Causes of skill shortages
Official explanations
The Federal Government’s policy position on this duality – skill shortages and
persistent unemployment - is confused and unacceptable. They articulate a vision of
high skills and high participation but fail to provide the necessary macroeconomic
policy conditions that will ensure both. While there has clearly been a shortage of
jobs, the Government has persistently vilified the economically disadvantaged.
Instead of recognising that it is their own macroeconomic policy stance (budget
surplus obsession) that has caused the persistent unemployment, they established
pernicious compliance regimes to ensure the ‘victims’ (the unemployed) were blamed.
The skill development capacity inherent in a strong public sector maintaining full
employment was abandoned as unemployment rose. Industry and government now
both seem reluctant to acknowledge the responsibility of employers to invest in the
planning and development of the skills they require in their workers. For example, the
Australian Government’s National Skills Shortage Strategy currently cites the
following causes of skill shortage:
ƒ strong economy with low rates of unemployment;
ƒ growth of new industries with few ready-skilled tradespeople available;
ƒ relocation of new industries into different regions with a different skills base;
ƒ lack of interest in particular industries among potential job seekers;
ƒ location of industry, or project-based work, in rural or regional areas with a
small skills base;
ƒ technology changes within an industry, especially production, resulting in new
methods and therefore skills needs; and
ƒ changes in underpinning skills needs to successfully undertake trade training
for example, Year 12 maths for technology trades (DEST, 2005). 11
Under-investment in the training of workers by industry is not mentioned.
Notwithstanding this glaring omission, there are also oversights in the reasons
advanced.
Misleading labour market statistics
The low unemployment claim misrepresents labour market data, in that persons-based
measures of labour market status classify people as ‘employed’ if they work for one
hour per week and thus obscure the underemployment endemic in our highly
casualised labour market (BLMR, 1986; Mitchell and Carlson, 2002; CLMI, 2005). If
Australia adopted the German standard of counting someone ‘employed’ only after
they work 15 hours per week, instead of just 1 hour, the Australian unemployment
rate would be considerably higher. Keating (2005) estimates around 1.7 million
Australians are without enough work or hours of work. The question that arises is:
why have these people not been trained to meet these ‘skills shortages’?
The question is highly relevant given that the overwhelming policy emphasis has been
to shunt people into a series of active labour market programs within the privatised
Job Network structure. The stated aim has been to improve the ‘employability’ of
young and long-term unemployed people (for example, Kemp, 1996). There is
substantial evidence now available to show that this strategy has been largely
ineffective. The poor employment outcomes for participants in programs like Work
for the Dole and Intensive Assistance point to the futility of preparing the unemployed
for jobs that are not there (Mitchell and Cowling, 2004; ACOSS, 1999; Carson et. al.,
2003; Borland and Tseng, 2004; Productivity Commission etc)
What has not been answered by the Government is the following: if there is indeed a
skills shortage now, what has the billions of dollars that has been pumped into the Job
Network been doing? The recognition of the former amounts to a substantial failure of
the latter. All the evidence suggests that the supply-side strategy lauded by the OECD
has not been effective in increasing the employability of disadvantaged workers
(OECD, 1990). The poor results are to be expected in the absence of policy measures
designed to increase the quantum of jobs.
In isolation, supply-side measures merely re-shuffle the jobless queue. The clear
danger of this kind of zero-sum redistribution is that policies achieve tentative or
short-term reattachments to the labour force at the expense of deepening employment
insecurity. Labour market instability, poverty, and welfare dependency are not solved
by such measures; they are simply redistributed amongst the same at risk groups.
4.3 Attitudes
It is often argued that young people are lured away from the trades by the emphasis on
higher education. DEST (2002: 1) said “… most industries felt that the skilled trades
had an image problem in terms of their appeal to young people thinking about
potential careers. All industries felt a bias on the part of school parents and the media
towards university education and the professions.” The implication is that such
attitudes are not founded on a realistic assessment of the attractiveness of trades
occupations. However, trades training commencement and completion data from the
National Centre for Vocational Education Research (NCVER), reveal that around 50
per cent of those commencing trades training do not complete, which casts doubt on
the assertion that the young and those advising them are misguided, since half of those
who do undertake trade training are either sacked or decide to leave (NCVER, 2005). 12
In any event, it is likely that employers are receiving applications for apprenticeships
but not from applicants that they deem of sufficient quality. Certainly in regions such
as the NSW Hunter region, where youth unemployment is significantly high, the
numbers of applicants per apprenticeship vacancy range from around 30 to 1 to 120 to
1 (Williams, 2004).
4.4 Cost shifting
Both industry and government seem reluctant to acknowledge that a significant cause
of industrial skill shortages is the unwillingness of industry to invest in sufficient skill
formation. We argue that the private sector has a long history of cost shifting its
training responsibilities onto the public sector, reflected in the acknowledgement of
the gap that emerged with the demise of the public sector as an employer.
The private sector’s habitual externalisation of its training costs was less of a problem
when the public sector took leadership in training (and thus implicitly ‘accepted’ the
cost shifting). Public sector enterprises were the largest trainers of apprentices in
Australia (Gospel, 1993:13-14). At any time there were tens of thousands of
apprentices trained in the large public utilities and within government departments
(AIG, 2005: 3). Throughout the period of Australia’s economic and industrial
development, driven by public infrastructure developments and industry protection
and assistance, much of the private sector relied on poaching skilled workers from
other employers as a first strategy. Clearly the pressures of full employment also
forced the private sector to develop their own skill building capacities, but the public
sector was a significant net contributor to the national skills pool.
With the privatisation of public utilities, the downsizing of public sector workforces,
and the widespread adoption of private sector practices in the public sector, the skill
building role was abolished with little consideration as to the impact this would have
on the maintenance of adequate levels of skill development. Belatedly, and coyly,
both government and industry recognise that the demise of the public sector as an
employer and trainer has left a large gap in the nation’s training infrastructure. For
example, the National Skills Initiative Engineering Working Group reported:
“On the supply side, privatisation of public utilities has reduced the traditional
training ground and supply of skilled labour for engineering trades, and large
companies are typically more focussed on training for their own skill
requirements.” DEST (2002: 8).
Similarly, the Senate Employment, Workplace Relations and Education References
Committee report ‘Bridging the Skills Gap’ (EWRERC, 2003: 17) notes:
“The major factors are the decline in trades training associated with the
privatisation of public utilities and ‘mean and lean’ strategies of large private
enterprises, which previously provided a steady pool of skilled labour for
small and medium enterprises.”
Why has the market failed? There are two major reasons. First, the persistent excess
supply in the Australian labour market over the last 30 years has provided industry
access to a broad supply of ‘ready-made’ skills and taken the pressure off firms to
tailor their jobs (and training) to suit the available workforce. We contend that this has
reduced the incentive and competence of employers to adequately orient, supervise
and train people with significant training needs, such as young people who may have 13
performed poorly at school, or others suffering skills deficits due to long term
unemployment.
Second, there is an endemic free rider problem. Training is costly and can only be
justified by subsequent profitability. An employer who makes such an investment
understandably hopes it will enhance the productivity of their workforce. However, a
worker who acquires more marketable skill through training may discover they are
worth more in the labour market, putting pressure on their employer to pay more to
retain their services. The degree to which the skill development is firm-specific thus
influences the extent to which firms will engage in training. Where skills are more
general, employers will under invest in training and the economy as a whole suffers
skill shortages. Prima facie, this free rider problem provides an economic rationale for
public intervention, and its solution has exercised the minds of policy makers around
the world (Smith and Billett, 2003).
Official explanations
The Federal Government’s policy position on this duality – skill shortages and
persistent unemployment - is confused and unacceptable. They articulate a vision of
high skills and high participation but fail to provide the necessary macroeconomic
policy conditions that will ensure both. While there has clearly been a shortage of
jobs, the Government has persistently vilified the economically disadvantaged.
Instead of recognising that it is their own macroeconomic policy stance (budget
surplus obsession) that has caused the persistent unemployment, they established
pernicious compliance regimes to ensure the ‘victims’ (the unemployed) were blamed.
The skill development capacity inherent in a strong public sector maintaining full
employment was abandoned as unemployment rose. Industry and government now
both seem reluctant to acknowledge the responsibility of employers to invest in the
planning and development of the skills they require in their workers. For example, the
Australian Government’s National Skills Shortage Strategy currently cites the
following causes of skill shortage:
ƒ strong economy with low rates of unemployment;
ƒ growth of new industries with few ready-skilled tradespeople available;
ƒ relocation of new industries into different regions with a different skills base;
ƒ lack of interest in particular industries among potential job seekers;
ƒ location of industry, or project-based work, in rural or regional areas with a
small skills base;
ƒ technology changes within an industry, especially production, resulting in new
methods and therefore skills needs; and
ƒ changes in underpinning skills needs to successfully undertake trade training
for example, Year 12 maths for technology trades (DEST, 2005). 11
Under-investment in the training of workers by industry is not mentioned.
Notwithstanding this glaring omission, there are also oversights in the reasons
advanced.
Misleading labour market statistics
The low unemployment claim misrepresents labour market data, in that persons-based
measures of labour market status classify people as ‘employed’ if they work for one
hour per week and thus obscure the underemployment endemic in our highly
casualised labour market (BLMR, 1986; Mitchell and Carlson, 2002; CLMI, 2005). If
Australia adopted the German standard of counting someone ‘employed’ only after
they work 15 hours per week, instead of just 1 hour, the Australian unemployment
rate would be considerably higher. Keating (2005) estimates around 1.7 million
Australians are without enough work or hours of work. The question that arises is:
why have these people not been trained to meet these ‘skills shortages’?
The question is highly relevant given that the overwhelming policy emphasis has been
to shunt people into a series of active labour market programs within the privatised
Job Network structure. The stated aim has been to improve the ‘employability’ of
young and long-term unemployed people (for example, Kemp, 1996). There is
substantial evidence now available to show that this strategy has been largely
ineffective. The poor employment outcomes for participants in programs like Work
for the Dole and Intensive Assistance point to the futility of preparing the unemployed
for jobs that are not there (Mitchell and Cowling, 2004; ACOSS, 1999; Carson et. al.,
2003; Borland and Tseng, 2004; Productivity Commission etc)
What has not been answered by the Government is the following: if there is indeed a
skills shortage now, what has the billions of dollars that has been pumped into the Job
Network been doing? The recognition of the former amounts to a substantial failure of
the latter. All the evidence suggests that the supply-side strategy lauded by the OECD
has not been effective in increasing the employability of disadvantaged workers
(OECD, 1990). The poor results are to be expected in the absence of policy measures
designed to increase the quantum of jobs.
In isolation, supply-side measures merely re-shuffle the jobless queue. The clear
danger of this kind of zero-sum redistribution is that policies achieve tentative or
short-term reattachments to the labour force at the expense of deepening employment
insecurity. Labour market instability, poverty, and welfare dependency are not solved
by such measures; they are simply redistributed amongst the same at risk groups.
4.3 Attitudes
It is often argued that young people are lured away from the trades by the emphasis on
higher education. DEST (2002: 1) said “… most industries felt that the skilled trades
had an image problem in terms of their appeal to young people thinking about
potential careers. All industries felt a bias on the part of school parents and the media
towards university education and the professions.” The implication is that such
attitudes are not founded on a realistic assessment of the attractiveness of trades
occupations. However, trades training commencement and completion data from the
National Centre for Vocational Education Research (NCVER), reveal that around 50
per cent of those commencing trades training do not complete, which casts doubt on
the assertion that the young and those advising them are misguided, since half of those
who do undertake trade training are either sacked or decide to leave (NCVER, 2005). 12
In any event, it is likely that employers are receiving applications for apprenticeships
but not from applicants that they deem of sufficient quality. Certainly in regions such
as the NSW Hunter region, where youth unemployment is significantly high, the
numbers of applicants per apprenticeship vacancy range from around 30 to 1 to 120 to
1 (Williams, 2004).
4.4 Cost shifting
Both industry and government seem reluctant to acknowledge that a significant cause
of industrial skill shortages is the unwillingness of industry to invest in sufficient skill
formation. We argue that the private sector has a long history of cost shifting its
training responsibilities onto the public sector, reflected in the acknowledgement of
the gap that emerged with the demise of the public sector as an employer.
The private sector’s habitual externalisation of its training costs was less of a problem
when the public sector took leadership in training (and thus implicitly ‘accepted’ the
cost shifting). Public sector enterprises were the largest trainers of apprentices in
Australia (Gospel, 1993:13-14). At any time there were tens of thousands of
apprentices trained in the large public utilities and within government departments
(AIG, 2005: 3). Throughout the period of Australia’s economic and industrial
development, driven by public infrastructure developments and industry protection
and assistance, much of the private sector relied on poaching skilled workers from
other employers as a first strategy. Clearly the pressures of full employment also
forced the private sector to develop their own skill building capacities, but the public
sector was a significant net contributor to the national skills pool.
With the privatisation of public utilities, the downsizing of public sector workforces,
and the widespread adoption of private sector practices in the public sector, the skill
building role was abolished with little consideration as to the impact this would have
on the maintenance of adequate levels of skill development. Belatedly, and coyly,
both government and industry recognise that the demise of the public sector as an
employer and trainer has left a large gap in the nation’s training infrastructure. For
example, the National Skills Initiative Engineering Working Group reported:
“On the supply side, privatisation of public utilities has reduced the traditional
training ground and supply of skilled labour for engineering trades, and large
companies are typically more focussed on training for their own skill
requirements.” DEST (2002: 8).
Similarly, the Senate Employment, Workplace Relations and Education References
Committee report ‘Bridging the Skills Gap’ (EWRERC, 2003: 17) notes:
“The major factors are the decline in trades training associated with the
privatisation of public utilities and ‘mean and lean’ strategies of large private
enterprises, which previously provided a steady pool of skilled labour for
small and medium enterprises.”
Why has the market failed? There are two major reasons. First, the persistent excess
supply in the Australian labour market over the last 30 years has provided industry
access to a broad supply of ‘ready-made’ skills and taken the pressure off firms to
tailor their jobs (and training) to suit the available workforce. We contend that this has
reduced the incentive and competence of employers to adequately orient, supervise
and train people with significant training needs, such as young people who may have 13
performed poorly at school, or others suffering skills deficits due to long term
unemployment.
Second, there is an endemic free rider problem. Training is costly and can only be
justified by subsequent profitability. An employer who makes such an investment
understandably hopes it will enhance the productivity of their workforce. However, a
worker who acquires more marketable skill through training may discover they are
worth more in the labour market, putting pressure on their employer to pay more to
retain their services. The degree to which the skill development is firm-specific thus
influences the extent to which firms will engage in training. Where skills are more
general, employers will under invest in training and the economy as a whole suffers
skill shortages. Prima facie, this free rider problem provides an economic rationale for
public intervention, and its solution has exercised the minds of policy makers around
the world (Smith and Billett, 2003).
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