Dr Caroline Smith Director, Skills Australia

28 March 2012

Workforce Development: A national perspective

2012 MINTRAC National Training Conference

Workforce development and

the Australian Meat Industry

What I’ll cover today

• Skills Australia and our advice to Government

• Key challenges for Australia

• Skills Australia’s approach to workforce development

• Australian Workforce Futures – key recommendations

• Planning for specialised occupations

• The next steps - our approach to the 2012 workforce development strategy

2

Skills Australia: an Australian government

advisory body

“Skills Australia will provide the Government with recommendations on current and future skills needs (and) inform Australia’s workforce

development needs¹ …”

• Expert independent Board with expertise in industry, economics, education and academia;

• Provides independent advice to the government on current, emerging and future skills needs and workforce development needs

• Remit expanded in March 2009 to

look at full scope of labour market

and give advice on HE & VET

• 2011 Budget announcements-

extended role as Australian

Workforce and Productivity Agency.

Responsible for National Workforce

Development Fund- started early -

1 October 2011

Back row (L to R): Dr John Edwards, Heather Ridout,

Keith Spence.

Middle row: Paul Howes, Prof. Gerald Burke, Peter Anderson, Ged Kearney.

Front row:

Marie Persson, Philip Bullock (Chair), Dr Michael Keating AC.

Source: Julia Gillard, Second Reading Speech – Skills Australia Bill 2008 (14 Feb 2008)

3

Advice Skills Australia has provided to Government

• Foundations for the Future – June 2009

• Australian Workforce Futures: a national workforce development strategy – March 2010

• Advice to Department of Immigration on Skilled Occupation List for General Skilled Migration program – February 2011

• Skills for prosperity: a road map for vocational education and training – May 2011

• Energy efficiency in commercial and residential buildings: Jobs and Skills Implications – May 2011

• 2011 interim report on resources sector skill needs – July 2011

• Defence Industry Workforce Strategy – January 2012

• Scenario development - phase II of Australian Workforce Futures

4 4

Australia – the challenge of prosperity

Glenn Stevens

Governor,

Reserve Bank

of Australia

• Five years ago, a ship load of Australian iron ore was worth about the same as 2,200 flat-screen TVs

• Today it is worth about 22,000 flat-screen TVs

• Partly due to TV prices falling – but more to the price of iron ore rising by a factor of six

5

Source: ABS cat. no. 5204.0 and Treasury. Dr Ken Henry, Post Budget address to the Australian Business Economists

18 May 2010

Australia - Three Speed Economy Output by selected industry sector

6

7

-200 -100 0 100 200 300 400 500

Health Care and Social Assistance (4.0%)

Construction (4.5%)

Professional, Scientific and Technical Services (3.7%)

Education and Training (2.8%)

Public Administration and Safety (3.5%)

Retail Trade (1.8%)

Accommodation and Food Services (2.2%)

Mining (11.0%)

Transport, Postal and Warehousing (2.2%)

Financial and Insurance Services (2.1%)

Arts and Recreation Services (4.4%)

Administrative and Support Services (1.9%)

Electricity, Gas, Water and Waste Services (6.3%)

Wholesale Trade (1.5%)

Rental, Hiring and Real Estate Services (3.1%)

Other Services (0.8%)

Information Media and Telecommunications (-0.6%)

Manufacturing (-0.8%)

Agriculture, Forestry and Fishing (-2.7%)

Employment change by industry (2001 to 2011)

Note: Average annual growth in parentheses.

Source: ABS Catalogue Number 6291.0.55.003.

'000 persons

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

90 95 98 02 06 10

% pa (5 year rolling average)

'Quality adjusted'

hours worked'

Financial years ended 30 June

Challenge - Productivity growth slowing

Source: ABS, Experimental Estimates of Industry Multi-factor Productivity, Australia (5260.0.55.002), December 2010

Labour productivity

8 8

Challenge – An ageing population

9

Challenge – language, literacy and numeracy

Source: ABS, 4228.0, Adult Literacy and Life Skills Survey, Summary Results Australia (2006)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Prose literacy

Document literacy

Numeracy

4647

53

3736 31

16 18 16

Level 1 & 2Level 3Level 4 & 5

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Challenge - Lifting labour force participation: qualifications and literacy are vital

Source: OECD, Online OECD employment data base statistics for 2009, people aged 15 and over (accessed March 2011)

Groups to target

Men of prime working age (25 to 64 years)

Women (aged 25 to 34 years)

Older Australians (55 to 64)

Per cent

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Australian Workforce Futures: A National Workforce Development Strategy

Skills Australia approach to workforce development

Workforce and education trends

Modelling and projections

Planning for an uncertain future

3 Scenarios (Shell Group)

Analysis historic data

Workforce Futures - Overview and background papers

Where are we headed? Where do we want to be?

How do we get there?

Access Economics

Consultation with industry, providers, states/territories and peak bodies

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The challenge of forecasting – understanding uncertainty through scenarios

• Return on investment in skills takes many years and therefore requires a long view

• But projections into the future are inherently uncertain – forecasting is difficult particularly beyond 1-3 years

• Scenarios allow for alternative futures to be considered in economic modelling

– Help manage uncertainty of the future

– Improve longer term decision making

• Important – scenarios are not predictions

– Use scenarios to develop & test strategies, understand

risks & generate new ideas and possible responses

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What are the three Shell scenarios?

Three contrasting views of Australia’s experience in the next 15 years

Feature Open Doors Low Trust Flags

The economy Higher productivity and GDP growth

Intermediate GDP growth, higher inflation and real interest rates.

Curtailed trade and lower GDP growth, higher inflation, interest rates, govt. debt.

Migration Open borders Some restrictions Serious restrictions

Education Innovations quickly disseminated. Skill development well funded by all stakeholders.

Supply of education is increasingly left to private sector with labour markets determining curriculum.

Government regulation and funding biased towards loyal, local employers, providers and electorates.

14 14

Possible Futures: workforce growth to 2025

Number of people in Australian workforce in 2025 (based on three

scenarios)

Open Doors 15.3 mill

Low Trust Globalisation

13.7 mill

Flags 12.5 mill

Current: 11.3 mill

Projected total employment growth rates

Source: Access Economics Pty Ltd for Skills Australia, Economic modelling of skills demand (Oct 2009) 15

Qualifications required and supplied

THE THREE SCENARIOS

OPEN DOORS LOW-TRUST

GLOBALISATION FLAGS

By 2015

Demand 770,000 Demand 646,000 Demand 540,000

Supply 533,000 Supply 524,000 Supply 506,000

BALANCE -237,000 BALANCE -122,000 BALANCE -34,000

By 2025

Demand 828,000 Demand 645,000 Demand 500,000

Supply 659,000 Supply 620,000 Supply 556,000

BALANCE -169,000 BALANCE -25,000 BALANCE +56,000

However, skilled

migration plays a

significant role in

supplementing the

supply of qualifications,

and if it remains at

current levels, these

deficits may be made

up through Australia’s

skilled migrant intake

Source: Access Economics Pty Ltd for Skills Australia, Economic modelling of skills demand (Oct 2009)

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Qualifications and skills demand

Source: Access Economics Pty Ltd for Skills Australia, Economic modelling of skills demand (Oct 2009)

0.0 M

0.5 M

1.0 M

1.5 M

2.0 M

2.5 M

2015 2020 2025

Numbers to be trained at Cert III and higher due to

Employment growth

Skills deepening

Replacement/Retirement

From 2010-2025

• Demand for 12 million qualifications

• Demand for nearly 7 million people with qualifications at Certificate III and above

• Demand by 2015 for additional 2.3 million workers with qualifications at Certificate III and above – but not all new jobs – replacement and skills deepening

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What are Australian Workforce Futures key findings?

• The current capacity of our tertiary education system will need to

increase by 3% per annum, to deliver the qualifications and skills

Australia needs

• Workforce participation needs to rise from 65% to 69% to provide

the workers and skills we need plus improve social inclusion.

Women (aged 25-34); men (aged 25-64); older Australians (55-64)

• Numeracy and literacy are a major barrier to increased

participation and a national plan with targets and funding is needed

• Enterprises need to make better use of the skills of their employees

• We cannot plan for everything … we need to adopt a targeted,

focused approach

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Planning for ‘specialised occupations’

• Forecasting for all occupations is both impossible and

impractical. Our focus should be on ‘specialised

occupations’ which we can and should plan for. The

80/20 rule applies

• Skills Australia has found that the labour market is effective

in meeting skills needs but there are particular ‘specialised’

occupations where intervention is required

• This planning framework forms the basis for Skills Australia’s

advice to government to identify longer term skills needs

that are of high value to the economy

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Specialised occupations criteria

1. Long lead time – those skills which are highly specialised and require extended learning and preparation time

– 4 years or more for HE courses; 3 years or more to achieve VET qualification

2. High use – those skills which are deployed for the uses intended (that is, there is a good occupational ‘fit’)

– There is more than 50% match between the training and the destination occupation

3. Significant disruption – where the opportunity cost of the skills being in short supply is high (e.g. registered nurse or doctor)

4. High information – where the quality of information about the occupation is adequate

An occupation is considered ‘specialised’ if it meets at least two of the first three criteria, as well as the fourth criterion

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What is skills utilisation?

...policies and practices which support people to participate effectively in the workforce and to develop and apply skills in a workplace context where learning translates into positive outcomes for enterprises, the wider community and for individuals throughout their working lives.

E.g. employee participation, autonomy, job rotation, mentoring

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What are the benefits of skills utilisation strategies?

Improved innovation

Increased productivity

Increased competitive advantage

Reduced waste

Improved job satisfaction

Reduced staff turnover

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Approach to 2012 strategy

Australian Workforce Futures

• 3 off-the-shelf scenarios by Royal Dutch Shell

• Tailored to Australian conditions

• Informed modelling but focused on the scenario most consistent with government goals and policies

2012 strategy

• Progress since 2010

• 4 plausible scenarios developed for Australia in the global context

• Inform economic modelling

• Focus on managing uncertainty across scenarios

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Each process informs the next

Scenarios - Modelling - Analysis - Strategy

The policy recommendations

balance aspirational goals

and risks, after assessing key differences

between the scenarios.

Analysing the uncertainty,

commonality, differences and risks of

the scenarios

Projections of demand & supply side implications

of the scenarios

Plausible worlds

(but not predicting

future!)

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The key factors driving demand and supply of skills for Australia to 2025

Social, demographic and cultural trends

Economic and financial trends and globalisation

Labour force, industrial and workplace trends

Science, technology and innovation

Governance and public policy

Sustainability (focus on water, energy, population)

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The Scenarios so far...

• Resource prices fall, a more balanced economy

• Risky world – multiple shocks

• Uncertainty to 2015 with low growth and knowledge-based recovery

• Sustained prosperity but a two-speed economy

1. The Long Boom

2. Smart Recovery

3. Terms of Trade Shock

4. Ring of Fire

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1. The Long Boom

• There is a speedy recovery from the global financial uncertainty of 2011-12. Asia is becoming the world centre of gravity, and the rapidly urbanising populations of China and India provide a continuing market for Australian resources. Mining and construction thrive, bringing continued prosperity to Australia.

• But the high Australian dollar impacts tourism, manufacturing and international education sectors. Large employer and traditionally low-skilled industries, including retail, do it tough. Government introduces a sovereign wealth fund to share prosperity more equally.

27

2. Smart Recovery

• Australia experiences a low-growth economy to 2014-15. The European downturn is protracted and there is continuing instability in global financial markets. Growth in the Chinese and Indian economies slows, the demand for Australian resources drops, and the terms of trade and Australian dollar move lower.

• Global growth resumes from 2014-15, heralding better growth for Australia. Our companies and government are challenged to improve productivity and a knowledge-based recovery follows, although the impact of technology means that there are fewer opportunities for those with lower skills.

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3. Terms of Trade Shock

• This scenario sees new global sources of mineral and energy resources come on stream, leading to an oversupply of commodities. Prices fall, Australia’s terms of trade decline and the dollar loses value but resources export volumes are largely maintained.

• Australia seizes the crisis as an opportunity to move to a broad-based economy. We re-establish a viable manufacturing sector and build strong and internationally competitive businesses.

29

4. Ring of Fire

• Australia and the rest of the world lurch from one crisis to the next. Recovery from the European downturn is slow. Natural disasters and severe weather events occur on a regular basis, damaging industry and costing human lives.

• Political unrest destabilises parts of Asia. There are ongoing nuclear warfare threats and skirmishes over resources, especially water security.

• Increased protectionism reduces trade between countries and Australia too is protectionist

• In the midst of the doom and gloom, the lower Australian dollar substantially improves the position of trade-exposed industry sectors.

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Macroeconomic Parameters

• To estimate the skills needs associated with each of the scenarios, they are converted into a series of macroeconomic and industry projections.

• Based on the scenarios and sensitivities around them, projections of the implied labour market demand for additional skills are then developed.

• Key macroeconomic parameters have been developed for each scenario.

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Possible implications

• Significant differences include migration levels, fiscal capacity, and labour force participation

• Is the main difference between scenarios industry structure?

• There is less difference in technology and innovation but speed of adaptation varies

• There is less difference in sustainability

• Most important commonality is ageing population

• There is relative commonality in lifestyle and cultural issues

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Next steps...

Quantify scenarios for modelling

Education and training implications of scenarios Modelling, scenarios

and discussion paper published

(June 2012)

Consultations and submissions

(July – August 2012) NEW WORKFORCE

DEVELOPMENT STRATEGY 2012

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2012 Annual Conference – The Future of Work

Confirmed speakers:

Tony Jones (ABC’s Q&A)

Hugh Lauder (The Global Auction)

Lynda Gratton (The Shift) 34

Questions?

Thank you