Demographic impacts on the future supply of vocational skills.(Contributed Article)(Report)

I. Introduction

The ageing of the Australian population has become an issue of substantial national significance, with the Federal Treasurer's Intergenerational Report (Costello, 2002, 2004) drawing attention to the closing gap in the ratio of working age to retiree populations. One dimension of this is the ageing of the national workforce. Two key features of Australia's demographic transformation are the low fertility rates and the passing of the large 'baby boom' generation through late middle age into retirement. These demographic changes mirror the changes occurring in many other OECD countries and are well documented (McDonald & Kippen 1999, 2000, 2001; Access Economics 2001). Yet their impact on the availability of skills in the workforce is still largely unknown. Scant literature has focused on how the changing demographics will impact on the future supply of vocational skills. To assist in informed VET planning, it is not sufficient simply to know the size of the latent labour supply. It is important also to know what proportion is employed in occupations that intensively use vocational skills and the distributions of vocational skills in these occupations. Both the quantitative ('how many?') and qualitative ('what type?') dimensions of VET skills supply are particularly relevant to VET planning.

The future skills supply depends on both the stock of skills in the population of working age and the extent to which that stock is offered for employment at any given time. There are two principal factors influencing the magnitude of the supply of labour or persons with required skills by occupations. One is the size of the civilian population of working age (assumed to be between 15 and 64 years). The other is the labour force participation rate--the proportion of the labour force in the working age population. Different age-sex specific populations will have different patterns of participation and skills supply to different occupations.

The supply of VET skills is a difficult thing to observe. In this study, we measure the skills supply in two ways: employment in a job that uses VET skills and the number with VET qualifications in the Australian workforce. People obtain work skills through undertaking formal educational courses, and obtain formal qualifications in the process. We can use surveys of the Australian population to describe the numbers of people who have particular qualifications. But this is not the same thing as the supply of skills. First, many people who have a qualification do not use that qualification directly in their job. For example, there are metal tradesmen who work as security officers; nurses who work as florists; teachers who are public service managers. Second, many people who work in a skilled or semi-skilled job do not have a formal qualification at all, or have one that is not relevant to their current job. For example, in 2005, about one third of people employed as 'Managers', 'Associate professionals' or 'Tradespersons and related workers' had no post-school qualifications. Even among professionals, 10 per cent had no post-school qualification and a further 19 per cent had VET qualifications. (1) These realities reflect the important fact that many people obtain their work skills informally. They learn by doing a job, by observing, by obtaining informal instruction from co-workers, and from in-house short courses. The only way to measure the supply of skills obtained in this way is to count the number of people who are employed in jobs that require the relevant skill. This presumes that if a person is employed in a job that requires a specific skill, then they have that skill, even if they do not have a relevant formal qualification. This is one reason why we respond to the question 'what is the future supply of skills' by studying the employment of people in skilled occupations.

A second reason is that Australia's unemployment rate has reached its lowest level in the last three decades. At any given time, the number of people who are actually employed is determined by the intersection of the number and types of workers that employers want (the demand-side) and the number and types of people who are willing to work (the supply-side). Only occasionally do these match, at which point full employment occurs. When, as is historically the usual case, the supply of workers for particular jobs exceeds the demand for workers at the prevailing wage rate, it is the number that employers want to employ that determines the numbers who are actually employed (the 'short-side' dominates). In this case, there will be people 'supplying' their skills (applying for skilled jobs) but unable to obtain a job that uses them. But Australia's recent strong employment growth, and commensurate low unemployment, mean that the 'short side' is now more often the supply side, especially for skilled occupations. This means that all the people who want a skilled job and have appropriate skills are able to obtain such a job. Looking into the future, we cannot know if this will persist. But on balance it is reasonable to assume that it will, or at least that there will not be substantial surpluses of skilled workers, especially in the face of the slow growth in the workforce that we demonstrate in a later section. This is the base upon which the projections for the changes of the overall employment and its distributions among occupations can be deemed to be the supply of labour or skills.

This report analyses and quantifies the compositional effects of the changing demographics on the supply of VET skills to occupations. Focusing particularly on VET-intensive occupations, the specific aims of this study are:

* To identify the occupations that are large users of VET skills;