Skills shortage and structural unemployment
The concept of a skills shortage is clearly a relative concept, implying some distance from an
optimal state, which begs the question: according to whom (Green et al., 1998: 165-166).
Unsurprisingly, analyses of skills shortages by industry and governments invariably consider
the issue from the perspective of business and profitability, which places the emphasis on
containment of labour costs both in terms of wages and conditions, and hence, whenever
possible, externalising the costs associated with developing the skills firms require in their
workers.
Within this context the notion of structural unemployment arising from ‘skills mismatch’ can
be understood as implying an unwillingness of firms to offer jobs (with attached training
opportunities) to unemployed workers that they deem to have undesirable characteristics.
When the labour market is tight, the willingness of firms to indulge in their prejudices is more
costly. However, when labour underutilisation is high firms can easily increase their hiring
standards (broaden the desired characteristics they demand from workers) and the training
dynamism driven by labour shortages is lost. Then we observe, in a static sense, ‘skill
mismatches’ which are really symptoms of a ‘low pressure’ economy.
It is evident that from their perspective, Australian businesses feel hamstrung by the present
state of the labour market. The Australian Chamber of Commerce and Industry (ACCI) cite
skills shortages as one of the most significant barriers to investment in Australia (EWRERC,
2003: 12). The Business Council of Australia (BCA) notes that the increasing average
population age necessitates a range of training measures to head of future broad based skills
shortages (EWRERC, 2003: 12-13). Although the labour market has tightened in recent years,
there is still only anecdotal evidence that a ‘skills shortage’ is becoming a growth bottleneck.
Some data is available from the Skilled Vacancy Index (SVI) published monthly by the
Department of Employment and Workplace Relations (DEWR) which would suggest a more
modest claim with respect to skill bottlenecks is supportable. In Figure 2 (panel a) we show
the SVI for Australia from the earliest available period (July 1983) to November 2005, and in
panel (b) the same index since January 1990 to November 2005. The lower horizontal line in
panel (b) is the average value over the 1990s (97.9) while the upper horizontal line is the
average value over the 1990s (111.0). The charts provide no aggregate level indication that
there has been a sharp rise in the demand for skills in the last several years.
More detailed examination of the SVI is available because DEWR break it down into
States/Territories and also by professions, associated professions and trades. The picture gets
a bit more interesting at this level. 6
Figure 2 DEWR Skilled Vacancy Index, Australia, various periods
20
40
60
80
100
120
140
160
180
84 86 88 90 92 94 96 98 00 02 04
Skilled Vacancy Index - Australia
(a) 1983-2005
40
60
80
100
120
140
160
1990 1992 1994 1996 1998 2000 2002 2004
SVI average 1990-2005 97.9
SVI average 1996-2005 111.0
SVI Australia
(b) 1990-2005
Source: DEWR, Skilled Vacancy Index.
Figure 3 shows the SVI for the Professions, Trades and Associate Professions. In the last 3
years following the recession, the SVI for tradespersons rose sharply although in the last 18
months it has been in decline overall. The Professions and Associate Professions declined
uniformly since the recession although there is evidence of a slight recovery in the aggregate
in recent months.
Figure 3 Skilled Vacancy Index by Trades, Professions and Associate Professions
0
40
80
120
160
200
1990 1992 1994 1996 1998 2000 2002 2004
Professions
Trades
Associate Professions
Source: DEWR, Skilled Vacancy Index
To explore these trends more fully, we disaggregated the SVI for the three broad occupational
groups. Table 1 shows the average annual compound growth in the SVI between 2000 and
2004 (Column 2) and the corresponding growth between November 2004 and November
2005, for the Trades, Professions and Associate Professions. The current pressure areas are
relatively clear. For the Professions and Associate Professions, the health sector has
experienced rapid growth in the SVI relative to recent past in the last year. A relevant issue is 7
the number of immigrants who have foreign nursing or medical qualifications who are not
practising in this country as a result of local certification constraints (Hawthorne, L., 2001)
In the Trades, the recent trend is strongly down relative to the average annual growth in the
previous four years. There is no evidence that the pressure is continuing to mount in these
areas.
Table 1 Movement in DEWR Skilled Vacancy Index
Average annual growth in Skilled Vacancy Index (per
cent)
2000-04 Nov 2004-Nov 2005
Total Trades 5.1 -12.1
Chefs 2.8 -13.9
Metal Trades 23.6 -22.9
Automotive Trades 9.9 -8.3
Electrical and Electronics Trades 9.0 -4.4
Construction Trades 2.0 -4.0
Food Trades 2.5 2.8
Printing Trades -8.0 -34.3
Wood and Textile Trades 1.6 -19.3
Hairdressers 0.0 -19.8
Total Professionals -10.9 6.4
Science -5.3 -4.2
Building & Engineering -3.8 -12.1
Accountants and Auditors -19.4 -9.1
Marketing and Advertising -29.2 -7.1
Organisation and Information -14.6 -20.9
Health -4.9 21.2
Social -15.7 14.5
Total Associate Professionals -11.2 1.1
Medical and Science -4.0 27.9
Building and Engineering -5.6 -6.0
Source: DEWR, Skilled Vacancy Index. Note: average annual compound rate of growth for 2000-04 is
computed. Column 3 is the annual growth from November 2004 to November 2005.
In terms of the regional distribution, data is only available from this source at the level of
States/Territories. Table 2 shows that skilled vacancies growth in Australia continues it 5 year
decline. Both NSW and Victoria reveal worsening trends and the growth areas of Queensland
and Western Australia are now negative (QLD) and flat (WA). Figure 3 charts the SVI for
states relative to national average from 1983 to 2005. A positive (negative) observation
demonstrates above (below) average SVI values. In recent year, NSW has plunged well below
the national average while Victoria never really recovered from the 1991 recession and has
also deteriorated in recent years. The smaller states of Queensland and Western Australia
have experienced solid growth in employment over the 1990s and beyond and also strong
labour force growth. Any mismatch between labour force and vacancies would signal poor
regional development policies from the Federal and State governments. Interestingly, South 8
Australia which has experienced very poor employment growth since the 1991 recession is
now revealing above average SVI values. Any shortages of skilled labour that may be present
there would reflect the fact that the economy has been slow and little skill development has
been undertaken by either the private or the public sectors. Skilled labour has also likely
migrated to the stronger economies in search of scarce employment opportunities.
Table 2 Movements in Skilled Vacancy Index by State and Territory
Average annual growth in Skilled Vacancy Index (per
cent)
The concept of a skills shortage is clearly a relative concept, implying some distance from an
optimal state, which begs the question: according to whom (Green et al., 1998: 165-166).
Unsurprisingly, analyses of skills shortages by industry and governments invariably consider
the issue from the perspective of business and profitability, which places the emphasis on
containment of labour costs both in terms of wages and conditions, and hence, whenever
possible, externalising the costs associated with developing the skills firms require in their
workers.
Within this context the notion of structural unemployment arising from ‘skills mismatch’ can
be understood as implying an unwillingness of firms to offer jobs (with attached training
opportunities) to unemployed workers that they deem to have undesirable characteristics.
When the labour market is tight, the willingness of firms to indulge in their prejudices is more
costly. However, when labour underutilisation is high firms can easily increase their hiring
standards (broaden the desired characteristics they demand from workers) and the training
dynamism driven by labour shortages is lost. Then we observe, in a static sense, ‘skill
mismatches’ which are really symptoms of a ‘low pressure’ economy.
It is evident that from their perspective, Australian businesses feel hamstrung by the present
state of the labour market. The Australian Chamber of Commerce and Industry (ACCI) cite
skills shortages as one of the most significant barriers to investment in Australia (EWRERC,
2003: 12). The Business Council of Australia (BCA) notes that the increasing average
population age necessitates a range of training measures to head of future broad based skills
shortages (EWRERC, 2003: 12-13). Although the labour market has tightened in recent years,
there is still only anecdotal evidence that a ‘skills shortage’ is becoming a growth bottleneck.
Some data is available from the Skilled Vacancy Index (SVI) published monthly by the
Department of Employment and Workplace Relations (DEWR) which would suggest a more
modest claim with respect to skill bottlenecks is supportable. In Figure 2 (panel a) we show
the SVI for Australia from the earliest available period (July 1983) to November 2005, and in
panel (b) the same index since January 1990 to November 2005. The lower horizontal line in
panel (b) is the average value over the 1990s (97.9) while the upper horizontal line is the
average value over the 1990s (111.0). The charts provide no aggregate level indication that
there has been a sharp rise in the demand for skills in the last several years.
More detailed examination of the SVI is available because DEWR break it down into
States/Territories and also by professions, associated professions and trades. The picture gets
a bit more interesting at this level. 6
Figure 2 DEWR Skilled Vacancy Index, Australia, various periods
20
40
60
80
100
120
140
160
180
84 86 88 90 92 94 96 98 00 02 04
Skilled Vacancy Index - Australia
(a) 1983-2005
40
60
80
100
120
140
160
1990 1992 1994 1996 1998 2000 2002 2004
SVI average 1990-2005 97.9
SVI average 1996-2005 111.0
SVI Australia
(b) 1990-2005
Source: DEWR, Skilled Vacancy Index.
Figure 3 shows the SVI for the Professions, Trades and Associate Professions. In the last 3
years following the recession, the SVI for tradespersons rose sharply although in the last 18
months it has been in decline overall. The Professions and Associate Professions declined
uniformly since the recession although there is evidence of a slight recovery in the aggregate
in recent months.
Figure 3 Skilled Vacancy Index by Trades, Professions and Associate Professions
0
40
80
120
160
200
1990 1992 1994 1996 1998 2000 2002 2004
Professions
Trades
Associate Professions
Source: DEWR, Skilled Vacancy Index
To explore these trends more fully, we disaggregated the SVI for the three broad occupational
groups. Table 1 shows the average annual compound growth in the SVI between 2000 and
2004 (Column 2) and the corresponding growth between November 2004 and November
2005, for the Trades, Professions and Associate Professions. The current pressure areas are
relatively clear. For the Professions and Associate Professions, the health sector has
experienced rapid growth in the SVI relative to recent past in the last year. A relevant issue is 7
the number of immigrants who have foreign nursing or medical qualifications who are not
practising in this country as a result of local certification constraints (Hawthorne, L., 2001)
In the Trades, the recent trend is strongly down relative to the average annual growth in the
previous four years. There is no evidence that the pressure is continuing to mount in these
areas.
Table 1 Movement in DEWR Skilled Vacancy Index
Average annual growth in Skilled Vacancy Index (per
cent)
2000-04 Nov 2004-Nov 2005
Total Trades 5.1 -12.1
Chefs 2.8 -13.9
Metal Trades 23.6 -22.9
Automotive Trades 9.9 -8.3
Electrical and Electronics Trades 9.0 -4.4
Construction Trades 2.0 -4.0
Food Trades 2.5 2.8
Printing Trades -8.0 -34.3
Wood and Textile Trades 1.6 -19.3
Hairdressers 0.0 -19.8
Total Professionals -10.9 6.4
Science -5.3 -4.2
Building & Engineering -3.8 -12.1
Accountants and Auditors -19.4 -9.1
Marketing and Advertising -29.2 -7.1
Organisation and Information -14.6 -20.9
Health -4.9 21.2
Social -15.7 14.5
Total Associate Professionals -11.2 1.1
Medical and Science -4.0 27.9
Building and Engineering -5.6 -6.0
Source: DEWR, Skilled Vacancy Index. Note: average annual compound rate of growth for 2000-04 is
computed. Column 3 is the annual growth from November 2004 to November 2005.
In terms of the regional distribution, data is only available from this source at the level of
States/Territories. Table 2 shows that skilled vacancies growth in Australia continues it 5 year
decline. Both NSW and Victoria reveal worsening trends and the growth areas of Queensland
and Western Australia are now negative (QLD) and flat (WA). Figure 3 charts the SVI for
states relative to national average from 1983 to 2005. A positive (negative) observation
demonstrates above (below) average SVI values. In recent year, NSW has plunged well below
the national average while Victoria never really recovered from the 1991 recession and has
also deteriorated in recent years. The smaller states of Queensland and Western Australia
have experienced solid growth in employment over the 1990s and beyond and also strong
labour force growth. Any mismatch between labour force and vacancies would signal poor
regional development policies from the Federal and State governments. Interestingly, South 8
Australia which has experienced very poor employment growth since the 1991 recession is
now revealing above average SVI values. Any shortages of skilled labour that may be present
there would reflect the fact that the economy has been slow and little skill development has
been undertaken by either the private or the public sectors. Skilled labour has also likely
migrated to the stronger economies in search of scarce employment opportunities.
Table 2 Movements in Skilled Vacancy Index by State and Territory
Average annual growth in Skilled Vacancy Index (per
cent)
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