Skills shortages in Australia: concepts and reality
In recent times, the public has been made aware by our politicians of the risk posed to our
economy by current and prospective skills shortages (Nelson, 2004). Whether this claim is
based in fact is yet to be seen. But what is based in fact is that there are approximately 1.7
million Australians without sufficient work (see Keating, 2005). Some have no work at all
while others are forced into working fewer hours than they desire at going wages. This
phenomenon is largely disguised by official use of persons-based measures of labour force
participation that fail to detect underutilisation in our highly casualised labour market. Data
for the August 2005 quarter illustrate the point: When hours of underutilised labour are taken
into account to augment the official persons-based measure, the official unemployment rate of
5.03% unemployment becomes a labour underutilisation rate of 9.63% (CLMI, 2005). Nearly
10% of our available labour power is idle.
Assuming for argument sake there is a skills shortage, what are we to make of this seeming
paradox? Why haven’t we trained people to meet these shortages? Despite the denials of
Government, any degree of skill shortage and the persistent unemployment and
underemployment of the past 30 years represent two-sides of the same coin. They both reflect
a lack of governance at the Federal level. At the top of the growth cycle, this lack of
governance manifests as skill shortages with persistently high unemployment, whereas at
other times it takes the form of very high labour underutilisation and rising long-term
unemployment. Both manifestations are the result of erroneous Federal Government
macroeconomic policy.
Mass unemployment of the type we have endured in Australia since the mid-1970s is the
result of a lack of aggregate spending. The prime responsibility for ensuring there is enough
spending rests with the Federal Government. When private spending is insufficient to provide
work for all, as it always is, the spending gap has to be filled by the Federal Government via
budget deficits. However, discretionary monetary and fiscal policy decisions by the Federal
Government - characterised as an obsession with budget surpluses - have systematically
prevented the Australian economy from creating enough jobs in recent decades to match the
preferences of the labour force, and enough hours of work to match the preferences of those
who are employed.
The maintenance of mass unemployment may be thought to facilitate the supply of affordable
skilled labour, by undermining the bargaining position of skilled workers and enabling
selective avoidance of the less skilled. However, the absence of full employment, and the
demise of public sector employment (the principle cause of prolonged unemployment in this
country), have both contributed to an erosion of skills formation, atrophy of underutilised
skill, and deterioration in the private sector’s willingness and ability to integrate less skilled
people into their workplaces.
The paper is organised as follows: Section 2 introduces the concept of skill and the factors
influencing employer estimation of ‘employability’. Section 3 provides analysis of the extent
of skill shortages. Section 4 examines how skills shortages are explained by the government
and industry, and considers alternative explanations. Section 5 considers the role of the state,
which extends into the recommended policy approaches of Section 6.
In recent times, the public has been made aware by our politicians of the risk posed to our
economy by current and prospective skills shortages (Nelson, 2004). Whether this claim is
based in fact is yet to be seen. But what is based in fact is that there are approximately 1.7
million Australians without sufficient work (see Keating, 2005). Some have no work at all
while others are forced into working fewer hours than they desire at going wages. This
phenomenon is largely disguised by official use of persons-based measures of labour force
participation that fail to detect underutilisation in our highly casualised labour market. Data
for the August 2005 quarter illustrate the point: When hours of underutilised labour are taken
into account to augment the official persons-based measure, the official unemployment rate of
5.03% unemployment becomes a labour underutilisation rate of 9.63% (CLMI, 2005). Nearly
10% of our available labour power is idle.
Assuming for argument sake there is a skills shortage, what are we to make of this seeming
paradox? Why haven’t we trained people to meet these shortages? Despite the denials of
Government, any degree of skill shortage and the persistent unemployment and
underemployment of the past 30 years represent two-sides of the same coin. They both reflect
a lack of governance at the Federal level. At the top of the growth cycle, this lack of
governance manifests as skill shortages with persistently high unemployment, whereas at
other times it takes the form of very high labour underutilisation and rising long-term
unemployment. Both manifestations are the result of erroneous Federal Government
macroeconomic policy.
Mass unemployment of the type we have endured in Australia since the mid-1970s is the
result of a lack of aggregate spending. The prime responsibility for ensuring there is enough
spending rests with the Federal Government. When private spending is insufficient to provide
work for all, as it always is, the spending gap has to be filled by the Federal Government via
budget deficits. However, discretionary monetary and fiscal policy decisions by the Federal
Government - characterised as an obsession with budget surpluses - have systematically
prevented the Australian economy from creating enough jobs in recent decades to match the
preferences of the labour force, and enough hours of work to match the preferences of those
who are employed.
The maintenance of mass unemployment may be thought to facilitate the supply of affordable
skilled labour, by undermining the bargaining position of skilled workers and enabling
selective avoidance of the less skilled. However, the absence of full employment, and the
demise of public sector employment (the principle cause of prolonged unemployment in this
country), have both contributed to an erosion of skills formation, atrophy of underutilised
skill, and deterioration in the private sector’s willingness and ability to integrate less skilled
people into their workplaces.
The paper is organised as follows: Section 2 introduces the concept of skill and the factors
influencing employer estimation of ‘employability’. Section 3 provides analysis of the extent
of skill shortages. Section 4 examines how skills shortages are explained by the government
and industry, and considers alternative explanations. Section 5 considers the role of the state,
which extends into the recommended policy approaches of Section 6.
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