Forecasting future demands: what we can and cannot know.

1. Introduction

The vocational education and training (VET) sector seeks to teach courses that will meet the future demands from employers in terms of the quantity and type of skills required. If changes in the quantity and type of vocational skills that are needed by employers can be anticipated, then we can avoid the development of redundant capacity (in people and in teaching institutions). We can also make it easier for employers to find the skills they need, at the time when they need them, and in the places where they need them.

There are many attempts to forecast labour demand. They range from the most aggregate level of forecasting total employment (eg, by the ABS), to forecasts of employment by types of jobs in more or less detail (eg, by DEWR, the MONASH model, and many recent efforts at State level). But projecting the size and shape of the future workforce is no simple task. No model, no matter how carefully and cleverly constructed, can hope to remove fully the uncertainty involved in dealing with the future. This is especially so when the forecasts need to be quite disaggregated by type of skill and by region before they can be useful for planning. This study examines how economists construct their projections of future skills demand; evaluates how successful the principal models used for skills projections are; and discusses how the VET sector should respond to the unavoidable uncertainty about the shape of future skills demand.

The study focuses on the meta-level: reviewing and identifying best practice for forecasting and planning vocational skills policy. It seeks to provide an understanding of how projections of future skills needs are made, and the extent to which they may be relied on for planning of the capacity of the VET sector. The study also aims to gain an understanding of what we know about the shape of future labour demand, through analysing those aspects of labour demand that can be projected with reasonable confidence. We examine the reasons why it is difficult to make reliable forecasts of future skill needs, in order to understand better how much reliance can be placed on such forecasts. We review existing international and Australian efforts to forecast the patterns of future skill demands, and evaluations of their success. We present recent trends in the demand for vocational skills, as one guide to how the near future is likely to evolve. We conclude with a discussion of how the VET system might manage the inevitable uncertainty about future skills requirements that even the best forecasts are unable to remove.

The study endeavours to answer questions raised by the current labour demand forecast methodologies for projecting skills demand by industry and occupation. These questions include:

* Why is it so hard to get robust projections of future skill needs?

* Do the best examples of model-based forecasting of the demand for skills provide an adequate basis for planning of VET capacity?