This report examines Australia’s current, emerging and future workforce skills needs.

The report also examines how well matched the broad supply and demand of skills across the economy is. Better matching of supply and demand for skills makes it easier for Australians to get jobs. It also makes it easier for businesses to get the workforce they need. Both are the foundations of a strong, productive economy.

A fundamental innovation in the NSC’s work – contained in this report – is the focus on skills, alongside the more traditional analysis of the changing mix of occupations. The NSC has applied this skills focus both to analysing the present state of the labour market and examining what lies ahead.

The Australian labour market has been transformed over the past 40 years

The shape of the Australian labour market has changed significantly over the past 40 years, with strong growth in higher skill level jobs, non-routine jobs and services. These changes have been reflected at both the occupation and industry level.

Alongside the changes in the types of jobs and the skills they require there have been a number of enduring structural changes. Female employment and participation have grown strongly and, in response to higher skills needs, young people are spending longer in education.

STEM skills (science, technology, engineering and maths) are an integral part of Australia’s labour market, which have helped to facilitate the emergence of more complex, innovative work in many industries. Over the 20-year period to February 2020, before the impact of the COVID-19 pandemic on the labour market, employment in STEM occupations grew by 85.0%, or more than twice the rate of non-STEM occupations (which grew by 40.2%).

Some of these changes have been driven by automation, while greater use of technology has changed many jobs and encouraged growth in higher skilled jobs.

Overall, the labour market weathered well the impacts of these big picture forces and changes, and entered the COVID-19 pandemic with a relatively low unemployment rate following a number of years of solid employment growth.

The impact of the COVID-19 pandemic on the labour market

As the labour market started to recover from the impact of the COVID-19 pandemic and its restrictions late last year, the NSC released modelling that examined a number of potential recovery paths. The broad conclusion from this exercise was that while there will be lasting changes as a result of COVID-19, these may not be dramatic.

The two most enduring changes are likely to be changes in the way we do our jobs, known as task change, and the acceleration of changes that were already underway, such as increasing activity online and the ongoing need for post secondary qualifications.

Skills of workers in today’s labour market

As well as taking an occupational based view of the labour market, this report also examines the skills embodied within occupations to enable us to form a picture of the portfolio of skills across the economy. This is done by combining occupational based analysis with the Australian Skills Classification (ASC) to link occupations to skills. Groups of skills can be clustered to form 29 skills cluster families.

Looking at the economy-wide skills portfolio, the most frequently occurring skills cluster family is business operations and financial activities. This includes skills such as maintaining inventory and stock, managing operational budgets, and negotiating purchases or contracts. Four-fifths (80%) of people required some skills from this skills cluster family for their occupation. This is followed by the communications and collaboration family (74%) – which includes skills clusters such
as collaborating with stakeholders and dispute resolution – and human resources (66%), which includes supervising staff, training staff and recruitment. Although most people require some skills from the business operations and financial activities skills cluster family to do their jobs, only about 16% of time in the economy is spent on them. By contrast, although only around one-in-five workers have skills in the health and care cluster family, 9% of time in the economy is spent on these tasks, as they form a larger portion of the day for workers in this area.

Taking such an approach, we can form views about the intensity of skill use across the economy as well as how widely distributed a skill is.

This analysis also shows the gendered nature of the Australian workforce. Men are three times as likely as women to use skills from the construction family in their paid employment – including skills such as ‘woodworking’, ‘earthworks’ and ‘crane operation’. Men are twice as likely to use skills from the vehicle operation family and from families often associated with manufacturing work such as ‘work activities preparation’ (preparing pieces for assembly, handling materials), ‘production processes and machinery’ (configuring equipment, developing technical designs), and ‘quality control and inspections’ (inspecting for damage and defects). Women are twice as likely as men to use skills from the health and care family and from the fashion, grooming and cosmetics family.

Labour market matching – a skills perspective

There appears to have been a slight deterioration in the ability of the labour market to match employers’ demand for labour with the available supply of labour following the COVID-19 pandemic. In the context of changed consumer spending patterns, disruption to business models and supply chains and closed borders arising from the COVID-19 pandemic, this should not be surprising.

One analytical tool used by labour market economists to analyse trends and developments in labour market matching is the Beveridge Curve. The Beveridge Curve compares the unemployment rate (the number of people unemployed divided by the total labour force) to the vacancy rate (the number of job vacancies divided by the total labour force) and shows how this changes over time. A Beveridge Curve for Australia suggests that the observations over mid-2020 are consistent with a recessionary environment with a relatively high unemployment rate and few vacancies. More recent observations
suggest a solid recovery in the labour market with a lower rate of unemployment and an increase in job vacancies. The position of the most recent observations relative to the origin suggests a more mixed ability of the labour market to match demand and supply.

In a similar vein, employer surveys show that in 2021 to date, 45% of recruiting employers reported having recruitment difficulty for their most recent vacancies, a slight increase on 2019 (42%) and broadly in line with 2018. Most starkly, recruitment difficulty has become more common outside capital cities following the pandemic, with rest-of-state recruitment difficulty exceeding that for capital cities in 2020 for the first time – a trend that has continued into 2021.

From the employee perspective, research shows a difference between the skills profile of unemployed and employed people. For many job seekers, the default option is often to seek work in the occupation they have most recently held. Unfortunately, the vacancy profile makes this challenging as there are differences between the skills profile of many unemployed people and jobs that are frequently advertised.

Labour market skills needs

The NSC’s five-year industry employment outlook projects that the long-term structural shift in employment towards services industries will continue. Four services industries – ‘health care and social assistance’, ‘accommodation and food services’, ‘professional, scientific and technical services’ and ‘education and training’ – are expected to generate over three-fifths of the total projected employment growth. However, future employment growth is not just confined to these areas, with further increases projected across a range of industries.

The increasing importance of tertiary education and skills development beyond secondary school is highlighted by the five-year projections that show more than nine-in-ten new jobs are projected to require post-school qualifications. Employment in STEM occupations (using science, technology, engineering and maths skills) is projected by the NSC to grow by 12.9%, well above the average of all occupations (of 7.8%) and more than twice as fast as non-STEM occupations (6.2%).

From a skills perspective, occupations in high demand are more likely to be specialised and require higher level skills and formal qualifications. These include occupations such as registered nurse, software and application programmers and advertising and sales managers.

By combining the five-year employment projections with the ASC, the NSC produces five-year skills projections. Some of the most important and rapidly growing skills needs over coming years, identified by this analysis, can be summarised as the ‘Four Cs’: care, computing, cognitive and communication skills.

Turning back to an occupational lens and the present, there are pockets of shortages across most occupation groups. Generally, shortages are greatest among ‘technicians and trades workers’ occupations. Technicians and trades workers are employed in a wide range of occupations important to many different industries, and include electricians, carpenters, chefs, fitters and motor mechanics.

Emerging skills

Changes in technology are often thought to lead to the loss of jobs. But the biggest effect of advances in technology is on changes in the way existing jobs are done. Known as ‘task change’, this involves changes in the amount of time spent on existing tasks and the addition of new tasks.

The concept of task change is approached in this report through an examination of trending and emerging skills. Trending and emerging skills are affecting the way work is undertaken across many occupations. For example, infection control is trending in 45 occupations and emerging in 38 others, social media is trending in 47 occupations and emerging in 18, and enterprise resource planning is trending in 50 occupations and emerging in 14.

Data and digital skills are among the fastest growing emerging skills. Although Australia is doing well with respect to recognising the need for specific digital skills, further effort may be required to build base digital skills proficiency at all skill levels, not just the higher skill levels. There are also significant gains to individuals, and likely also the economy more broadly, from investing in those skills.

Skills and jobs of the future

Among the key skills that will be needed for jobs of the future are care, computing, cognitive and communication skills.

Although automation can replace labour in some jobs and tasks, it is also creating new tasks and demand for labour. For example, software and computers replaced labour in some white-collar jobs. They also create new tasks including programming, software and application development, and more specialist tasks within existing occupations. The NSC views computing as a key skill of the future, reflecting the job creation aspect of this mega trend.

The NSC’s analysis also highlights the importance of core competencies or ‘employability skills’, with high proficiency in core competencies correlating with a decrease in the likelihood of automation. Within that group of core competencies, high proficiency in oral communication and writing are the least likely to be automated – a finding that sits behind the NSC’s view that communication is a core skill of the future.

The combination of an ageing population and the lower ability to automate tasks and jobs in the cluster family of health and care suggests that ‘care’ is also likely to be a key skill needed in coming years.

One of the impacts of the pandemic on the labour market appears to have been an acceleration of long-term trends. One such trend is the shift in demand for labour away from routine tasks (repetitive physical labour that can be replicated by machines) towards non-routine (non-repetitive or non-codifiable) work. The greater difficulty in automating non-routine cognitive jobs and tasks (at high and lower skill levels) also suggests these types of jobs – ‘cognitive’ – will remain in high demand into the future.

Concluding comments

Throughout this report a key focus is on drawing out the big forces: a shift to higher skill jobs and an ongoing shift toward services, including care; the resilience of non-routine and cognitive jobs in the face of automation and artificial intelligence (AI); the opportunities and new jobs being created by technology; and an acknowledgment that many of those forces likely to shape the future have also shaped our recent past.

Encouragingly, the Australian labour market has, on the whole, managed the impacts of these big forces well over the past few decades and entered 2020 with a relatively low unemployment rate and a more highly skilled population than was the case decades earlier.

The recovery in the labour market following the initial impact of the COVID-19 pandemic is also another positive sign. Of course, that success in managing those initial impacts has also presented some current challenges – especially recruitment difficulty in regional areas.

Although past performance is no guarantee of future success, the ability of the Australian labour market to respond and reshape itself over the past few decades, as highlighted in this report, provides some grounds for optimism about our ability to do so into the future.