportunity of what a lot of you do in your day-to-day jobs in providing that opportunity to apprentices and trainees. And it underscores the importance of the work that needs to be done in attracting, retaining, training and employing apprentices and trainees.

So that's an occupational lens. I also wanted to pick up on some of Rod’s comments and take you through a skills lens using the Australian Skills Classification that we've recently developed.

Put most simply, the skills classification takes an occupation and it turns it from an occupational-based lens into a skills-based lens. So instead of saying, for example, we think that aged and disabled carers will be the occupation growing most over the next five years, we can look at the specific skills that might be growing most over the next five years.

The way we do this is to break each occupation down into three different things. There's technology tools, there are currently 88 of those. A bit beyond the Microsoft Word in Office that we consider a base digital skill, but unique hardware or software tools that might be used in an occupation.

There are ten core competencies. So communication, numeracy, digital literacy etc. And if I think back to my first job as a waiter and also Kylie's first job as a waiter (we were swapping stories earlier), waiting is probably an occupation that really gives you a strong grounding in communication skills. The conversation we were having earlier is people that have been waiters are probably quite good at dealing with clients and stakeholders and difficult situations, and so communication is an example of a core competency or employability skill that sits in our Australian Skills Classification.

So we've got technology tools, we've got core competencies, then we have around 1925 specialist tasks. These are what they say on the box, the specialised things you might be doing in occupations. Some of them are unique to an occupation, a lot of them are shared. They group up into 279 skills clusters and 29 skills cluster families. So, the idea being, you put like with like.

What this slide shows is some but not all of the specialist tasks an electrician might use.

By combining occupational-based projections of future employment growth with the skills classification, we can also assess the likely future growth of specific skills. And then we can compare the skills that an occupation uses with that economy-wide growth.

That’s essentially what this next slide does. What we've got here are skills that childcare workers use and then the columns show the percentage increase in the use of those skills across the economy over the five years to 2025.

We can see that among the skills used by Child Care Workers, ‘assist individuals with accessibility needs’ is expected to grow by 20%, ‘teach health management or hygiene practices’ is expected to grow by 19%, and ‘assist and support clients’ by 18%. And you can see that there are another bunch of skills where we think use across the economy will grow by in excess of 10%.

The takeaway here is not only do we think in our occupational-based projections there's likely to be strong demand for Child Care Workers in the future, but the skills they use will also be in strong demand across the economy more broadly.

My point here is that opportunities shouldn't just be considered with reference to a specific occupational qualification, but where that can take you over time.

This slide takes the information on the previous one and adds a couple more dimensions.

The vertical location of the bubble is the same as the previous slide. The size of the bubble is how much time a Child Care Worker spends on that skill and the horizontal position is not the percentage change, that's on the vertical, but the level change. So how many additional hours do we think will be worked?

So something like ‘teach school students’ – a long way to the right on that horizontal axis – what that's telling us is although the percentage growth isn't that great, as there are so many people that use that skill, the number of hours worked in that skill across the economy will increase a lot. You can take the vertical and horizontal and the size of the bubble together to give a strong sense of transferability.

‘Assist and support clients’ is an example there. You can also see that 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. We're not pretending that there's only a couple of occupations a Child Care Worker can easily transition into. But what we are doing is looking at skills that might be common across that occupation and other occupations. Some of them are obviously very intuitive. When we do this work in other areas, we find some less intuitive links.

Returning to this point of opportunity and many of the occupations that are of interest to you in this room today: not only are they in demand now; not only do they have strong future growth prospects; but the skills within them are both in demand across the economy more broadly and have transportability and transferability to a range of other occupations.

Thinking about skills in this way is something I'd like 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 very literally is probably a useful way of us providing information to the education and training sector about what’s in demand.

Coming back to the conference themes, adaptation and opportunity, in many ways we are going to be looking at a slightly different labour market than we've been used to.

The Reserve Bank is forecasting the unemployment rate to fall to 3¾ per cent over the course of this year. That will be a tight labour market. It'll be an unusual labour market. It'll be an unemployment rate we haven't seen sustained for a very long time.

Now that means that if you're an employee, you're in a pretty good position.

It's a labour market where employees should be in the box seat. If you're an employer, you're probably going to find some challenges that you might need to adapt to. And I think a high level of recruitment difficulty is one of those. But this is the challenge that comes with a very low unemployment rate and an unemployment rate we haven't seen for a long time.

As we respond to those challenges and opportunities it's important not to forget some of the big picture dynamics that will shape the skills needs into the future.

These include the ongoing shift towards services industries and sectors, the ongoing shift toward higher skill level occupations, and the robust percentage growth of employment across STEM occupations.

And some of the most important and rapidly growing skills needs over the coming years being what we call the Four C’s.

Care: the various skills responding to an ageing population,

Computing: those that respond to the digital world, increasing use of digital technologies in all its forms,

Cognitive abilities: advanced reasoning and higher order skills computers can't easily replace, particularly creative or non-routine cognitive abilities, and

Communication: the skills we all need to engage and collaborate within and across the workforce.

No doubt the future will throw up a whole bunch of further challenges that we need to adapt to.

One of the conclusions from the State of Australia’s Skills report that we published towards the end of last year was that although the labour market has changed fairly significantly over the past few decades: the way we do our jobs has changed; occupations have come and gone; skills have come and gone; and there's been enormous task change within occupations; on the whole, we have managed to deal with those challenges fairly well.

And so, we concluded our report with the sentiment that although past performance is no guarantee of future success, as they say, the fact that we have managed to deal with these changes well in the past would suggest there is some hope for optimism that we can continue to do so into the future.

Thank you.