Speech to the ITEC22 Conference
This story was first published on Friday 3 June 2022.
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The NSC's Assistant Secretary for Pricing and Performance, Damian Oliver, addressed the ITEC22 Conference on June 2, 2022. Below is a transcript of his speech.
I would like to acknowledge the traditional custodians of the land we are meeting on here today and pay my respects to Elders past, present and emerging; and extend that respect to any Aboriginal and Torres Strait Islander people here at the conference today.
I intend to speak about labour and skills shortages; and offer some perspectives on both – now and into the future.
I’ll start, however, with some observations on the state of the labour market.
The labour market
The unemployment rate was 3.9% in April. The last time the unemployment rate was lower than this was in August 1974, when the labour force survey was quarterly.
The participation rate decreased by 0.1 percentage points in April to 66.3%, just a shade below the record high of 66.5% recorded in February 2022.
The combination of a very high participation rate and growth in employment meant that the employment to population ratio remained at a record high in April (of 63.8%).
The underemployment rate fell by 0.2 percentage points in April 2022 to 6.1%, the lowest rate recorded since September 2008.
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 low levels.
Across most measures the labour market could therefore be considered relatively tight.
Reflective of that tightness, disruptions on account of the pandemic, and some persistent skill shortages; is a very high rate of recruitment difficulty.
That said, despite the tightness in the labour market, wages growth remains sluggish.
There is also significant scope – and need – to improve labour market outcomes for many Australians. I’ll return to this point shortly.
Focusing on employment growth for now, 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.
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. Health Care and Social Assistance, and Professional, Scientific and Technical Services usually 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.
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 is consistent with long-term trends.
Over the 10 years to February 2020, the share of employment in Skill Level 11 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.
- (Employment in Skill Level 1 Occupations increased by 497,900 (or 11.8%) with Skill Level 2 Occupations increasing by 43,000 (or 2.7%) since February 2020.)
Decreases in employment since February 2020 were recorded across Skill Levels 3, 4 and 5.
- (Skill Level 5 Occupations saw a fall of 112,000, or 5.5%, followed by Skill Level 3 Occupations (34,400, or 1.8%) and Skill Level 4 Occupations where employment fell by 21,100 or 0.7%.)
Interestingly, these employment growth trends are contrary to the percentage growth in job advertisements, 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 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.
I mentioned earlier that the labour force participation rate in April was just a touch below its record high.
Within that, however, there is a significant gap between female and male participation rates. At 62.1% in April 2022, the female labour force participation rate remains well below the male rate (of 70.7%).
Indeed, just halving the gap between female and male participation rates would see the overall labour force increase by almost 460,000 people.
While achieving more here is important in itself, it would also assist enormously in addressing the labour and skill shortages that are increasingly apparent across the economy.
Last week Minderoo’s Generation One initiative, partnering with Bankwest Curtin Economics Centre and Murawin Consulting, launched the Indigenous Employment Index.
The index was commissioned as an Australian first to identify and measure practices within large organisations that increase and improve Indigenous employment.
Forty‑two participating employers responded to a detailed quantitative survey on their Indigenous employment strategies, policies and practices.
There are a large number of findings in that report.
One that stood out on the employment front was that the average Indigenous employment rate across surveyed employers was just 2.2%, compared to the general population share of 3.3%.
The National Skills Commission has also examined the employment and education outcomes for First Nations Australians.
On employment our findings echo the broad conclusions of Minderoo’s. In particular, the gap between Indigenous Australians and non‑Indigenous Australians employment rates.
The data we used showed that in April 2021, across 15 to 24 year‑olds employment rates were 19 percentage points lower for Indigenous Australians (compared with non-Indigenous Australians).
For 25 to 34 year‑olds the gap widened to 29 percentage points, while for 35 to 64 year‑olds the gap was 30 percentage points.2
There remains much more to do here.
Across the labour market as a whole, the nature of employment arrangements has also changed over time. For example, the share of employees in permanent full-time employment has drifted lower from 70.4% in 1992, to 62.5% in 2022.3
Such data does, however, typically struggle to distinguish between:
- employee-driven choices that enable greater work-life balance, flexibility and mobility; and
- employer-driven choices that may not benefit an employee.
That said, what we do know is that casual employees, in particular, are much more likely to experience variable hours and earnings than permanent full-time employees.
Labour and skill shortages; and future demand
Focusing a little more on labour and skill shortages, the NSC collects and publishes a range of data on recruitment difficulty, sourced from contact in a typical year with around 14,000 employers through our Recruitment Experiences and Outlook Survey (REOS).
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 2022 to date, an average of 54% 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, 64% experienced difficulty in their most recent recruitment.
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.
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.
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 assessed occupations 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.
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 likely reflects both the strength of the labour market and the shortages already evident.
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 a few months ago. Like all forecasts they are subject to a degree of uncertainty.
While employment is projected to increase in all 19 broad industries over the five years to November 2026, just four services industries are projected to provide almost two-thirds (65.4%) of total employment growth.
These are: 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.
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.
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.
Clearly the VET system has a large role to play in meeting the future needs of the labour market.
One other aspect of the projections are the expected strong increases across a number of occupations that are of importance to a range of government funded services.
Indeed, just three occupations, Aged and Disabled Carers, Registered Nurses and Welfare Support Workers comprise over 10% of anticipated employment growth to November 2026.
This underscores just how essential it is to understand the workforce and skills needs of government funded services.
From occupations to skills
What I’ve just run through is an occupation‑based view of the labour market. I’d like to now 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.
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.
Reflected in the bubbles are the various skills clusters that Child Care Workers use.
The vertical location of a bubble shows the expected percentage increase in the use of those skills across the economy over the five years to 2026.
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.
Thinking about current demand, future demand and the transferability of skills in such a literal fashion is a strong compliment to more traditional occupational‑based analysis.
On the VET front the NSC has started mapping VET course content to the specialist tasks in the Australian Skills Classification.
We are looking to commence a Higher Education equivalent of the same approach through a pilot with three universities in the coming months.
This pilot would compare how the skills taught in the Education discipline, covering occupations like Primary School Teachers and Child Care Workers, match the skills needed by employers.
The idea of using the Australian Skills Classification to capture a common language across the tertiary sector was the first recommendation from review of University-Industry Collaboration in Teaching and Learning led by Emeritus Professor Martin Bean CBE and Emeritus Professor Peter Dawkins AO.4
I thought I might conclude by making some observations around what not the next five but say next fifty years might hold.
In contrast to the thinking of some future of work theorists, economic agencies are usually 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:
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 … by 2060-61, for every person aged over 65, there will only be 2.7 working-age people.
Similarly, 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.5
While I’m not necessarily suggesting that future is with us today, we may nonetheless over coming decades increasingly bump up against labour shortages as demographic factors impact.
If that does become the case, it will present new 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.
It would – of course – underscore the importance of ensuring disadvantaged cohorts can fully participate in the labour market to maximise our growth potential.
It would also underscore the importance of understanding skills needs, not just those of today, but also the skills we are likely to need in the future.
Because in a world where employees may be harder to find, strengthening workforce planning and ensuring the training and education sectors are delivering the skills we need only becomes more important.
Skill level 1: Bachelor degree or higher qualification; Skill level 2: Advanced Diploma or Diploma; Skill level 3: Certificate IV or Certificate III with at least two years on-the-job training; Skill level 4: Certificate II or III; Skill level 5: Certificate I or secondary education
The employment rate is defined as the percentage of employed – employees in Single Touch Payroll – out of those either employed in STP or in receipt of an unemployment-related income support payment. It therefore approximates those in work or seeking work (i.e. the labour force), not the entire population.
The time series is built from a number of different surveys. The different collections may vary slightly in scope and reference period (for example, the 2022 figure is for February, while the 2021 figure is for August). Comparisons over time should be undertaken with this in mind, as seasonal or other factors may influence differences between the figures. It should also be noted that administrative arrangements and other pandemic-related factors could have had an impact on the figures from 2020 onwards.
The recommendation was to: ‘Accelerate the development and use of the Australian Skills Classification as an open access national skills taxonomy. This will create a common skills language for industry, higher education and VET to collaborate on education program development, and more effectively meet workforce needs’.
'The Long Run’, Glenn Stevens – Governor, Address to the Australian Business Economists (ABE) Annual Dinner, 24 November 2015.