the economic impact of skills shortages · 2006. 11. 2. · – ie skill shortages could be...

economics@

The economic impact of skills shortages

The economic impact of skills The economic impact of skills shortagesshortages

Saul EslakeSaul EslakeChief EconomistChief EconomistANZ BankANZ Bank

Festival CentreFestival CentreAdelaideAdelaide

3131stst October 2006October 2006

Presentation to the

SA Training & Skills Commission / CEDA

2006 Workforce Development Conference

Presentation to thePresentation to the

SA Training & Skills Commission / CEDA SA Training & Skills Commission / CEDA

2006 Workforce Development 2006 Workforce Development ConferenceConference

www.anz.com/go/economicswww.anz.com/go/economics

economics@2

-15

-10

-5

0

5

10

15

20

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

% change from previous year

Australia is enjoying its longest run of continuous economic growth since at least 1900Australia is enjoying its longest run of continuous Australia is enjoying its longest run of continuous economic growth since at least 1900economic growth since at least 1900

Australian real GDP growth, 1901 - 2009

Note: data are for financial years ended 30 June.Sources: Angus Maddison, Monitoring the World Economy 1820-1992; Reserve Bank; ABS; Economics@ANZ.

25 quarters of negativegrowth in this period,

including 6 episodes of2 or more consecutivequarters of –ve growth

3 qtrsof –vegrowthin thisperiod

2 qtrsof –vegrowthin thisperiod

no quarterly data before 1959

(f)

economics@3

Unemployment is at a 30-year low, while the ‘employment rate’ is at a record highUnemployment is at a 30Unemployment is at a 30--year low, while the year low, while the ‘employment rate’ is at a record high‘employment rate’ is at a record high

Sources: ABS; Economics@ANZ.

Unemployment(pc of labour force)

Employment(pc of population 15+)

0

2

4

6

8

10

12

61 66 71 76 81 86 91 96 01 06

%

50

52

54

56

58

60

62

64

61 66 71 76 81 86 91 96 01 06

%

economics@4

A record proportion of businesses report labour shortages as a major constraint on growthA record proportion of businesses report labour A record proportion of businesses report labour shortages as a major constraint on growthshortages as a major constraint on growth

Source: National Australia Bank.

Businesses nominating ‘availability of suitable labour’ asa constraint on output

0

5

10

15

20

25

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

%

economics@5

55-59 year olds

The long-term decline in labour force participation by older men appears to have reversedThe longThe long--term decline in labour force participation term decline in labour force participation by older men appears to have reversedby older men appears to have reversed

70

72

74

76

78

80

82

81 86 91 96 01 0625

30

35

40

45

50

55

60%

Men (left scale)

Women(right scale)

%

Note: data shown as 12-month moving averages. Source: ABS; Economics@ANZ.

Labour force participation rates by age

60-64 year olds

40

42

44

46

48

50

52

54

56

58

81 86 91 96 01 0610

15

20

25

30

35%

Men(left scale)

Women(right scale)

%

economics@6

After picking up strongly during the 1990s, After picking up strongly during the 1990s, productivity growth has slowed this decadeproductivity growth has slowed this decade

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

90 94 98 02 06

% ch. from yr earlier (3-yr moving average)

Labour productivity growth

75

80

85

90

95

100

80 85 90 95 00 05

%

% of US

% of OECD average

Australian labour productivity compared

Sources: ABS; Groningen Growth and Development Centre (University of Groningen andThe Conference Board Total Economy DataBase January 2006; Economics@ANZ.

economics@7

Possible reasons for the slowdown in productivity growth during the current decadePossible reasons for the slowdown in productivity Possible reasons for the slowdown in productivity growth during the current decadegrowth during the current decade

As the economy approaches ‘full employment’, marginal additions to the work force may be ‘less productive’

– ie skill shortages could be detracting from productivity growthDearth of productivity-enhancing reforms in recent years

– the overwhelming research consensus is that the acceleration in Australian productivity growth during the 1990s was the result of wide-ranging pro-competitive reforms undertaken from the mid-1980s onwards

– there hasn’t been much by way of productivity-enhancing reform since the late 1990s

Deluge of productivity-stifling legislation and regulation in recent years with the ostensible aim of enhancing ‘security’ and improving corporate governance

– in practice requiring the employment of tens of thousands of people who do absolutely nothing useful themselves but prevent those who are doing something useful from doing it as quickly or cheaply as they otherwise would

– and in reality probably don’t do much to enhance ‘security’ (if that really is under greater threat than hitherto) or reduce thelikelihood of corporate malfeasance

economics@8

Employment growth has been much more rapid among occupations calling for higher skill levelsEmployment growth has been much more rapid among occupations calling for higher skill levels

Employment growth by occupation, 2000-01 through 2005-06

-1

0

1

2

3

4

5

6

Managers& admini-strators

Profes-sionals

Associateprofes-sionals

Trades-persons

Advancedclerical &serviceworkers

Inter-mediateclerical,sales &serviceworkers

Inter-mediate

production& trans-

portworkers

Elemen-tary

clerical,sales &serviceworkers

Labourers& relatedworkers

% per annum

Total

Sources: ABS, Labour Force: Detailed Quarterly (6291.0)

economics@9

High-skilled occupations have accounted for nearly 2/3 of all jobs growth over the past five yearsHigh-skilled occupations have accounted for nearly 2/3 of all jobs growth over the past five years

Share of employment growth2000-01 through 2005-06

Sources: ABS, Labour Force: Detailed Quarterly (6291.0)

Share of total employment2005-06

Managers & admin, professionals & associate professionals Tradespeople

Advanced clerical/ other intermediate workers ‘Elementary’ workers & labourers

economics@10

There’s a clear correlation between educational attainment and employment experience There’s a clear correlation between educational attainment and employment experience

Unemployment rate by level of educational attainment, May 2005

0

1

2

3

4

5

6

7

8

9

10

Uni degree Adv. diploma /Diploma

CertificateIII/IV

Certificate I/II Year 12 Below Year 12

%

Average

Sources: ABS, Education and Work (6227.0), Economics@ANZ.

economics@11

The number of Australians undertaking higher education has flattened out in recent yearsThe number of Australians undertaking higher education has flattened out in recent years

Source: Department of Education, Science & Training

Higher education student numbers

300

400

500

600

700

800

900

1000

85 90 95 00 05

'000

Total

Domesticstudents

Vocational education and training student numbers

1200

1300

1400

1500

1600

1700

1800

95 97 99 01 03 05

'000

economics@12

0

5

10

15

20

25

30

35

40

45

50

Can

ada

US

A

Japan

Sw

eden

Finlan

d

Den

mark

Norw

ay

Australia

Korea

Belg

ium

Neth

erlands

UK

Ireland

Sw

itzerland

Iceland

Spain

NZ

Germ

any

France

Luxem

burg

Greece

Austria

Hungary

Mexico

Poland

Portugal

Slovakia

Czech

Rep

.

Italy

Turkey

%

OECD average

% of population aged 25-64 with tertiary education

Australia is above the OECD average but behind the leaders in tertiary education attainment …Australia is above the OECD average but behind Australia is above the OECD average but behind the leaders in tertiary education attainment …the leaders in tertiary education attainment …

Sources: OECD Education at a Glance (2006).

economics@13

0

10

20

30

40

50

60

Can

ada

Japan

Korea

Sw

eden

Belg

ium

Ireland

Norw

ay

US

A

Spain

France

Finlan

d

Australia

Den

mark

UK

Neth

erlands

Iceland

Luxem

burg

Sw

itzerland

NZ

Greece

Poland

Germ

any

Austria

Mexico

Hungary

Portugal

Italy

Slovakia

Czech

Rep

Turkey

%

OECD average

% of population aged 25-34 with tertiary education

… and other countries are catching up more quickly… and other countries are catching up more … and other countries are catching up more quicklyquickly


economics@14

0

10

20

30

40

50

60

70

80

90

100

Czech

Rep

.

Norw

ay

US

A

Slovakia

Sw

itzerland

Can

ada

Japan

2

Germ

any

Sw

eden

Den

mark

Austria

NZ

Finlan

d

Hungary

Korea

Neth

erland

France

UK

Australia

Belg

ium

Ireland

Luxem

burg

Icelan

d

Greece

Poland

Italy

Spain

Turkey

Portugal

Mexico

%

OECD average

% of population aged 25-64 with at least an upper secondary education

The percentage of Australian adults with at least upper secondary education is below OECD averageThe percentage of Australian adults with at least The percentage of Australian adults with at least upper secondary education is below OECD averageupper secondary education is below OECD average


economics@15

0

5

10

15

20

25

30

35

40

Australia

Italy

Iceland

Spain

Mexico

Hungary

NZ

Neth

erland

Austria

France

Belg

ium

Ireland

Poland

Japan

1

Den

mark

UK

Slovalkia

Portugal

Germ

any

Korea

Sw

itzerland

Norw

ay

Greece

Czech

Rep

Can

ada

Sw

eden

Turkey

Finlan

d

US

A

Luxem

bou

r

%

% of population aged 25-64 whose highest level of educational attainment is lower secondary

A relatively high proportion of Australians leave school before reaching upper secondary levelA relatively high proportion of Australians leave A relatively high proportion of Australians leave school before reaching upper secondary levelschool before reaching upper secondary level


economics@16

Levels of educational attainment do matterLevels of educational attainment Levels of educational attainment dodo mattermatterEmployment prospects improve with increasing levels of educational attainment

– unemployment rate of those without post-school qualifications is more than double that of those with them

– unemployment rate of university graduates is more than one-third lower than that of people with other (non-tertiary) post-school qualifications

Incomes rise with educational attainment– early school leavers earn around 20% less than those

completing high school– who in turn earn 20% less than those completing vocational

education– who earn about 40% less than university graduates

Analysis by the OECD suggests that an extra year of schooling lifts per capita GDP by about 6%

This is broadly consistent with Australian research suggesting that a one-year increase in the average level of schooling

– would increase annual GDP growth by 0.5 pc pt per annum– would ultimately increase the level of GDP by 8%

Sources: ABS Education & Work May 2005 (6227.0); Access Economics (2005); OECD Education at a Glance (2006); Steve Dowrick, ‘The Contribution of Innovation and Education to Economic Growth (2002).

economics@17

Although SA productivity growth has exceeded the national average the SA level is still below averageAlthough SA productivity growth has exceeded the national average the SA level is still below average

Level of labour productivity2004-05

150

175

200

225

250

275

NSW Vic Qld SA WA Tas NT ACT

GSP per hour worked ($)

Nationalaverage

Labour productivity growth1999-00 to 2004-05

0.0

0.5

1.0

1.5

2.0

2.5


% per annum

Nationalaverage

* Productivity defined as real gross State product per hour worked. Sources: State Accounts (5220.0); ABS Employed persons by sex, age, hours worked, state (6291.0.55.001); Economics@ANZ.

economics@18

15-64 year olds withpost-school qualifications

SA has more people who haven’t made it past year 12, and fewer who have, than average SA has more people who haven’t made it past SA has more people who haven’t made it past year 12, and fewer who have, than average year 12, and fewer who have, than average

40

42

44

46

48

50

52

54

56

58

60


%, 2004

Nationalaverage

Source: ABS, Education and Work, Australia, (6227.0); Australian Social Trends (4102.0) 2005.

15-64 year olds whohave not completed Year 12

20

25

30

35

40

45

50


%, 2004

Nationalaverage

economics@19

Source: ABS, Australian Social Trends (4102.0) 2005.

Workforce employed inhighest-skill occupations

South Australia has an above- (below-) average proportion of workers in high- (low-) skill jobsSouth Australia has an aboveSouth Australia has an above-- (below(below--) average ) average proportion of workers in highproportion of workers in high-- (low(low--) skill jobs) skill jobs

20

22

24

26

28

30

32

34

36

38

40


%, 2003-04

Nationalaverage

Workforce employed inlowest-skill occupations

10

12

14

16

18

20

22

24


%, 2003-04

Nationalaverage

economics@20

The SA school system does well in improving student outcomes the longer they stay in schoolThe SA school system does well in improving The SA school system does well in improving student outcomes the longer they stay in schoolstudent outcomes the longer they stay in school

Average maths scores – Year 4

450

475

500

525


Nationalaverage

Source: Trends in International Mathematics and Science Study 2002-03

Average science scores – Year 4

475

500

525

550


Nationalaverage

Average maths scores – Year 8

425

450

475

500

525

550


Nationalaverage

Average science scores – Year 8

475

500

525

550


Nationalaverage

economics@21

And SA produces students with above-average reading, maths and problem-solving skills And SA produces students with aboveAnd SA produces students with above--average average reading, maths and problemreading, maths and problem--solving skills solving skills

Reading literacy

Mathematical literacy

0

20

40

60

80

100


Source: Australian Council for Educational Research; Program for International Student Assessment (PISA).

0

20

40

60

80

100


Problem solving ability

0

20

40

60

80

100


Below Level 1 (‘likely to be seriouslydisadvantaged in life beyond school’)

Level 1(lowest)

Level 2 Level 3

Level 4 Level 5 Level 6(highest)

Results based on testing of 12,500 students from 321 schools randomly selected from across Australia in 2003 as part of an OECD-sponsored assessment involving 41 countries.

economics@22

But the proportion of SA students going to Year 12 is no longer above the national averageBut the proportion of SA students going to Year 12 is no longer above the national average

Source: ABS, Schools Australia (4221.0)

School retention rates to year 12

40

50

60

70

80

90

100

82 87 92 95 96 97 98 99 00 01 02 03 04 05

%

National average

South Australia

60

65

70

75

80

85

90


% 2004

Nationalaverage

economics@23

Summary: skill shortages and the economySummary: skill shortages and the economySummary: skill shortages and the economy

There is evidence that skill shortages are adversely impacting growth in output in the Australian economy

Skill shortages are not detracting from growth in demand– to the extent that skill shortages are boosting the incomes of

skilled workers they may be boosting income growth and hence aggregate demand, at the margin

The combination of capacity-constrained output growth and buoyant demand is contributing to upward pressure on inflation (and hence interest rates) and to a widening in the current account deficit

– although skill shortages are not the only (or even necessarily the most important) contributor to these problems

Increased immigration of skilled workers is the only short-term solution to the shortage of skilled workers

– and the Government is allowing higher permanent and temporary immigration of skilled workers

The only sustainable long-term solution is increasing the quantity and quality of education and training

– the increasing electoral clout of seniors is making this more difficult to achieve politically

the economic impact of skills shortages · 2006. 11. 2. · – ie skill shortages could be...

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