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FUTURE DEMAND FOR

VOCATIONAL EDUCATIONAND TRAINING IN NEW

SOUTH WALESREPORT BY

ACCESS ECONOMICS PTY LIMITED

FOR

THE INDEPENDENT PRICING AND REGULATORYTRIBUNAL (IPART)

16 JUNE 2006



While every effort has been made to ensure the accuracy of this document, the uncertain nature of economicdata, forecasting and analysis means that Access Economics Pty Limited is unable to make any warranties inrelation to the information contained herein. Access Economics Pty Limited, its employees and agents disclaimliability for any loss or damage which may arise as a consequence of any person relying on the informationcontained in this document.

Future demand for vocationaleducation and training in NSW

TABLE OF CONTENTS

EXECUTIVE SUMMARY i 1. Introduction 1

1.1 Scope of this report...............................................................................................................1 1.2 Summary of methodology.....................................................................................................2

2. The benefits of skill development 6 2.1 Links between education and work.......................................................................................6 2.2 The effect of education on participation rates .......................................................................9 2.3 The effect of education on unemployment ..........................................................................10

3. Profile of VET activity 12 3.1 Total VET activity................................................................................................................12 3.2 VET activity by category .....................................................................................................15 3.3 Qualifications profile ...........................................................................................................17

4. Baseline scenario – labour market projections 20 4.1 Employment growth............................................................................................................20 4.2 Labour force participation ...................................................................................................21 4.3 Industry employment forecasts ...........................................................................................23 4.4 Occupational employment forecasts...................................................................................25 4.5 Regional dimension ............................................................................................................28

5. Additional labour market influences on future training needs 32 5.1 Retirements ........................................................................................................................32 5.2 Other staff turnover.............................................................................................................34 5.3 Part-time share of the workforce.........................................................................................36 5.4 Casual and self employed share of the workforce ..............................................................37 5.5 Productivity.........................................................................................................................39 5.6 Workforce longevity ............................................................................................................39 5.7 Supply side influences on VET activity ...............................................................................39

6. Baseline scenario – projected VET activity 41 7. Specifying the target scenario 48

7.1 Labour market projections ..................................................................................................48 7.2 Additional assumptions on training .....................................................................................52

8. Target scenario – projected VET activity 56 8.1 Scenario results ..................................................................................................................56 8.2 Plausibility of the target scenario ........................................................................................65

9. References 70




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EXECUTIVE SUMMARY

The Independent Pricing and Regulatory Tribunal (IPART) in New South Wales has

commissioned Access Economics to develop projections of the future demand for publiclyfunded vocational education and training (VET).

Benefits of skill development

Our living standards per head are a function of the effectiveness with which we work(productivity) and the proportion of us working (participation).

Importantly, improved skills development (such as via VET studies to improve work skills)can do both of these. As economists have increasingly noted, not merely does increasedinvestment in skills show up as more productive workers, those workers also tend to stay inthe workforce for longer – thereby boosting participation as well as productivity. And, equallyimportantly, early moves to increase skills development are likely to have their prime years of

payoff across the decades when growth will be most at risk from baby boomer retirement.

Profile of VET activity

VET activity ramped up notably in the 1990s in New South Wales, but since 2000 studentnumbers and the number of hours delivered has levelled off. That decline has been morenotable in New South Wales than nationally. In 2004, VET students in New South Walesamounted to 16.3% of total people employed, a participation rate just below the nationalaverage.

In part, the recent decline in VET participation reflects a petering out of supply side initiativeswhich were encouraging greater participation in VET in the 1990s. Other factors here arethat (1) productivity growth has also slowed (thereby slowing the need for up-skilling, by

slowing the pace of change), (2) higher student fees and until relatively recently, (3) a strong job market negated some short term training needs by offering attractive short term returns toworking versus training.

Baseline scenario – labour market projections

Employment growth in Australia is expected to slow notably from recent rates, not only for cyclical reasons, but as a key symptom of our ageing population. In particular, the retirementof the baby boomers is likely to see average labour force participation drop over time.

Over the 20 year forecast period here (2005 to 2025), average growth in jobs is projected at:

0.64% per annum for New South Wales; and

0.87% per annum for Australia.

Those projections are based on an only modest further increase in age cohort labour forceparticipation rates, and with an unemployment rate staying roughly constant at around 5.0%.

While net employment growth trends are a key influence, the gross number of peopleentering an occupation (including to replace those who retire, or leave for some other reason – normal turnover), may be more important in addressing training requirements. These areaccounted for here in the projections for future VET in this report.




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A continuing trend towards a higher share of the workforce working part-time or beingcasually employed or self-employed is also likely to be a plus for VET demand, as it meansthat more people have to be trained for any given amount of work for part-time, and becausecasual employees may receive less on-the job-training (and so may be more likely to seekout the publicly-funded VET training considered here).

Finally, increased workforce longevity as age cohort labour force participation rates rise willalso provide a stimulus to VET demand in both the baseline and target scenarios.

Baseline scenario – projected VET activity

The projections for VET activity in the baseline scenario are for overall modest growth. Over the 20 year period (2005 to 2025) for New South Wales projections are for:

average growth in the number of VET students of 0.98% per annum; and

average growth in the number of VET hours of 1.08% per annum.

That is faster growth for student numbers than has been achieved recently, and faster than

projected employment growth, but notably slower than VET activity growth over the 1990s.

Slowing overall job growth is the key driver of more moderate VET demand over time. Inaddition, a cyclical downturn in demand for trade skills is a negative over the short term.

Projections for the composition of VET activity are for a shift towards continuing training andcatering for re-entrants, at the expense of New Apprenticeships. Relatively little workforcegrowth means relatively less need for the latter. It also means that the skewing of the VETage profile towards younger students (44% of students in 2004 were under 25) will becomeless acute over time (only 39% of students under 25 in 2025).

Specifying the target scenario

The baseline projections in this report can be compared with VET demand under a ‘target’scenario. The target scenario is one of economic success. It is defined using the ratio of employed to civilian (15+) population. For Australia that means maintaining the recent levelfor that ratio, rather than seeing it fall as the population ages. For New South Wales itmeans moving up to the Australian ratio of employed to civilian population and thenmaintaining that ratio. As population growth assumptions are the same in the target scenarioas in the baseline scenario, these targets are achieved through employment gains, with asubstantial lift in labour force participation rates by age cohort required.

Key assumptions and outputs for the baseline and target scenarios are noted in Table 1.




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TABLE 1: KEY ASSUMPTIONS AND RESULTS FOR SCENARIOS

Baseline scenario Target scenario

2015 2025 20 year avg

2015 2025 20 year avg

New South Wales

Scenario inputs

Population growth 0.8% 0.7% 0.8% 0.8% 0.7% 0.8%

Employment growth 0.6% 0.3% 0.6% 1.2% 0.8% 1.1%

Ratio (employed to 15+population) 58.2% 55.8% 57.9% 60.6% 61.2% 60.8%

Average labour forceparticipation 61.3% 58.8% 61.0% 63.0% 63.1% 63.0%

Unemployment rate 5.1% 5.0% 5.1% 3.7% 3.0% 3.5%

Labour productivitygrowth 1.75% 1.75% 1.75% 2.0% 2.0% 2.0%

Scenario outputsVET students growth 1.3% 1.3% 1.0% 3.1% 1.4% 2.3%

VET hours growth 1.4% 1.2% 1.1% 3.3% 1.0% 2.6%

Australia

Scenario inputs

Population growth 1.0% 0.9% 1.0% 1.0% 0.9% 1.0%

Employment growth 0.8% 0.5% 0.9% 1.2% 1.0% 1.2%

Ratio (employed to 15+population) 59.7% 57.1% 59.4% 61.2% 61.2% 61.2%

Average labour forceparticipation 62.8% 60.1% 62.6% 63.5% 63.1% 63.4%

Unemployment rate 5.1% 4.9% 5.1% 3.7% 3.0% 3.5%

Labour productivitygrowth 1.75% 1.75% 1.75% 2.0% 2.0% 2.0%

Scenario outputs

VET students growth 1.5% 1.3% 1.4% 3.7% 1.5% 2.6%

VET hours growth 1.6% 1.3% 1.5% 4.9% 1.3% 3.0%

The target scenario has a much faster rate of job growth over the next 20 years: 1.1% per annum on average for New South Wales compared with 0.6% per annum for the baseline.The target scenario also has faster productivity growth and achieves a 3% unemploymentrate by 2020.

In addition, the target scenario factors in extra training initiatives so as to help achieve the

economic outcomes for this scenario. These initiatives provide additional training for thosecurrently not in the workforce or unemployed to make the leap to employment, re-fresher training for some whose skills have atrophied, a higher rate of continuing training for thoseemployed, and higher training needs associated with the trend increase in casualisation.These measures can be seen as additional ‘exogenous’ training, as opposed to theemployment-driven training response of a stronger economy. While many of these additionaltraining initiatives continue over the 20 year forecast period, their main contribution to traininggrowth occurs early on, as they are additional to current training effort. Hence, under the




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target scenario, growth in training requirements is faster earlier on, and therefore averageVET growth rates over 20 years shown in Table 1 are stronger than those shown for 2025.

Increased VET is seen as a necessary (but far from sufficient) condition to achieve the targetscenario – increased skills development is likely to be an important contributing factor to

such economic success, but Australia will also need to do well otherwise in terms of policyissues and business performance to achieve the target.

Target scenario – projected VET activity

The projections for VET activity in the target scenario point to considerable strength indemand. VET participation in the target scenario is at 21.1% of employed persons by 2025,compared with 17.8% in the baseline scenario. Some 81% of this lift in VET participation canbe ascribed to exogenous training initiatives designed to help achieve the target scenario.The other 19% of additional training is an employment-driven response of demand for higher skills given a stronger performing economy. Chart 1 shows this profile over time.

CHART 1: VET PARTICIPATION RATE OVER TIME – EXOGENOUS AND EMPLOYMENT-DRIVEN

TRAINING COMPONENTS, NSW, TARGET AND BASELINE SCENARIOS

0%

5%

10%

15%

20%

25%

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

IGR scenario

Target scenario

IGR plus exogenous training initiatives

VET students as share of total employed (%)

Forecast

Exogenous training

Employment-driven response

In the target scenario the cost of VET would amount to 0.60% of GSP in NSW in 2025 – amoderate increase on current levels of 0.51% of GSP. Note that in the target scenario notonly is the estimated cost of VET rather higher, but the level of GSP is also higher than in the

baseline, with additional employment and productivity growth translating into a faster growingeconomy. Or, in other words, part of the considerable increase in cost has been met by analmost as large increase in the economy’s size (and therefore its capacity to pay).

Access Economics16 June 2006




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1. INTRODUCTION

The Independent Pricing and Regulatory Tribunal (IPART) in New South Wales has

commissioned Access Economics to develop projections of the future demand for publiclyfunded vocational education and training (VET).

The projections of VET are from an employer or demand side perspective – the level of VETwhich is likely to be required to maintain and grow the skill base of the available workforce.

Access Economics has previously developed a framework for forecasting VET demandbased on labour market analysis. This forecasting framework has been updated, criticallyexamined, and improved for this project.

1.1 SCOPE OF THIS REPORT

This report presents projections for VET activity over the next 20 years for both New South

Wales and Australia. The key interest is in identifying the skill needs associated with longer term trends, as opposed to a short term forecasting exercise. As a result, the presentation of VET projections in this report focuses on averages over the five year periods:

1 January 2006 to 31 December 2010;

1 January 2011 to 31 December 2015;

1 January 2016 to 31 December 2020; and

1 January 2021 to 31 December 2025.

Two scenarios are presented in this report:

a baseline or IGR scenario showing what employer demand will be if present policiesare continued (with long term growth broadly consistent with that in the Federal

Government’s 2002 Intergenerational Report ); and

a target scenario showing what employer demand will be if policies succeed in raisingparticipation so as to ensure there is no change in the ratio of aged persons to theemployed population (this has been interpreted as no change in the ratio of theemployed to the civilian (15+) population).

The key data projected for this report is total hours of training and number of students intraining in the national provider collection by the National Centre for Vocational EducationResearch (NCVER).

This covers all VET delivered by providers in receipt of public funding allocations for VET.That is, any VET which is funded wholly or in part from public funds. Providers include

TAFE, other government providers, community providers and private providers who havebeen allocated public funds to deliver VET programs.

VET which is fee for service by private providers is outside the scope of this data collection,as are ‘non-vocational’ programs, and VET delivered in schools where the delivery has beenundertaken by schools.

This remainder of this report is organised as follows:




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The following section provides an overview of the methodology employed in forecastingemployer demand for VET.

Chapter 2 discusses some of the overall economic benefits which accrue frominvestment in skills development, drawing on recent research.

Chapter 3 provides a brief overview of VET activity growth over the past decade, interms of students and hours, for New South Wales and Australia as a whole.

Chapter 4 details the labour market projections which underpin the VET demandforecast in the baseline scenario.

Chapter 5 discusses some additional labour market influences on trainingrequirements, including rates of retirement and other turnover, and the possibleimplications of trends toward both a higher part-time share and a higher casual andself-employed share of the workforce.

Chapter 6 presents projected VET activity in the baseline scenario, including a split of these projections into new labour force entrants, re-entrants, and those undertakingcontinuing training.

Chapter 7 examines the implications for participation rates and other labour marketvariables which stem from the target scenario, along with assumed exogenouschanges to training participation to help enable the lift in labour force participation.

Chapter 8 reports the implications for skills development under the target scenario,including projections for overall VET activity.

The report is also accompanied by spreadsheet models which provide greater detail on theforecasts, and which also allow IPART to conduct some further sensitivity analysis on theforecasts.

1.2 SUMMARY OF METHODOLOGY

Projections for publicly funded VET activity in this report respond through various differentchannels to the skill requirements demanded by employers. The same structure is followedfor national projections and for those for New South Wales. An overview of the VETforecasting framework follows:

Forecasts for key macro variables are obtained from the Access Economics Macro(AEM) model, a small, dynamic model of the Australian economy, regularly used for macroeconomic forecasts. These key macro variables include components of finaldemand (such as categories of private consumption and investment) and totalemployment.

For the baseline or IGR scenario, the projection for total employment is scaled to bebroadly consistent with IGR projections on labour force participation rates – withparticipation rates by age cohort rising gradually over time, but with the economy-wide

average participation rate falling as the population ages. Growth in employment by industry (for 55 industries) is forecast using knownrelationships between components of final demand and industry employment (basedon 1996-97 input-output data, the latest available). For example, if the investmentforecasts suggest that residential and construction are gaining strength, then theconstruction industry will gain strength. Or, say, if rural exports are lifting, then the farmsector is similarly seen lifting.

A counterfactual estimation is conducted on historical data to determine actualemployment growth not picked up by this methodology, for example due to changes in




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worker productivity and structural changes in the economy. Correspondingadjustments are made to the forecasts. The modelling also allows for some adjustmentto be made to the early forecast periods to allow for any jumping-off problems.

Forecasts for industry employment are translated into occupational employmentforecasts (for 81 occupations) using 2001 Census data which shows the occupational

employment share for each of the industry groups examined. For forecasts, theseshares are allowed to change over time, with the change in shares between the 1996and 2001 Censuses used as a guide.

That framework provides the net employment change demanded by occupation over time.

This net change is translated into the gross number of people entering an occupationby allowing for projections of retirements and normal turnover. National workforceparticipation rates by age and Census data of observed retirements by age are used toestimate the rate of retirement for each occupation, while data from the labour mobilitysurvey allows an estimate of normal turnover (not relating to new workforce entry or retirement) by occupation.

The key outputs from this framework are forecasts by occupation (for 81 occupations)of the level of employment and the number of people entering an occupation, year byyear. These outputs are used as a link to measures of VET, allowing projectedworkforce developments to exert a strong and consistent influence over forecasts of demand for VET.

VET activity by occupation (in terms of both hours and number of students) from thenational provider collection is split into four components, each with its own set of VETdemand drivers for the forecasts:

¾ New Apprenticeships for new entrants: Formal training associated withNew Apprenticeships being undertaken by new entrants to the workforce.

¾ New Apprenticeships for existing workers: Formal training associated withNew Apprenticeships being undertaken by existing workers.

¾ Re-entrants: Re-entry training – VET undertaken by those unemployed or not in the workforce.

¾ Continuing training: The balance, undertaken by people currently employed(which includes some recent labour market entrants who are currentlyemployed and not captured through the New Apprenticeships program).

The formal training associated with New Apprenticeships is isolated from total VETactivity by using the number of enrolments in a contract of training, and hours of formaltraining per enrolment derived by the NCVER. This data was available for newentrants to the workforce and existing workers. Total hours for all apprentices andtrainees in training were derived from historic relationships of numbers in-training tocommencements (incorporating both the duration of programmes and

cancellation/withdrawal rates).

VET ‘penetration ratios’ by occupation are derived by combining the measures of VETactivity (hours and number of students each for New Apprenticeships for new entrants,New Apprenticeships for new workers, re-entrants and continuing training) as thenumerator with the two key workforce measures (employment levels by occupation andnumber of people entering by occupation) as the denominator.

For the forecasts, the default assumption is to hold penetration ratios at their averageratio over the past three years. The most recent ratio is used where there appears tohave been a trend in VET participation up or down.




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A portion of VET activity cannot be classified to a specific occupational category, but isinstead listed as various categories of ‘general’ training. These categories of activityare projected forwards on the basis of employment in broader occupational groups or total employment.

Allowance is made for a continuing trend towards part-time work (estimated from

examining past trends by broad occupational group). This raises VET demand asmore people, and therefore more skills, are required to perform a given number of hours of work than previously.

Allowance is made for a continuing trend towards casualisation of the workforce.(estimated from examining past trends of casual employment and self-employment bybroad occupational group). This raises demand for publicly funded VET on the viewthat casual employees may receive less on-the-job training than permanentemployees.

Allowance is made for employees to have a longer working life, on average, lookingforward. As labour force participation increases among older age cohorts, so will theaverage working life, which implies some additional continuing training in order to keepskills relevant.

(Note that the baseline scenario has a lift in participation among older age cohorts,consistent with that in the Intergenerational Report . The target scenario increase ishigher still.)

Allowance is made for movement to a higher rate of productivity growth to driveadditional training needs. Note that only has an effect in the target scenario, ascontinuation of the same rate of productivity growth (as in the baseline scenario), isconsistent with current rates of VET participation for up-skilling.

The model allows for future policy initiatives, such as broader implementation of Training Packages, though none have been specifically factored in to these scenarios.

Finally for the baseline scenario, projections for the various components of VET activityare collated to give a projection for total publicly funded VET demand over time,nationally and for New South Wales.

The target scenario is a scenario rather than a forecast. It uses a different series for theprojected level of total employment over time. It is based on labour force participation ratesby age cohort rising over time in order to keep the economy’s employment to 15+ populationratio constant (and to lift the ratio in New South Wales to that Australian target level).Changes to other broad economic parameters in this scenario include:

a higher rate of productivity growth (2% per annum rather than 1.75% per annum); and

a lower unemployment rate (down to 3% by 2020).

Projections under the target scenario follow the same set of steps as outlined above usingthe projected higher level of employment as a basis. In addition, a range of further initiativesare hypothesised to take place in the target scenario, which would help in producing the lift inlabour force participation rates projected for this scenario. These training initiatives are:

additional training for those currently not in the labour force (in order to encouragethem into the labour force);

additional training for those unemployed (to help move unemployment down to 3%);

additional (re-fresher) training for some people who have VET qualifications but areemployed in occupations where they may not be fully utilising them;




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a higher rate of continuing training for those employed (a preventative measure tomaintain or upgrade the skills of existing workers to avoid premature retirements); and

a faster rate of casualisation of the workforce (with the additional people casuallyemployed seen as having higher training needs).

Finally for the target scenario, using the standard forecast process and applying theinitiatives noted above, projections for the various components of VET activity are collated togive a projection for total publicly funded VET demand over time, nationally and for NewSouth Wales.




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2. THE BENEFITS OF SKILL DEVELOPMENT

Australia’s living standards per head are a function of the effectiveness with

which we work (productivity) and the proportion of us working (participation).

As the Federal Treasury’s Intergenerational Report noted in 2002, the comingdecades of baby boomer retirement will see aggregate participation fall.Therefore Treasury and others have argued the need for policies which can helpfill that shortfall by increasing either participation or productivity.

Importantly, improved skills developments (such as VET studies to improve workskills) can do both of these. As economists have increasingly noted, not merelydoes increased investment in skills show up as more productive workers, thoseworkers also tend to stay in the workforce for longer – thereby boostingparticipation as well as productivity. And, equally importantly, early moves toincrease skills development are likely to have their prime years of payoff across

the decades when growth will be most at risk from baby boomer retirement.

This chapter sets out some of those linkages.

The ageing of the baby boomers will eat into economic growth, particularly through theyears of maximum retirement from 2015-2030.

That point is made at length in Federal Treasury’s 2002 Intergenerational Report andthe Productivity Commission’s 2005 Economic Implications of an Ageing Australia.

As a result, Federal Treasury and others have been urging faster productivity growthand higher levels of participation, as the resultant increase in the size of the economywould directly address many of the risks associated with slowing growth.

That point has been hammered home by the Treasury Secretary Ken Henry in severalspeeches including, for example, his August 2004 Policy Strategies for Future Growth.

And Treasury researchers are now making the point that one way to increase bothproductivity and participation is to have a higher skilled workforce. Productivity risesdue to increased skills, and participation rises as those increased skills lead to higher wages, a reduced likelihood of unemployment and (typically) better working conditions.

Such points have been made by Kennedy and Hedley of Treasury in a 2003 WorkingPaper, Gruen and Garbutt in a 2004 paper and Davis and Ewing in a 2005 paper.

This chapter joins the above dots.

2.1 LINKS BETWEEN EDUCATION AND WORK

For the economy as a whole more education means more skilled workers, which means:

Higher productivity. Workers with more education bring a higher level of skills to theworkplace.

Higher participation. Workers with higher skill levels are more likely to work, and alsotend to work for longer by choosing to delay retirement.

Higher employment. Workers with more education are more employable and enjoylower unemployment rates.




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There is a clear and well-established relationship between education levels and productivity.Recently, economists have also emphasised a second and almost as well-establishedlinkage – those with higher levels of education also have higher rates of workforceparticipation: both during working age and as they approach traditional retirement age.

For society, higher levels of education also mean higher average incomes. That in turnmeans even faster growth in income tax collections because of our progressive income taxsystem (which applies higher average tax rates to higher earnings).

Those increased taxes may be spent for the benefit of everyone. These extra taxes – whichcan then be redistributed to everyone by the government – are perhaps the most directeconomic channel by which society benefits from having a more educated workforce.

2.1.1 THE DIRECT EFFECT OF EDUCATION ON PRODUCTIVITY

Education is increasingly becoming the ‘engine room’ of modern economies. If we get thispart of the economy right, most other things ought to fall into place, because increasedinvestment in education boosts both productivity and participation.

Education has a direct effect on the level of productivity in the economy (and therefore outputgrowth) because it increases the productivity of individuals. A more educated worker is amore productive worker, and investment in education provides a pool of more skilled labour.

Individuals benefit from investing in higher skills because they can command higher earnings in the labour market place.

CHART 2: EDUCATION DELIVERS HIGHER PAY

RELATIVE EARNINGS FOR WORKERS AGED 25-64 BY LEVEL OF EDUCATION -

Index (Average wage of those who finish school = 100)

0

20

40

60

80

100

120

140

160

180

200

Below upper secondary Year 12 Tertiary non-uni (including

apprenticeships)

University

Australia (1999) US (2001)

Source: OECD

Chart 2 compares the relative earnings of workers with different levels of education.




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The index is compiled on the basis that those who completed year 12 are assumed tohave an average wage of 100.

Lesser skilled workers have relatively lower average wages. In Australia (in 1999),those who had not completed Year 12 earned almost 20% less than those who had.(For the US, the pay cut was even greater at 30%.)

Higher skilled workers have relatively higher average wages. For Australia, universityeducated workers earned 40% more than those who completed Year 12, and 75%more than the least educated. For ‘tertiary non-uni’, a group which includes thosewith VET qualifications, the wage premium above Year 12 rates is close to 20%.

Note that the US experience suggests a greater spread of wages there than in Australia: in the US, the least educated earn relatively less; and the most educatedearn relatively more. The possible reasons for this difference are complex.

But it is possible that the US experience could provide a pointer to future trends in Australia as international competition for skilled labour will likely become more intenseover time: placing pressure on Australia’s relatively compressed skill differentials.

If that scenario was to happen, it would further underline the case for limiting the

number of Australian ‘early education exits’.

Research has attempted to measure the effect of education on productivity in two broadways. The first looks at relative wages across skill levels, and attempts to estimate the‘private return to education’, the increased wages received by workers who have donean extra year of education. Chart 2 provides evidence of the strength of the results.

Aschenfelter and Krueger (1993) undertook a study of wage data for a sample of twinsin the US. They found that an additional year of schooling resulted in increased wagesof between 12% and 16%.

An Australian study (Miller, Mulvey and Martin (1995), using similar twins data collectedin the 1980s) found a wage increment from an extra year of schooling of around 7.5%.This ignores the effects of schooling on wages within occupations, instead focusing onthe effect of education on wages through the impact on the occupation of the individual.

The second method of estimating the return to schooling looks at levels of educationand income across countries.

As with all cross-country studies, the strength of any conclusions is limited by theavailability of comparable data.

Research by Bassanini and Scarpetta of the OECD indicates that an extra year of schooling eventually raises GDP by around 6%. This approach has not (as yet)incorporated the further refinement of adjusting for cross-country differences ineducational quality. Note that this figure combines the productivity and participationchannels of higher education levels.

2.1.2 THE EFFECT OF EDUCATION ON PRODUCTIVITY GROWTH

In addition, some researchers argue that a more skilled workforce is more able to adapt tonew technologies in the workplace. This argument puts forth the idea that not only does




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education increase the level of productivity in the economy, it also has an effect on thegrowth of productivity over time1.

Research into this ‘catch up’ phenomenon has produced some interesting results bycomparing countries over time, but is yet to produce solid evidence for developed countries.

It is perhaps too early to tell whether productivity growth is improved over and above thedirect increase in worker productivity, but to the extent that there are positive ‘spillovers’ fromeducation, there is potential for an increase in broad productivity growth.

2.2 THE EFFECT OF EDUCATION ON PARTICIPATION RATES

Higher education increases the wage an individual can command, giving them a stronger incentive to work, and reduces their likelihood of any spells in unemployment.

To the extent that higher skilled jobs tend to be less ‘back breaking’ and more interesting, italso means that older higher skilled workers are more likely to be willing and able to maintaina connection with the workforce than less skilled workers.

While detailed data on the effects of a small increase in education on the length of workinglife are not available, there is ample evidence that increased educational attainment results inincrease labour force participation – see Chart 3.

CHART 3: PARTICIPATION RISES WITH SKILL LEVELS

Participation rates by skill level

0

10

20

30

40

50

60

Skilled Middle Skill Unskilled

%

25-34 35-49

50-59 Total

*Where Skilled represents a bachelor degree or higher, and unskilled no qualification

1This is a strand of the literature on ‘endogenous growth’ economic models which attempts to identify the forces

underlying multifactor productivity growth rather than applying the traditional assumption of an ‘exogenous’parameter.




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2.3 THE EFFECT OF EDUCATION ON UNEMPLOYMENT

Higher rates of education also reduce the likelihood of unemployment because theunemployment rate declines as education levels rise – see Chart 4.

Economic growth inevitably involves a degree of disruptive change – capital and labour is made redundant in some industries at the same time that other industries areexperiencing capital and labour shortages.

Higher levels of education allow displaced workers to more easily pick up the threadsof their career. (Less educated workers have greater difficulty in demonstrating theskills that would allow them to quickly find another job.)

In Australia, the chances of being unemployed are three times greater for those whohave not completed Year 12 compared to those who have completed university.

CHART 4: AND EDUCATION DELIVERS JOBS

UNEMPLOYMENT RATES BY LEVEL OF EDUCATION - 2001 (%)

0

2

4

6

8

10

Below upper secondary Year 12 Tertiary non-uni (including

apprenticeships)

University

Australia US

Source: OECD

Chart 5 shows Australia’s experience with the higher employability of higher skilled workersis broadly reflected in international experience. In the US, the chances are more than four times greater of being unemployed for those not completing the equivalent of Year 12.




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CHART 5: HERE AND AROUND THE WORLD

University educated male unemploymentas % of below upper 2ndary unemployment

0%

10%

20%

30%

40%

50%

60%

70%

80%

UK US Australia NZ Japan France Canada Italy Korea

Ratio

Source:

OECD, 2002




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3. PROFILE OF VET ACTIVITY

VET activity ramped up notably in the 1990s in New South Wales, but since 2000

student numbers and the number of hours delivered has levelled off. Thatdecline has been more notable in New South Wales than nationally.

In part, the recent decline in VET participation reflects a petering out of supplyside initiatives which were encouraging greater participation in VET in the 1990s.Other factors here are that (1) productivity growth has also slowed, (2) higher student fees and (3), until relatively recently, a strong labour market negatedsome short term training needs by offering attractive short term returns.

In 2004, VET students in New South Wales amounted to 16.3% of total peopleemployed, a participation rate just below the national average. The profile of VET delivered was approximately 50% of training as continuing training (for thosealready in or who have recently joined the workforce), 30% as re-entrant training,

and 20% for New Apprenticeships. Overall some 44% of VET students wereaged under 25.

This report examines publicly funded VET which is one component of the overall skillsdevelopment effort. The extent of publicly funded VET is reported in the national provider collection maintained by the National Centre for Vocational Education Research (NCVER).

This covers all VET delivered by providers in receipt of public funding allocations for VET.This includes:

all VET delivered by TAFE and other government providers;

most VET delivered by multi-sector higher education institutions;

public VET delivered by community education providers; and

public VET delivered by registered private providers.

VET which is fee for service by private providers is outside the scope of this report, as isdelivery of recreation, leisure and personal enrichment activity (‘non-vocational’ programs),as is VET delivered in schools where the delivery has been undertaken by schools.

3.1 TOTAL VET ACTIVITY

In New South Wales in 2004:

there were 517,500 students undertaking publicly funded VET; and

some 112 million hours of VET was delivered to those students.

Chart 6 shows VET participation (the number of VET students as a share of those employed)State by State and nationally in 2004. VET participation in New South Wales is marginallylower than that seen for Australia as a whole.




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CHART 6: PARTICIPATION IN VET BY STATE, 2004

0%

5%

10%

15%

20%

25%

NSW Vic Qld SA WA Tas NT ACT

VET students as share of total employed

Australian average

Source: ABS Labour Force; NCVER National Provider collection

In Chart 6 Victoria stands out as having a VET participation rate which is notably different tothe Australian average. That may in large part reflect Victoria’s industry structure, whichcreates a stronger focus on the vocational skills required for its relatively larger manufacturing workforce. Tasmania and the Northern Territory are also out-performers interms of VET participation of late.

Over the past decade, VET participation in New South Wales has more typically been a little

above the national average rate. Indeed it was so in 2003, but a notable drop in studentnumbers in 2004 saw New South Wales VET participation fall below the national rate.

For both New South Wales and Australia as a whole, VET activity experienced substantialgrowth over the 1990s to 2000, but student numbers and number of hours delivered havelevelled off since then. Chart 7 shows year-by-year growth in the number of VET studentsfor New South Wales from 1981 to 2004.




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CHART 7: GROWTH IN THE NUMBER OF VET STUDENTS, 1981 TO 2004

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

% change in number of

students

New South Wales

1980s average

1990s averageSource: NCVER

For VET activity growth the 1990s were very strong, but so far the 2000s have produced adecline:

average annual growth in the number of NSW VET students over the 1980s was 1.8%per annum;

that jumped notably to 7.3% per annum over the 1990s (with similarly strong growth inVET student numbers being experienced Australia wide); but

average annual growth over the four years since 2000 has been -5.1% for NSW (-1.7%for Australia as a whole).

Contributing factors in this slowdown in VET activity include:

a petering out of supply side initiatives which were encouraging greater participation inVET in the 1990s;

in particular, the push for existing workers (not new entrants) to formalise their skillsthrough attaining qualifications, as encouraged through Training Packages, may bebecoming less significant as a contributor to additional VET activity;

a levelling out in the rate of Australia’s productivity growth following a period of stronggrowth through the 1990s (with productivity growth both encouraging and being

enabled by skills development);

stronger growth in student fees in recent years than had generally been the case over the 1990s; and

individuals assessing there may be less short term need for training as strong labour demand (until recently) allowed some to gain employment or wage rises or movebetween jobs without additional training. Generally, strong economic growth iscomplementary to skills development needs, though from an individual’s perspectiveemployment and training may be competing options in the short term.




15

Note also that the year 2000 may provide somewhat of an artificial peak for VET activity inNew South Wales. Part of the strong growth in training in that year was related to theOlympic Games, with a significant number of people undertaking VET courses associatedwith volunteer work at the Olympics. The Olympics would also have placed demands on theneed for skilled construction workers at that time. However, the recent slowdown in VET in

New South Wales is not only against that peak year – the number of VET students in NewSouth Wales in 2004 is even below 1999 levels.

In terms of the number of hours of VET delivered, New South Wales has seen a decline in2004 of some 5.0%. The level of VET hours delivered however remains a little above year 2000 levels. The average number of VET hours delivered per student in New South Waleshas expanded from 169 in 2000 to 216 in 2004, with a similar expansion seen nationally.

The shift to longer courses in recent years may reflect the job cycle which in recent years hasfavoured blue collar jobs more so than previously, and skills here are often developedthrough long apprenticeships rather than shorter courses of study.

Chart 8 shows the profile of VET students in New South Wales in 2004, with the younger age

cohorts accounting for a notable share of students, particularly for males. Some 48% of male VET students were aged less than 25 while for females the proportion was 39%.Overall, males accounted for 52% of VET students.

CHART 8: VET STUDENTS BY AGE AND GENDER IN NEW SOUTH WALES, 2004

- 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

19& under

20-24

25-29

30-39

40-49

50-59

60+

Female

Male

VET students

3.2 VET ACTIVITY BY CATEGORY

The following pie chart profiles VET activity in the broad categories Access Economics hasused for its projections. These are defined as:

‘New Apprenticeships for new entrants’ covers formal training associated with New Apprenticeships (apprenticeships and traineeships) undertaken by new entrants to theworkforce.




16

‘New Apprenticeships for existing workers’ covers formal training associated withNew Apprenticeships being undertaken by existing workers.

‘Re-entrant training’ covers VET undertaken by those unemployed or not in theworkforce.

‘Continuing training’, the balance, is undertaken by those currently employed (whichincludes some recent labour market entrants who are currently employed and notcaptured through the New Apprenticeships program). In large part this would beup-skilling for existing jobs, but would also include training which allowed andencouraged movement to higher skilled occupations by those already in the workforce.

Chart 9 shows that the bulk of VET hours are servicing the needs of the continuing traininggroup, and those who are unemployed or not in the workforce but are undergoing training toassist in re-entering. The formal VET component of New Apprenticeships is relatively smallin comparison.

CHART 9: SHARE OF VET HOURS BY CATEGORIES, NEW SOUTH WALES, 2004

Continuing Training,

51%

Re-Entrants, 30%

Apprenticeship

Existing Workers, 4%

Apprenticeship New

Entrants, 15%

Share of NSW VET hours, 2004

The Australian shares of VET activity by category are similar to those for New South Wales,with New Apprenticeships a marginally larger component and continuing training a marginallysmaller component for Australia as a whole than for New South Wales.

While a relatively small share of training activity, New Apprenticeships have held their own inrecent years, compared with the overall decline in VET participation seen. Overall New Apprenticeship commencements in New South Wales increased by 16% from 2001 to 2004,consistent with a significant increase in demand for housing construction and renovation, andtherefore building trade skills.

Thus far, 2005 data has shown a moderation in overall New Apprenticeship starts, which isagain consistent with more recent housing sector weakness in 2005 and continuing into




17

2006.2 For the purposes of these projections, interest in New Apprenticeships appears to bestarting from a cyclical high point, given the strong influence exerted by building trade skills.

3.3 QUALIFICATIONS PROFILE

Consistent with VET activity data (which showed a significant ramping up in training over the1990s) is the data on the stock of VET qualifications. This information is drawn from the ABSrather than the National Provider collection, and is only available in occupational detail at thenational level.

Chart 10 provides a brief snapshot of overall qualification levels in Australia over time. Ingeneral the stock of qualifications has been rising over time, particularly for universityqualifications. For VET qualifications, there has been notable growth in the proportion of employed persons who hold a Certificate III or IV as their highest level qualification, againstdeclines of the share for Advanced diploma/Diploma and Certificate II or below. It is likelythat many people whose highest qualification previously was an Advanced diploma or Diploma have moved on to a Bachelor degree. Similarly, many people whose previoushighest qualification was a Certificate II may well have moved on to Certificate III or IV.

CHART 10: EMPLOYED PERSONS BY HIGHEST LEVEL QUALIFICATION, AUSTRALIA, 1997 TO 2005

0%

5%

10%

15%

20%

25%

1997 2001 2005

Bachelor degree or above

Advanced diploma/Diploma

Certificate IV / III

Certificate II or below

% of total persons employed

Data on the stock of qualifications is useful in tracking overall penetration of VET, as well asin examining those people who are potentially over-qualified for the occupation they arecurrently working in. The latter is drawn from Table 2 and is discussed further in Chapter 8.3

2For this report, data on overall VET activity was available up to 2004, and data on New Apprenticeships was

available up to June 2005.

3Note that there have been concerns, accepted by the ABS, that there is a significant tendency by survey

respondents to upgrade or overstate their qualifications, particularly by respondents upgrading VET qualificationsto higher education qualifications. As the qualifications data is not applied within the VET demand modelling,




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Table 2 shows highest level qualification rates for 28 occupational groups.4 The table can beseen as very broadly in order of skill levels of from top to bottom. Key features include:

as one would expect, higher levels of qualifications are more prevalent for the higher skill occupations;

while the trades occupations show a relatively high proportion of employees with VETqualifications, there are also a considerable number with no post-school qualifications(for example, 51% of food tradespersons and 36% of wood tradespersons); and

with the bottom six occupations in the table representing the least skilled, there are areasonable proportion of these workers who have post-school qualifications. Arguably,they may not all be using them to the fullest extent.

other than in calibrating one initiative in the target scenario, such overstatement does not materially affect theVET demand projections presented here.

4These 28 groups are an aggregation of 3-digit ASCO occupational categories, with the classification agreed with

IPART for the reporting of occupational information.




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TABLE 2: EMPLOYED PERSONS BY HIGHEST LEVEL QUALIFICATION, AUSTRALIA, 2005

% of employed persons byoccupation

Bachelor degree

or above

Adv.Dip. or

Diploma

CertificateIII / IV

CertificateII or

below

Nopost

school

Managers and administrators 41% 12% 15% 6% 26%Science and engineering professionals 74% 10% 7% 2% 7%

Accounting, auditing, sales and marketingprofessionals 64% 11% 5% 3% 16%

Computing and information professionals 58% 11% 10% 3% 19%

Health professionals 77% 17% 4% 0% 2%

Education professionals 83% 11% 2% 0% 4%

Artists, social welfare and miscellaneousprofessionals 62% 12% 7% 3% 17%

Medical and science technical officers 28% 17% 15% 8% 31%

Building and engineering associateprofessionals 20% 20% 32% 7% 21%

Business and finance associateprofessionals 31% 14% 15% 7% 33%

Shop, hospitality and other salessupervisors 13% 9% 21% 8% 48%

Enrolled nurses, welfare and other healthprofessionals 24% 32% 33% 2% 9%

Police officers and other associateprofessionals 18% 23% 17% 4% 38%

Mechanical engineering and automotivetradespersons 0% 3% 69% 5% 23%

Fabrication engineering, electrical,plumbing and construction tradespersons 3% 3% 55% 6% 33%

Food tradespersons 6% 4% 33% 6% 51%Printing tradespersons 0% 0% 52% 5% 43%

Wood tradespersons 4% 4% 55% 0% 36%

Hairdressers 0% 0% 71% 6% 23%

Textiles and miscellaneous tradespersons 8% 13% 41% 1% 38%

Advanced clerical workers 14% 10% 11% 16% 49%

Farm managers, horticultural and skilledagricultural workers 6% 9% 20% 10% 55%

General clerks, keyboard operators andother clerks 14% 9% 13% 11% 53%

Intermediate sales and related workers 9% 8% 18% 7% 58%

Carers and aides, hospitality and other

service workers 10% 12% 23% 9% 46%Intermediate production and transportworkers 3% 3% 19% 6% 69%

Elementary clerical, sales and serviceworkers 7% 5% 10% 8% 69%

Labourers and related workers 4% 4% 14% 7% 71%

Total 23% 9% 19% 7% 43%




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4. BASELINE SCENARIO – LABOUR MARKETPROJECTIONS

Employment growth in Australia is expected to slow notably from recent rates, notonly for cyclical reasons (indeed, the latter have already prompted a slowdownfrom recent rapid rates of job growth), but as a key symptom of Australia’s ageingpopulation. The latter is likely to see average labour force participation drop over time.

Over the 20 year forecast period here (2005 to 2025), average growth inemployment is projected at:

• 0.64% per annum for New South Wales; and

• 0.87% per annum for Australia.

Those projections are based on a modest further increase in age cohort labour force participation rates, and with unemployment staying roughly constant ataround 5.0%.

On an industry basis, job generation is expected to be led by business services,community services and recreational services. These are sectors which employa lot of people and have also dominated job creation over the past decade.

On an occupational basis, that would translate into strong demand for the likes of nurses and other community service workers to service Australia’s ageingpopulation, and skilled service jobs generally. There may also continue to begood job growth in lower skilled occupations such as ‘shop, hospitality and other

sales supervisors’ and ‘elementary clerical, sales and service workers’, which willbenefit from continued growth in demand for business and recreational services.

4.1 EMPLOYMENT GROWTH

Australia’s economy has been a strong performer over the past decade and a half. Probablythe strongest hallmark of economic success over this time has been bringing the nationalunemployment rate down from a peak of 11% in 1993 to just 5% of late.

Recent years have seen above average employment growth, with that growth slantedtowards traditionally VET-intensive blue collar sectors. At times of late employment growthhas been faster than overall GDP growth, with a peak in employment growth in mid-2005 and

some moderation since then. New South Wales has experienced similar labour markettrends to those exhibited nationally, but with a lower recent peak in employment growth andnotable moderation since then, in part Australia’s commodity boom has created stronger opportunities in the sun-belt States than it has in New South Wales, and in part because thestrength of the recent housing boom in Sydney reduced inflows of population andencouraged outflows.

While employment growth was very strong at times of late, that was in large part cyclical,related to the strength of construction activity to support (recently strong but now moderating)housing investment and booming business investment.




21

Access Economics expects the next couple of years to show employment moderation acrossthe board, and in particular in those investment linked activities which have been performingstrongly of late. Chart 11 shows Australia’s very strong employment growth performanceover the five years to 2005 (with New South Wales notably less successful), and theexpected moderation over the next five years.

CHART 11: PROJECTED EMPLOYMENT GROWTH, NEW SOUTH WALES AND AUSTRALIA

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2000 2005 2010 2015 2020 2025

New South Wales

Australia

Source: ABS Labour Force; Access Economics

Average annual employment growth over 5 year period (%)

Forecast

Looking further ahead, Australia’s demographic destiny implies slowing overall job growth

due to supply side weakness – population growth is slowing, the baby boomers are ageing,and the unemployment rate is already relatively low. Unless labour force participation ratesby age cohort can increase notably then the rate of employment growth will moderate –which is pretty much the same conclusion reached by the Australian Treasury in its 2002Intergenerational Report (IGR).

Chart 11 shows baseline projections for this report of declining employment growth over time. Consistent with this, the national unemployment rate is projected to stay reasonablysteady over the projections, at around 5.0%.

Over the 20 year forecast period (2005 to 2025) average growth in employment is projectedat:

0.64% per annum for New South Wales; and 0.87% per annum for Australia.

4.2 LABOUR FORCE PARTICIPATION

Chart 12 shows current labour force participation rates for New South Wales by age cohort,with a notable drop-off in participation from age 55 for both men and women. It is in this agecohort (55-59) and the next two (60-64 and 65-69) where there would appear to besignificant potential to lift labour force participation notably in coming years, along with some




22

further increase in male participation for 35-54 year olds which has dropped from previouspeaks over resent years.

CHART 12: CURRENT LABOUR FORCE PARTICIPATION RATES BY AGE, NEW SOUTH WALES

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70+ Total

%

Males

Females

Total

Labour force participation rates 2005 - NSW

Chart 13 shows that over the past decade a lift in labour force participation rates has beenoccurring, with that mostly among those aged 40 or above.




23

CHART 13: PROJECTED AVERAGE LABOUR FORCE PARTICIPATION RATES OVER TIME, NEW SOUTH

WALES

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70+

1995

2005

2025

Labour force participation rates - NSW, total

The baseline forecasts for labour force participation rates to 2025 above are ‘IGR-like’assumptions, involving:

maintenance of similar age based participation rates over time, but

with some continued expansion for age cohorts above 45, where gains have beenmade over recent years. The bulk of these gains in labour force participation are for

females, which again has been the trend over recent years.

4.3 INDUSTRY EMPLOYMENT FORECASTS

Future employment demand by industry will depend on factors such as exposure to the $Aand interest rates, the strength of domestic conditions, sources of competition andtechnological change.

Growth in employment by industry (for 55 industries) is forecast using known relationshipsbetween components of macro final demand and industry employment (based oninput-output data).

A counterfactual estimation is conducted on historical data to determine actual employmentgrowth not picked up by this methodology, for example due to changes in worker productivityand structural changes in the economy. Corresponding adjustments are made to theforecasts. The modelling also allows for some adjustment to be made to the early forecastperiods to allow for any jumping-off problems.

The resulting industry growth rates under the baseline scenario are shown in Table 3 andChart 14.




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TABLE 3: PROJECTED EMPLOYMENT GROWTH BY INDUSTRY GROUP, NEW SOUTH WALES

Average annual growth, 5 years to: 2005 2010 2015 2020 2025

Agriculture -5.4% -1.9% -1.7% -2.2% -2.5%

Mining 5.4% -0.9% -1.1% -1.4% -0.8%

Manufacturing -3.3% -0.2% -1.0% -1.4% -1.6%

Utilities 0.9% 0.7% -1.7% -2.4% -2.7%

Construction 2.5% 0.3% 0.6% 0.5% 0.4%

Wholesale and retail trade 0.9% 0.9% 0.6% 0.3% -0.1%

Transport and storage 1.6% 1.1% 0.3% 0.0% -0.3%

Communication 1.5% -0.1% 1.0% 0.4% -0.2%

Finance and insurance 2.1% -0.1% 0.2% 0.0% -0.2%

Property and business services 2.5% 1.8% 1.7% 1.8% 1.9%

Public administration 8.0% 0.3% 0.0% -0.3% -0.5%

Community services 2.5% 2.4% 1.5% 1.1% 0.7%

Recreational services 2.8% 1.6% 1.2% 1.1% 1.0%

Total 1.4% 1.0% 0.7% 0.5% 0.4%

Chart 12 shows only three industry groups are projected to show employment growth over the next 20 years above the economy wide average, but they are sectors which employ a lotof people and have also dominated employment creation over the past decade:

Business services are set to continue to deliver strong job growth. The globaleconomy continues to perform strongly, while the sector benefits from the continuedtrend towards outsourcing and the strong trend growth of the information economy.

Community services (which includes health and education services) is set to becomemore important as a job generator, with an ageing population and rising incomesplacing such services at a premium. Aged care services in particular will experiencestronger demand.

Recreational services are likely to remain a key job generator. The key growth driver for the industry is that it benefits strongly from rising consumer incomes, attracting anotable share of each extra dollar spent. And the industry relies on people (it is labour-intensive), so more output growth means more jobs.




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CHART 14: RANK OF PROJECTED EMPLOYMENT GROWTH BY INDUSTRY

-2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%

Property and business services

Community services

Recreational services

Total

Construction

Wholesale and retail trade

Transport and storage

Communication

Finance and insurance

Public administration

Mining

Manufacturing

Utilities

Agriculture

Average annual employment growth,

2005 to 2025

Construction is next on the list for job growth, with some likely employment moderation inthe short term followed by a stronger performance thereafter. The trend towards Australiansinvesting more in their own homes is a positive one for longer term job gains.

Along with the general trend towards slowing overall job growth, some industries are moreexposed to the business cycle than others. That means job growth will remain variable over time, especially in some sectors. That can have important implications for planning futuretraining needs. For example, construction is highly cyclical, so current activity is often not agood guide of future training needs.

4.4 OCCUPATIONAL EMPLOYMENT FORECASTS

Forecasts for industry employment are translated into occupational employment forecasts(for 81 occupations) using 2001 Census data which shows the occupational employmentshare for each of the industry groups examined. For forecasts, these shares are allowed tochange over time, with the change in shares between the 1996 and 2001 Censuses used asa guide.

Information on employment levels by occupation and changes in employment by occupation

form the key link in the modelling between labour market developments and VET activity(classified by occupation).

The resulting industry growth rates under the baseline scenario are shown in Table 4 andChart 15.

Strong demand is expected for the likes of nurses and other community service workers toservice Australia’s ageing population, while computing professionals are also expected tomaintain strong demand.




26

The majority of occupations on Chart 15 where future jobs growth is projected to be abovethe national average are at the high skill end of the spectrum. Exceptions are for ‘shop,hospitality and other sales supervisors’ and ‘elementary clerical, sales and service workers’,which will benefit from continued growth in demand for business and recreational services.

Workforce structure changes can be a key influence on VET demand, especially where thereis notable movement to and from occupations which are intensive users of VET. Across theeconomy, a number of such trends can in effect cancel each other out in aggregate in termsof VET demand. That can leave overall VET demand more closely linked to aggregateemployment demand if that is the case.

CHART 15: RANK OF PROJECTED EMPLOYMENT GROWTH BY OCCUPATION

-1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

Enrolled nurses, welfare and other health professionalsComputing and information professionals

Carers and aides, hospitality and other service workersHealth professionals

Artisits, social welfare and miscelaneous proessionalsFood tradespersons

Business and finance assocaite professionalsElementary clerical, sales and service workers

Shop, hospitality and other sales supervisorsPolice officers and other associate professionals

Education professionalsTotal

Hairdressers Accounting, auditing, sales and marketing professionals

General clerks, keyboard operators and other clerksEngineering, electrical, plumbing and construction

Managers and administratorsMedical and science technical officers

Labourers and related workersScience and engineering professionals Advanced clerical workers

Intermediate sales and related workersIntermediate production and transport workers

Printing tradespersonsMechanical engineering and automotive tradespersons

Building and engineering associate professionalsWood tradespersons

Textiles and miscellaneous tradespersonsFarm managers, horticultural and skilled agricultural workers

Average annual employment growth,2005 to 2025




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TABLE 4: PROJECTED EMPLOYMENT GROWTH BY OCCUPATION GROUP, NSW

Average annual growth, 5 years to: 2005 2010 2015 2020 2025

Managers and administrators 8.1% 1.0% 0.5% 0.3% 0.2%

Science and engineering professionals 3.6% 0.7% 0.4% 0.2% 0.0%

Accounting, auditing, sales andmarketing professionals 3.2% 0.7% 0.6% 0.5% 0.4%

Computing and information professionals 0.3% 2.1% 1.7% 1.8% 2.0%

Health professionals 1.6% 1.8% 1.5% 1.1% 0.8%

Education professionals 2.2% 1.5% 0.9% 0.4% 0.0%

Artists, social welfare and miscellaneousprofessionals 3.0% 1.3% 1.2% 1.1% 1.1%

Medical and science technical officers 2.8% 0.8% 0.8% 0.3% 0.0%

Building and engineering associateprofessionals 1.5% -0.1% -0.3% -0.5% -0.4%

Business and finance associateprofessionals 7.6% 1.2% 1.0% 0.9% 0.9%

Shop, hospitality and other salessupervisors 3.0% 1.3% 1.0% 0.8% 0.6%

Enrolled nurses, welfare and other healthprofessionals 7.2% 3.6% 2.2% 1.9% 1.6%

Police officers and other associateprofessionals 5.8% 0.4% 0.9% 0.8% 0.7%

Mechanical engineering and automotivetradespersons 0.0% 0.2% -0.1% -0.4% -0.6%

Fabrication engineering, electrical,plumbing and construction tradespersons 0.6% 1.2% 0.5% 0.2% 0.2%

Food tradespersons -2.0% 2.4% 0.9% 0.5% 0.3%

Printing tradespersons -11.2% 0.9% -0.3% -0.6% -0.6%

Wood tradespersons -4.1% 0.1% -0.2% -0.6% -0.8%Hairdressers 0.8% 1.2% 0.5% 0.3% 0.2%

Textiles and miscellaneoustradespersons 1.5% 0.0% -0.3% -0.6% -0.9%

Advanced clerical workers -0.8% 0.5% 0.2% -0.1% -0.3%

Farm managers, horticultural and skilledagricultural workers -2.7% -1.1% -1.1% -1.3% -1.5%

General clerks, keyboard operators andother clerks -2.4% 1.0% 0.6% 0.3% 0.2%

Intermediate sales and related workers -2.2% 0.7% 0.1% -0.3% -0.6%

Carers and aides, hospitality and other service workers 1.8% 2.1% 1.6% 1.3% 1.1%

Intermediate production and transportworkers 0.9% 0.3% 0.1% -0.2% -0.4%

Elementary clerical, sales and serviceworkers 3.0% 1.2% 1.2% 0.9% 0.7%

Labourers and related workers -1.3% 1.0% 0.4% 0.3% 0.2%

Total 1.4% 1.0% 0.7% 0.5% 0.4%




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4.5 REGIONAL DIMENSION

The projections of VET demand have been developed at both the Australian and New SouthWales levels.

Yet within New South Wales there is likely to be some variability in training demand at theregional level, thanks to different age structures, different population growth rates, differentoccupational profiles for employment, as well as differences in the regional distribution of theunderemployed population and the extent of training infrastructure available.

It is not possible to report VET demand at the regional level in this report, but some broadthoughts on regional employment profiles are noted here.

4.5.1 S YDNEY AND THE REGIONS

Councillor Peter Woods OAM, President of the Local Government Association of NSW,noted at a 2001 Sydney Population Forum that NSW had five distinguishable regions:

Established/global Sydney: the areas closely integrated with the global economy andthe information economy – eg CBD, North Sydney, Southern Sydney, EasternSuburbs, Chatswood and other inner ring suburbs.

Developing Sydney: Western and South Western Sydney and the Central Coast.

Post-industrial regions: the Hunter and Illawarra.

Lifestyle regions: north coast and to a growing extent, south coast of NSW.

Rural NSW: largely west of the Great Dividing Range.

The ‘Greater Sydney’ region (excluding Newcastle and Wollongong, but including Camden,Penrith and Windsor) is now home to well over 4 million people. The city (whose boundarieshave gradually expanded) has grown to measure:

50,000 residents by the late 1840s;

100,000 by the mid-1860s;

500,000 by 1900;

1 million by the early 1920s;

2 million by the late 1950s;

3 million by 1990;

4 million in the 2001 census.

Its underlying national population growth rate means that Sydney’s population is likely to riseabove 5 million within in the next 20 years. This will occur even with the large outflow of

migrants to other States, as Sydney is still the major point of entry to Australia for overseasmigrants.

Yet despite its attractiveness for new arrivals from overseas, Sydney’s share of Australia’spopulation has been in decline for some time. The 1971 census found Sydney had 22.0% of Australia’s population. Thirty years on, its share was 21.1% (see Chart 16).




29

CHART 16: S YDNEY'S SHARE OF NEW SOUTH WALES’ POPULATION

45

50

55

60

65

70

1941 1951 1961 1971 1981 1991 2001 2011 2021 2031

Base Upside

Source: ABS, Access Economics

Share of NSW (%)

Forecast

Breaks in series due to re-definition of "Sydney

region" by ABS

First , how ‘Sydney’ is defined has changed over time – gradually increasing as the cityexpanded. Chart 16 shows Sydney as a share of the State’s population since 1941. Notethat a definition change saw a jump in Sydney’s measure of NSW’s population during the1950s. There has been little change in the definition of Sydney since 1971, so some actualSydney growth has occurred outside the geographic boundaries of the city.

CHART 17: NEW SOUTH WALES' SHARE OF POPULATION, OUTPUT AND MIGRATION

30

32

34

36

38

40

42

44

46

48

50

1988 1990 1992 1994 1996 1998 2000 2002 2004

International migration

Output

Population

Source: ABS, Access Economics

NSW share of total (%)




30

Second , Sydney’s high housing prices have encouraged existing residents to trade-in their Sydney home for a ‘sea-change’ lifestyle elsewhere, either in retirement or while still working.Despite the job opportunities it offers, Sydney’s higher prices have traditionally acted as abarrier to entry for people considering moving from other States.

4.5.2 POSSIBLE REGIONAL DIFFERENCES

Both demand and supply side drivers have an impact on participation – and therefore on thedemand for VET at the regional level.

The discussion here starts with demand drivers, including job demand by industry and byregion.

Access Economics has developed employment forecasts by industry for NSW. These arebased on ABS LFS data, and follow our long-established methodology. Our approachdirectly links industry output (and employment) with components of final demand.

But NSW’s regions have different industry profiles than does the State as a whole. Some are

more exposed to particular industries than others. And that exposure can also change over time. That is important because, as discussed above, some industries are projected to growfaster than others, which may have an impact on job growth (and therefore participationrates) by region.

As noted in the above two sections, Access Economics projects broadly faster job growth inthe service sectors than in the goods sectors (farming, manufacturing and mining). Withinservice sectors, the fastest growth is seen in ‘luxuries’ such as cafes and restaurants andcultural services, or in demographic-driven areas such as health. Given the outlook for farming in particular, the relative industry growth profile here points to faster job gains inSydney than in regional NSW.

As a result, and partly also in response to the supply side drivers discussed next, Access

Economics projects employment growth over the next decade to be rather faster in Sydneythan in regional NSW.

Moreover, these results need to be seen within the context of a State-wide and nationalslowdown in overall employment growth. Or, in other words, regional NSW will not merelysee relatively less job gains within a fast growing State total. Rather, it will see particular weakness within an overall slowdown at the State and national levels.

On the supply side, both overall population and the supply of labour are influenced by:

Birth rates.

Migration (including interstate migration).

Life expectancy.

The changing age structure of the population.

Changing relative participation by age, gender, and cultural background.

Education levels.

The demand for labour (employment).

Given the first five of the above factors, population growth has already slowed, and it willslow further. In addition, overall participation rates are set to move down in response to the




31

retirement of the baby boomers. The next decade will therefore be a crunch point in NSW’sdemographics.

Access Economics projects a worsening in participation in both Sydney and regional NSW.However, that worsening in participation will be concentrated in regional NSW (especially

rural NSW), given both demand pull (its slower job growth) and supply push (its older ageprofile).

In turn, that points to a greater need for, but probably slower growth in, the use of VET inregional NSW than in Sydney over the next decade.




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5. ADDITIONAL LABOUR MARKET INFLUENCES ONFUTURE TRAINING NEEDS

While net employment growth trends are a key influence, the gross number of people entering an occupation (including to replace those who retire, or leave for some other reason such as normal turnover), may be more important inassessing training requirements. These are accounted for here in developingprojections for future VET.

The rate of retirement is expected to grow steadily over the next two decades asmore boomers head into retirement, with rates rising from 1.7% per annumcurrently to 2.0% per annum in 2025. Access Economics estimates that theaverage rate of staff turnover across occupations which may create a trainingneed is around 4.5% per annum.

A continuation of the trend towards greater part-time and greater casual or self-employment is also likely to be a positive for VET demand, as:

• it means that more people have to be trained for any given amount of work for part-time, and because

• casual employees may receive less on-the job-training, making them morelikely to seek out the types of VET training considered in this report.

The part-time share of the workforce is projected to grow from 29% of thoseemployed in 2005 to 39% of those employed in 2025, while the casual and self employed share of the workforce is projected to grow from 41% of thoseemployed in 2005 to 47% of those employed in 2025.

Finally, increased workforce longevity as age cohort labour force participationrates rise will also provide a stimulus to VET demand in both the baseline andtarget scenarios, as longer stays in the workforce imply increased re-skilling andup-skilling needs.

5.1 RETIREMENTS

The projected net change in employment by occupation is translated into the gross number of people entering an occupation by allowing for projections of retirements and normalturnover. National workforce participation rates by age and Census data of observedretirements by age are used to estimate the rate of retirement for each occupation.

A retirement can be seen as creating a training need with a net new entrant needed toreplace the retiree before accounting for any jobs growth. Given Australia’s ageingpopulation, it will become a more important issue over time – especially over the next 20years, a period over which most of the baby boomers will retire.

Table 5 shows projected retirement rates by occupational group over the next 20 years. Ingeneral, projected retirement rates are expected to remain steady or gradually increase over time, depending on each occupations’ current age structure and observed labour force exitsfrom occupations over time.




33

TABLE 5: PROJECTED RETIREMENT RATES BY OCCUPATION GROUP

Average annual retirement rate (%) 2005 2010 2015 2020 2025

Managers and administrators 2.2% 2.3% 2.4% 2.6% 2.8%

Science and engineering professionals 1.8% 1.8% 1.9% 2.0% 2.1%

Accounting, auditing, sales andmarketing professionals 1.3% 1.3% 1.3% 1.4% 1.4%

Computing and information professionals 1.3% 1.2% 1.3% 1.3% 1.4%

Health professionals 1.9% 1.7% 1.7% 1.7% 1.8%

Education professionals 2.3% 2.2% 2.3% 2.5% 2.8%

Artists, social welfare and miscellaneousprofessionals 1.6% 1.5% 1.5% 1.5% 1.6%

Medical and science technical officers 1.6% 1.6% 1.7% 1.8% 2.0%

Building and engineering associateprofessionals 2.0% 2.2% 2.5% 2.8% 3.1%

Business and finance associateprofessionals 1.8% 1.8% 1.8% 1.9% 2.0%

Shop, hospitality and other salessupervisors 2.0% 2.0% 2.0% 2.1% 2.2%

Enrolled nurses, welfare and other healthprofessionals 1.5% 1.4% 1.4% 1.3% 1.3%

Police officers and other associateprofessionals 1.2% 1.3% 1.4% 1.6% 1.8%

Mechanical engineering and automotivetradespersons 1.5% 1.6% 1.7% 1.9% 2.1%

Fabrication engineering, electrical,plumbing and construction tradespersons 1.4% 1.4% 1.4% 1.5% 1.6%

Food tradespersons 1.5% 1.4% 1.5% 1.6% 1.7%

Printing tradespersons 2.1% 2.1% 2.3% 2.6% 2.9%

Wood tradespersons 1.3% 1.4% 1.4% 1.4% 1.5%Hairdressers 0.8% 0.8% 0.9% 1.0% 1.2%

Textiles and miscellaneoustradespersons 1.6% 1.7% 1.8% 1.9% 2.2%

Advanced clerical workers 1.9% 1.9% 2.1% 2.3% 2.5%

Farm managers, horticultural and skilledagricultural workers 3.5% 3.7% 3.9% 4.2% 4.5%

General clerks, keyboard operators andother clerks 1.5% 1.6% 1.7% 1.8% 2.0%

Intermediate sales and related workers 1.8% 1.9% 2.1% 2.3% 2.6%

Carers and aides, hospitality and other service workers 1.3% 1.3% 1.3% 1.3% 1.4%

Intermediate production and transportworkers 2.0% 2.1% 2.2% 2.4% 2.7%

Elementary clerical, sales and serviceworkers 1.2% 1.1% 1.2% 1.2% 1.2%

Labourers and related workers 1.8% 1.9% 1.9% 2.0% 2.2%

Total 1.7% 1.7% 1.8% 1.9% 2.0%




34

The greatest replacement need pressure due to retirements is expected to come fromfarmers, education professionals, building and engineering associate professionals,teachers, general managers and printing tradespersons.

Across all occupations, the expected retirement rate is expected to increase from 1.7% per

annum currently to 2.0% per annum in 2025.

5.2 OTHER STAFF TURNOVER

People leave their occupations for many reasons other than retirement, with some of thesehaving implications for training. Staff turnover may reflect:

movement to a role with a different skill set (requiring training);

movement to another occupation but using the same skills (not requiring training); or

time out of the workforce (perhaps requiring re-training on return).

Some turnover may be involuntary. Indeed, it is possible that a greater supply of trainedworkers may create some turnover, as – at the margin – businesses may be more likely todismiss some existing employees when there is a larger pool of newly trained workers fromwhom replacements can be hired. Data on staff turnover is obtained from the ABS Labour Mobility survey. Some of this turnover will be associated with a training need while much willnot. From a training perspective, what would be the ideal measure of replacement demandto apply?

Those who are moving between jobs but staying within the same occupational category(based on the categories shown in Table 6) are seen as likely to already have the skillrequirements for their new job. They will continue to have up-skilling needs over time, butare unlikely to need additional training related to their new job.

Looking at changes between occupations, in the training context, one would like to ascertainwhat proportion of new entrants to an occupation currently do not have the skills for thatoccupation. That will imply a different set of VET course requirements to cater for thechanging occupational structure of employment. A labour market proxy for those who dohave the skills for that occupation may be those new entrants who have some timepreviously worked in the same or a very similar occupation. Unfortunately, there is no datasource which informs us if people entering an occupation have previously worked in thatoccupation:

An appropriate measure of replacement to be used in the context of estimatingdemand for training could be replacement for those retiring, moving to unemploymentor moving to other occupations, less those who are entering the occupation fromeither the same skill level or a higher skill level.

Essentially, this amounts to a measure similar to gross replacement demand, but one whichnets off the estimated replacement for training that share of positions filled by those movingfrom the same skill level or higher skill level occupations. Intuitively, this suggests there maybe a training need for those entering an occupation from a lower skill level, but when movingbetween occupations at the same skill level, or moving from a higher skill, that does notnecessarily imply a training demand.




35

TABLE 6: OTHER STAFF TURNOVER, PROXY FOR TRAINING DEMAND

Annual rate (%) Exitoccupation tounemployment

Exitoccupationto another

occupation

Less:entry from

same or

higher level skill

Proxy of replacementfor training

Managers and administrators 1.6% 3.6% 1.2% 4.0% Science and engineering professionals 1.4% 1.2% 1.5% 1.1% Accounting, auditing, sales and marketingprofessionals 1.9% 3.5% 1.0% 4.4% Computing and information professionals 1.9% 3.5% 1.0% 4.4% Health professionals 0.7% 0.8% 0.0% 1.5% Education professionals 2.7% 1.3% 0.4% 3.6% Artists, social welfare and miscellaneousprofessionals 2.0% 3.0% 0.7% 4.3% Medical and science technical officers 0.0% 1.9% 0.0% 1.9%

Building and engineering associateprofessionals 1.5% 5.5% 1.6% 5.3% Business and finance associateprofessionals 0.9% 4.4% 2.7% 2.6% Shop, hospitality and other salessupervisors 2.0% 5.7% 1.8% 5.9% Enrolled nurses, welfare and other healthprofessionals 0.0% 1.9% 0.0% 1.9% Police officers and other associateprofessionals 1.2% 2.4% 0.0% 3.6% Mechanical engineering and automotivetradespersons 1.9% 2.1% 2.1% 1.9%

Fabrication engineering, electrical,plumbing and construction tradespersons 2.0% 2.7% 0.9% 3.8% Food tradespersons 2.3% 11.1% 1.2% 12.2% Printing tradespersons 1.3% 2.6% 1.6% 2.4% Wood tradespersons 1.3% 2.6% 1.6% 2.4% Hairdressers 1.3% 2.6% 1.6% 2.4% Textiles and miscellaneous tradespersons 1.3% 2.6% 1.6% 2.4% Advanced clerical workers 1.0% 4.7% 1.5% 4.2% Farm managers, horticultural and skilledagricultural workers 0.9% 2.4% 0.6% 2.6% General clerks, keyboard operators andother clerks 2.3% 5.2% 4.3% 3.2%

Intermediate sales and related workers 2.1% 7.5% 1.6% 8.0% Carers and aides, hospitality and other service workers 2.7% 8.6% 2.9% 8.4% Intermediate production and transportworkers 2.8% 6.0% 4.9% 3.8% Elementary clerical, sales and serviceworkers 4.2% 10.8% 5.9% 9.1% Labourers and related workers 5.4% 9.1% 9.4% 5.1%

Total 2.4% 5.1% 3.0% 4.5%




36

For example, a plumber who decides to open his own business and become a manager maywell require some training in business administration. However, if that same person decidesto close his business and go back to working for someone else as a plumber, he does notnecessarily require further training as a plumber.

Of course, there will be many exceptions, where people moving up in skill level don’t requiretraining, or those moving down in skill level do require training. But such a measure may becloser to the mark as an estimate of training demand than other options.

Table 6 suggests that the average rate of staff turnover across occupations which maycreate a training need is around 4.5% a year. As one might expect, turnover tends to behigher for the lower skilled occupations, while for the highest skill occupations, there arerelatively fewer people leaving for reasons other than retirement.

For the VET projections which follow, this turnover estimate is not equated one-for-one withtraining needs, but combined with measures of actual VET undertaken.

5.3 PART-TIME SHARE OF THE WORKFORCE

The part-time/full-time split of employment is subject to cyclical and trend influences:

The trend over the last decade and more has been for a greater share of work to beperformed on a part-time or casual basis.

As a cyclical counter to this trend towards part-time, much of the strong job growth Australia has experienced of late has been in full-time jobs, consistent both with beingat the peak of the employment cycle in 2004-05, and the fact recent job gains havebeen centred on the construction industry and (until recently) associated manufacturingsectors.

Access Economics’ labour market forecasts are for the share of total jobs which are part-timeto generally continue to rise over the forecast period, save for cyclical periods when

construction and related activities are strong. Projections by broad occupational group areshown in Chart 18.




37

CHART 18: PROJECTED PART-TIME SHARE OF THE WORKFORCE BY OCCUPATION

0%

10%

20%

30%

40%

50%

60%

70%

80%

Managers and

administrators

Profess iona ls Associate

professionals

Tradespersons

and related

workers

Advanced clerical

and service

workers

Intermediate

clerical and

service workers

Intermediate

production and

transport workers

Elementary

clerical, sales

and service

workers

Labourers and

related workers

Total

2005

2025

Part time share of the workforce

In total, the part-time share of the workforce is projected to grow from 29% of thoseemployed in 2005 to 39% of those employed in 2025. That will represent both demand andsupply factors – employers interested in a flexible workforce, employees (especially ageingboomers) increasingly interested in part-time rather than full-time attachment to the jobmarket.

The continuing rise in the part-time share also goes hand in hand with the continued growth

in consumer service industries, such as retail, hospitality and entertainment – industrieswhich can more readily offer part-time jobs, and industries which see large seasonal peakloads (such as Christmas and post-Christmas shopping).

The upward trend in women’s workforce participation has tapered off, a trend which hadencouraged more part-time jobs. In the future, more part-time jobs may come fromincreasing student participation in the workforce, but mainly via a greater number of older workers who use part-time work as a stepping stone to retirement.

Part-time workers add to overall VET demand as more people, and therefore more skills, arerequired to perform a given number of hours of work than previously.

How much additional training is required depends on the average number of hours done by a

part-timer. At present this is around 40% of full-time hours, with this measure projected tostay nearly constant. Data on average part-time hours by age cohort was examined andfactoring in Australia’s ageing trend produced very little change in this measure over time.

5.4 CASUAL AND SELF EMPLOYED SHARE OF THEWORKFORCE

The projections make allowance for a continuing trend towards casualisation of the workforce(estimated from examining past trends by broad occupational group). The Australian Bureau




38

of Statistics (ABS) defines casual employees as those employees who do not receive paidsick or holiday leave.

Chart 19 shows the current share of employees by broad occupation who are either employed on a casual basis or who are self employed (both groups do not have access to

standard leave provisions). Many of these employees would overlap with the part-time shareshown above.

The historic trend towards casualisation has been driven by an increase in the number of casually employed males. The proportion of male employees who were casual increasedfrom 15% to 21% over the period 1993 to 2003, while the proportion of women remainedrelatively stable, increasing from 30% to 31% over the same period. The growth in casualemployment for males has been driven by demand for workers in occupations such aselementary clerical, sales and service and labourers.

CHART 19: PROJECTED CASUAL AND SELF EMPLOYED SHARE OF THE WORKFORCE BY

OCCUPATION

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Managers and

administrators

Profess ionals Associate

professionals

Tradespersons

and related

workers

Advanced

clerical and

service workers

Intermediate

clerical and

service workers

Intermediate

production and

transport

workers

Elementary

clerical, sales

and service

workers

Labourers and

related workers

Total

2005

2025

Casual and self-employed share of workforce (%)

Based on past trends, the total casual and self-employed share of the workforce is projectedto grow from 41% of those employed in 2005 to 47 of those employed in 2025.

This raises demand for publicly funded VET on the view that casual employees may receive

less on-the-job training than permanent employees. That may provide the need to drawmore heavily on publicly funded training to compensate and keep skills relevant. Other factors suggesting a higher training need are that casual employees may change jobs moreoften and hence need a broader skills set, and casual employees have more time to pursuefurther training in response to higher productivity requirements in the labour market.

A recent study by Richardson and Liu (2005) found that most types of training acquired onthe job are systemically and substantially less for casual employees compared with




39

permanent employees. This increases the likelihood of casual workers drawing uponpublicly funded training.

5.5 PRODUCTIVITY

Allowance is made in the modelling for movement to a higher rate of productivity growth todrive additional training needs.

Productivity growth assumptions used in the projections are:

1.75% per annum for the baseline scenario (which is seen as broadly consistent withrecent experience in Australia); and

2% per annum for the target scenario.

Note that productivity growth only has an effect on additional training needs in the targetscenario, as continuing the same rate of productivity growth (as in the baseline scenario) isconsistent with current rates of VET participation for up-skilling.

5.6 WORKFORCE LONGEVITY

Allowance is made in the modelling for employees to have longer working lives. As labour force participation increases among older age cohorts, so will the average working life, whichimplies some additional continuing training in order to keep skills relevant.

This effect comes into play in both the baseline and target scenarios. Based on projectionsfor labour force participation rates as noted earlier in this chapter for the baseline scenario,and as outlined in Chapter 8 for the target scenario, the average working life of an employeeby 2025 may be:

3.3% longer in the baseline scenario; and

6.6% longer in the target scenario (thanks to higher labour force participation rates

among older age cohorts).

5.7 SUPPLY SIDE INFLUENCES ON VET ACTIVITY

A variety of VET policy initiatives have been implemented over recent years which have beensignificant in encouraging greater participation in publicly funded VET. These include theNew Apprenticeships system, the implementation of National Training packages,development of the Australian Qualifications Framework, and user choice policy.

While it is often difficult to attribute specific VET activity to specific policy initiatives,collectively such initiatives were successful in raising participation in publicly funded VET wellbeyond that which would be explained by workforce developments, as least over the 1990s.

Further increases in VET participation may arise as a result of policy initiatives, particularlyas training packages penetrate non-traditional industry sectors. However, there has alsobeen an element of ‘catch-up’ in policy driven VET activity in recent years (workersupgrading their qualifications after a long period without formal training).

That same intensity of ‘catch-up’ cannot be expected to be maintained to the same degree inthe future.




40

Indeed, it may have already begun to ease back. The very modest growth performance of VET in recent years suggests that policy initiatives are no longer having a powerful influencein lifting participation. Given this levelling out in activity, and the fact that further policyinitiatives are difficult to project, they are absent from the baseline forecasts (though Chapter 8 discusses some possible VET policy initiatives in the target scenario).




41

6. BASELINE SCENARIO – PROJECTED VET ACTIVITY

The projections for VET activity in the baseline or IGR scenario are for overall

modest growth. Over the 20 year period (2005 to 2025) for New South Wales theprojections are for:

– average growth in the number of VET students of 0.98% per annum; and

– average growth in the number of VET hours of 1.08% per annum.

That is faster growth for student numbers than has been achieved recently, andfaster than expected employment growth, but notably slower than VET activitygrowth over the 1990s.

A declining trend in overall employment growth is the key driver of moremoderate VET demand over time. In addition, a cyclical downturn in demand

growth for trade skills over the short term is another negative.

Projections for the composition of VET activity are for a shift towards continuingtraining and catering for re-entrants, at the expense of New Apprenticeships.Relatively little workforce growth means relatively less need for the latter. Thatalso means the age profile of VET students will change over time. Overall, some39% of VET students are projected to be under 25 in 2025, compared with 44%in 2004.

This chapter reports projected VET activity under the baseline or IGR scenario. The primaryfocus is on projections for New South Wales, with projections for Australia as a whole shownas a point of comparison in some cases.

Chart 20 shows projected growth in the number of VET students over time in terms of fiveyear average growth rates. The period to 2005 is historical (though an Access Economicsestimate for activity in 2005 is used, as VET activity data for 2005 was not released at thetime of preparing this anaysis).

Even with some recovery in VET student numbers factored in for 2005, the five year averagegrowth rate for New South Wales is still a notable negative.

The forecasts suggest the period to 2010 may also be a modest one in terms of growth in thenumber of VET students in New South Wales. In large part, that reflects 2005 (as thestarting point for this period) being a cyclical high point in terms of overall employmentgrowth, with the rate of employment growth a key driver of overall VET demand. For VET

demand, the moderation now underway in housing construction from a cyclical high in late2004 is also a negative in the early part of the forecast period.

Beyond the initial downturn in the forecast period, employment growth and VET demandrecover but then gradually moderate over time. That gradual decline is consistent with theprofile shown in Chart 11 earlier of moderating employment growth over time.




42

CHART 20: PROJECTED GROWTH IN VET STUDENTS, AUSTRALIA AND NEW SOUTH WALES

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

2005 2010 2015 2020 2025

New South Wales

Australia

Average annual growth in number of VET students over 5 year period (%)

Over the 20 year forecast period (2005 to 2025) average growth in the number of VETstudents is projected at:



Chart 21 shows a similar pattern for forecasts of VET hours. The period to 2005, which is

largely publicly released historic data (complete data will be released in the coming months),showed greater strength in hours of VET activity than students (an increasing course lengthon average was consistent with relatively stronger demand for trade skills over this period).

Over the forecasts there is some cyclical movement from year to year in average hours per VET student, and a only a moderate continuation of the trend increase – average hours per student are projected at 223 in 2025, a little above the 216 recorded in 2004. That is, whilethe workforce is expected to change structure as outlined in Chapter 4, and those changeswill make some VET courses more popular than others, the net effect is for relatively littlechange in the average length of courses.

Over the 20 year forecast period considered here (2005 to 2025), average growth in thenumber of VET hours is projected at:






43

CHART 21: PROJECTED GROWTH IN VET HOURS, AUSTRALIA AND NEW SOUTH WALES

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2005 2010 2015 2020 2025

New South Wales

Australia

Average annual growth in number of VET hours over 5 year period (%)

Chart 22 shows the projected VET participation rate (VET students as a share of thoseemployed) over time, with a gradual increase over the forecasts to 17.8% in 2025 for NewSouth Wales, and 18.7% for Australia. That compares with the year 2000 high point of 21%for NSW and 19% for Australia as a whole (noting there were some special factors pushingup VET participation in NSW in that year related to the Olympic Games).

CHART 22: VET PARTICIPATION RATE OVER TIME, AUSTRALIA AND NEW SOUTH WALES

0%

5%

10%

15%

20%

25%

1995 2000 2005 2010 2015 2020 2025

New South Wales

Australia


Forecast




44

As a further summary measure, an estimate can be made of VET’s share of GDP (GrossDomestic Product) or GSP (Gross State Product) on these projections.

Applying the total cost of VET delivered in New South Wales in 2004 ($1.535 billion includinggovernment and student contributions) against estimates of GSP suggests the cost of

delivering VET accounted for around 0.51% of GSP in New South Wales in 2004.

Dividing this cost by total hours of VET activity (111.6 million) produces a unit cost for delivering VET of $13.76 per hour of training provided. Projecting this cost forward at 3.5%per annum (a premium to CPI growth, given the labour-intensive nature of VET teaching, andthe potential for productivity growth to be lower than in some other sectors) and applying theprojected level of VET delivered in 2025 (146.1 million hours) leads to a projected cost of New South Wales VET in 2025 of $4.1 billion.

That would amount to 0.50% of NSW’s GSP in 2025 – marginally below the estimate for 2004 – where GSP had grown in line with the sum of projected employment, productivity andprice growth.

The composition of VET growth can be analysed in a number of ways, with the followingshowing VET growth in terms of:

categories of VET activity;

composition of economic drivers;

age and gender of those undertaking VET; and

training delivered by occupational group.

Chart 23 shows categories of VET activity with a modest shift in the composition of overallVET activity towards continuing training and catering for re-entrants, at the expense of New Apprenticeships. Relatively little workforce growth means relatively less need for the latter.

Even in this baseline scenario, workforce longevity is increasing, raising the need for up-skilling over time, while the maintenance of an unemployment rate above 5% against slowingworkforce growth means the more VET-intensive re-entrants account for a growing share of VET activity.

Over the 20 year forecast period (2005 to 2025) average annual growth in VET hours by VETcategory is projected at:

1.3% for continuing training;

1.6% for re-entrants; and

-0.9% for New Apprenticeships.




45

CHART 23: COMPOSITION OF VET ACTIVITY, NEW SOUTH WALES

Table 7 examines the composition of VET growth in terms of its economic drivers. Key

points are: changes in aggregate employment growth are a key influence for VET demand, but

one which is moderating over time;

changes in the composition of the workforce are a clear negative for VET demandinitially – more so in NSW than Australia as a whole. This reflects a relative movementin jobs away from VET-intensive occupations and towards occupations which are lessVET-intensive. Most notably, this is caused by a cyclical downturn in demand for tradeskills over the short term. That downturn has arguably already begun in New SouthWales. Beyond the short term, such trends are a positive for VET demand, led bystrong demand for service sector workers over the longer term, such as for nurses andcare staff, business support workers and hospitality;

trends towards increased workforce longevity, increased casualisation and a higher part-time share of the workforce are all positive for VET demand, with continuation of the part-time trend the most significant.

Note that there is no specific allowance in the above forecasts for additional policy-drivenVET activity, such as a broader implementation of Training Packages, as supported faster growth in VET activity through the 1990s.

TABLE 7: DRIVERS OF GROWTH IN VET HOURS, NSW

Average annual growth, 5 years to: 2010 2015 2020 2025

Aggregate employment 1.0% 0.7% 0.5% 0.4%

Workforce structure changes -0.9% 0.2% 0.3% 0.3%

Workforce longevity 0.2% 0.1% 0.1% 0.1%Casualisation 0.1% 0.1% 0.1% 0.1%

Part-time 0.2% 0.3% 0.2% 0.2%

All other factors 0.0% 0.0% 0.0% 0.0%

Total 0.6% 1.4% 1.2% 1.1%

Reflecting the general ageing of the workforce and the overall decline in the number of New Apprentices over time in these projections, the bulk of the growth in VET activity in theseprojections is in the older age cohorts. Chart 24 shows a decline in the share of VET

2004


51%

Re-Entrants, 30%

Apprenticeship


Apprenticeship New

Entrants, 15%

2025


54%Re-Entrants, 33%

Apprenticeship


Apprenticeship New

Entrants, 10%




46

students in the 19 and under and 20-24 age cohorts, with a higher share of VET activity for males and females in the other age cohorts. Overall, some 39% of VET students areprojected to be under 25 in 2025, compared with 44% in 2004.

CHART 24: SHARE OF VET STUDENTS BY AGE AND GENDER, NEW SOUTH WALES

0% 2% 4% 6% 8% 10% 12% 14% 16%

19& under

20-24

25-29

30-39

40-49

50-59

60+

Female 2025

Female 2004

Male 2025

Male 2004

Share of total VET students

Finally, Table 8 shows projected VET activity by broad occupational group over the 20 year forecast period. Reflecting broader employment growth, VET demand is expected to growrelatively fast in occupations such as nursing and related health professionals, carers and

aides, elementary clerical, sales and service workers, and computing professionals (thoughmuch of the training effort for the latter will fall to the higher education sector).

Farmers and some areas of trades are seen as having contracting VET demand initially.Longer term weakness is expected to remain among VET demand for farmers, mechanicalengineering and automotive tradespersons, wood tradespersons, and textiles andmiscellaneous tradespersons. Continued productivity growth producing diminishing labour requirements over time is a key factor here (that is, productivity growth raises VET needs bychanging how we work, but the pace of that productivity growth eats into employment growth,which acts as a negative for VET demand).




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TABLE 8: GROWTH IN VET HOURS BY OCCUPATION GROUP, NSW


Managers and administrators 1.5% 1.1% 1.0% 0.9%

Science and engineering professionals 0.9% 1.3% 0.9% 0.7%

Accounting, auditing, sales and marketingprofessionals 1.3% 1.2% 1.0% 0.9%

Computing and information professionals 3.3% 2.5% 2.6% 2.5%

Health professionals 3.0% 2.1% 1.6% 1.1%

Education professionals 3.3% 1.6% 1.0% 0.4%

Artists, social welfare and miscellaneousprofessionals 2.0% 2.0% 1.8% 1.7%

Medical and science technical officers 2.1% 1.5% 0.8% 0.4%

Building and engineering associateprofessionals 0.7% 0.3% 0.1% 0.2%

Business and finance associate professionals -0.3% 1.7% 1.5% 1.2%

Shop, hospitality and other sales supervisors 0.6% 1.9% 1.7% 1.5%

Enrolled nurses, welfare and other healthprofessionals 3.9% 4.0% 3.5% 3.0%

Police officers and other associateprofessionals 0.6% 1.7% 1.5% 1.2%

Mechanical engineering and automotivetradespersons -4.7% 0.2% 0.0% -0.1%

Fabrication engineering, electrical, plumbingand construction tradespersons -4.7% 0.6% 0.5% 0.7%

Food tradespersons -2.0% 1.1% 0.8% 0.6%

Printing tradespersons 6.1% -0.1% -0.3% 0.2%

Wood tradespersons -0.4% 0.0% -0.6% -0.5%

Hairdressers -7.4% 0.1% 0.6% 0.4%

Textiles and miscellaneous tradespersons -0.9% 0.0% -0.2% -0.6%

Advanced clerical workers -0.8% 0.2% 0.2% 0.2%

Farm managers, horticultural and skilledagricultural workers -3.7% 0.2% 0.0% -0.2%

General clerks, keyboard operators and other clerks 2.7% 1.6% 1.1% 1.0%

Intermediate sales and related workers -3.3% 0.8% 0.4% 0.2%

Carers and aides, hospitality and other serviceworkers 1.3% 2.6% 2.2% 2.0%

Intermediate production and transport workers 8.8% 0.2% -0.5% 0.8%

Elementary clerical, sales and service workers 0.9% 2.5% 2.2% 2.4%

Labourers and related workers -0.7% 0.3% 0.2% 0.2%

Total 0.6% 1.4% 1.2% 1.1%




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7. SPECIFYING THE TARGET SCENARIO

The baseline projections in this report can be compared with VET demand under

a ‘target’ scenario.

The target scenario is one of economic success – the national employment topopulation ratio is achieved in NSW and then maintained, rather than falling asthe population ages and the boomers retire. A substantial lift in labour forceparticipation rates by age cohort (especially among older workers, but alsoamong women) is required to achieve this.

The result is a much faster rate of employment growth over the next 20 years:1.1% per annum on average for the target scenario compared with 0.6% per annum for the baseline scenario. The target scenario also has faster productivitygrowth and achieves a 3% unemployment rate by 2020.

The target scenario also factors in additional training initiatives. These take placeto help achieve the economic outcomes for this scenario. There is additionaltraining for those currently not in the workforce or unemployed to make the leapto employment, re-fresher training for some whose skills have atrophied, a higher rate of continuing training for those employed to help prevent prematureretirement, and a faster rate of casualisation, consistent with attracting morepeople who would otherwise be marginally attached to the labour force back intoit. These measures can be seen as additional ‘exogenous’ training, as opposedto the employment-driven training response of a stronger economy.

7.1 LABOUR MARKET PROJECTIONS

The target scenario as defined shows what employer demand would be if policies succeed inraising labour force participation to the extent that the current national ratio of the employedto the civilian (15+) population is achieved and maintained – essentially maintaining aconstant ability to service the ageing population. It is presented in this report not as aforecast, but as a scenario which policymakers may see as a goal. The aim here is to teaseout the VET implications of such a scenario.

The target scenario would be achieved via a range of policy initiatives, of which an increasein skills development would be only one. Other elements may include various factors,potentially including the likes of further tax reform, changes to eligibility ages for the agepension and superannuation preservation, greater promotion of competition policy and better application of leading edge technology by the private sector.

As such, while the lift in VET participation shown in the target scenario may be necessary for future economic success as portrayed in the target scenario, it is far from a sufficientcondition – many other developments would need to fall into place.

As defined, the target scenario involves a significant shift up in the rate of employmentgrowth over time, as shown in Chart 25.




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CHART 25: PROJECTED EMPLOYMENT GROWTH, NSW, TARGET AND BASELINE SCENARIOS

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

2010 2015 2020 2025

IGR scenario

Target scenario

Average annual employment growth over 5 year period (%)

Chart 25 shows that the trend of moderating employment growth over the forecasts is stillpresent in the target scenario, but at a much higher rate of growth.

The projections for job growth are derived from a target for the New South Wales economy’semployment to 15+ population ratio – one that moves to the current national ratio over timeand then maintains that ratio, as shown in Chart 26. That compares with the baseline (or ‘IGR’) scenario where that ratio notably falls away as the State’s population ages.




50

CHART 26: PROJECTED EMPLOYMENT TO POPULATION RATIO, TARGET AND BASELINE

SCENARIOS, NEW SOUTH WALES

48%

50%

52%

54%

56%

58%

60%

62%

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

IGR

Target

Employment to population (15+) ratio

Demographic projections have not been changed for the target scenario, so a notable lift inlabour force participation rates by age cohort is required to produce the target employment topopulation ratio in the future as shown above.

Chart 27 shows the age specific labour force participation rate assumptions here for males,while Chart 28 shows participation rate assumptions for females. Key points are:

For males there is a shift up in prime working age participation rates to 95% for thoseaged 35-44 and 91% for those aged 45-54. These rates are consistent with what hasbeen achieved in the past, and reflect a reversal of the trend towards prematureretirements for some in these age cohorts (where that premature retirement has oftenbeen driven by structural change in the economy leaving some people’s skills obsolete,with a lack of opportunities or encouragement for those people to re-skill).

While much of the policy focus is aimed at raising labour force participation of malesaged 35 to 54, there is also substantial potential to raise participation rates for females,with a significant shift up in participation in all age cohorts shown in Chart 28.

For males and females there is a lift in participation by older age cohorts in the targetscenario, continuing the trend of recent years in that respect.

The broad lift in labour force participation in the target scenario also allows for increased participation by other groups with low participation, including the disabledand indigenous populations.




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CHART 27: PROJECTED MALE LABOUR FORCE PARTICIPATION RATES OVER TIME, TARGET AND

BASELINE SCENARIOS, NEW SOUTH WALES

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84

2005

2025 - IGR

2025 - Target

Labour force participation rates - NSW, males

CHART 28: PROJECTED FEMALE LABOUR FORCE PARTICIPATION RATES OVER TIME, TARGET AND

BASELINE SCENARIOS, NEW SOUTH WALES

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84

2005

2025 - IGR

2025 - Target

Labour force participation rates - NSW, females

Some other economic parameters are also changed in moving to the target scenario:

There is a higher rate of productivity growth (2% a year rather than 1.75%). This isconsistent with an economy which is, by definition, performing better, and therefore




52

attracting more people into the labour force. It is also consistent with increasedinvestment in education resulting in faster rates of productivity growth (as discussed inChapter 2); and

The unemployment rate moves down to 3% by 2020 and then remains at that level. Soadditional labour is not just drawn from those not in the labour force, but also from the

ranks of the unemployed. Again that is consistent with increased investment ineducation (as discussed in Chapter 2).

Trends towards a higher part-time share of the workforce is the same as in the baselinescenario, while the trend towards a higher casual and self-employed share of the workforcemoves at a faster rate (an additional 25% to the trend rate) in the target scenario.

Chart 29 highlights the economic dividend of the target scenario – the additional people whoare drawn into employment from the unemployed and from those who otherwise would nothave been in the labour force. By definition, with population growth rates unchanged in thetarget scenario, the additional employment must be drawn from those who would otherwisehave been unemployed or not in the labour force.

In the first and second year more people come from those unemployed. This group thenpeaks at 72,000 in New South Wales in 2020. The employment gains from those previouslynot in the labour force accrue steadily over the 20 years, to reach 190,000 by 2025 for thoseaged 15-60 and 97,000 for those aged 60+.

CHART 29: PROJECTED NUMBER OF EXTRA PEOPLE EMPLOYED IN THE TARGET SCENARIO IN NSW

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Unemployed

NILF 15-60NILF 60+

Total

Additional persons employed by previous status

NSW

7.2 ADDITIONAL ASSUMPTIONS ON TRAINING

The target scenario implies higher longer term training needs – more people areemployed, and employment is the key driver of training demand, so an employment-drivenresponse is that more training is required over time.




53

But as well as requiring more training for up-skilling as a result of the economy’s better labour market performance, one policy lever which could be used to achieve the higher rateof labour force participation is additional training – in effect, an exogenous lift in training isone factor to help achieve the policy outcomes.

That is, there is a virtuous circle here: an additional investment in education can createeconomic success, and economic success can lead to further investment in education.

The VET forecast model used includes a range of additional training initiatives which arehypothesised to take place in the target scenario to help achieve the economic outcomes for this scenario. These training initiatives are:

Additional training for those currently not in the workforce in order to encouragethem into the labour force. Chapter 2 earlier noted that labour force participation isgreater the higher are skill levels, so it makes sense that targeting a high labour forceparticipation rate also involves additional training to encourage people to move into thelabour force. These people additional to the labour force are assumed to be trainedaccording to current propensities to train those not in the labour force, with an assumed50% success rate, meaning that on average, two programs of training need to be

provided to generate a successful move into the labour force.

Additional training for the unemployed to help move the unemployment rate downto 3%. Current delivery of VET involves some training received by the unemployed.This is seen as consistent with a roughly constant unemployment rate – re-skilling theunemployed enough to cover for structural changes to the economy withoutunemployment moving up. To move the unemployment rate down may well require anadditional measure of training. This additional training has a 50% success rate,meaning that on average, two programs of training need to be provided a generate asuccessful move from unemployed to employed to get the unemployment rate down.

Additional (re-fresher) training for some people who have VET qualifications but areemployed in occupations where they may not be fully utilising them. The discussion of VET qualifications in Chapter 3 identified some qualified employees working inoccupations where they may not be fully utilising their qualifications. Many of thesepeople may have qualifications on paper, but their skills have atrophied relative to whatis currently required. This group is shown in Table 9 in terms of numbers of people.The target scenario hypothesises that the economy’s skill needs might be moreefficiently met by providing this group of people with ‘re-fresher’ training. This is donein a steady manner over the 20 year forecast horizon.

A higher rate of continuing training for those employed, given less alternativethanks to a reduced pool of people unemployed or marginally attached to the labour force. This higher rate of continuing training can be characterised as a preventativemeasure to avoid the experience of the last two decades where male participation hasfallen in part because people have found that they have not been able to maintain their skills and they have been forced into premature retirement or onto disability support

pension. The end result of this additional training is that it is expected to help inrestoring employment participation. The rate of continuing training is increased by 25%above baseline levels.

A faster rate of increase in the casualisation of the workforce (covering bothcasual employees and those self-employed). In the target scenario the overall trendtowards casualisation is increased to be 50% more than in the baseline scenario, withcasual employment likely to be a means to attract those who were only marginallyattached to the workforce back into it. The target scenario sees the casual and self




54

employed share of the workforce move from 41% in 2005 to 51% by 2025, comparedwith 47% in the baseline scenario in 2025.

TABLE 9: EMPLOYED PERSONS WHO ARE POTENTIALLY OVER-QUALIFIED, AUSTRALIA, 2005

Persons Adv.Dip. or Diploma

CertificateIII / IV CertificateII or below

General clerks, keyboard operators and other clerks 76,400 68,300 0

Intermediate sales and related workers 13,000 28,500 0

Carers and aides, hospitality and other service workers 71,700 50,600 0

Intermediate production and transport workers 20,700 153,400 0

Elementary clerical, sales and service workers 49,700 102,500 0

Labourers and related workers 35,300 118,900 54,900

Total 266,800 522,200 54,900

Chart 30 summarises the direct effect on additional training of the five measures listed

above. These can be seen as the exogenous training assumptions included in the targetscenario, with Chart 30 showing the impact of these measures in terms of additional VETstudents in New South Wales.

CHART 30: DIRECT EFFECT ON VET STUDENTS OF EXOGENOUS TRAINING ASSUMPTIONS, NSW

NUMBER OF STUDENTS, TARGET SCENARIO

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Training needs for casualisation

Higher rate of continuing training

Re-fresher training

Unemployed

Not in the labour force

Additional VET students

The assumed higher rate of continuing training is the dominant component, rising fast until2015, and then growing more moderately in line with overall employment growth. Theadditional training for the unemployed is all complete by 2020, when the 3% unemploymentrate is achieved and then maintained.




55

Chart 31 shows the effect of these exogenous training assumptions as a percentagedeviation of baseline forecasts for VET student numbers in New South Wales.

CHART 31: DIRECT EFFECT ON VET STUDENTS OF EXOGENOUS TRAINING ASSUMPTIONS, NSW %

INCREASE IN STUDENTS, TARGET SCENARIO

0%

5%

10%

15%

20%

25%

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Training needs for casualisation

Higher rate of continuing training

Re-fresher training

Unemployed

Not in the labour force

% increase in VET students (above IGR scenario)

By 2016 the percentage increase in VET students resulting from these specific traininginitiatives is an additional 23.7% of students above the level in the baseline scenario., beforemoderating to a deviation of 21.8% in 2025.




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8. TARGET SCENARIO – PROJECTED VET ACTIVITY

The projections for VET activity in the target scenario are for considerable

strength in demand. Over the 20 year period (2005 to 2025) the projections for New South Wales are for:

– average growth in the number of VET students of 2.28% per annum; and

– average growth in the number of VET hours of 2.61% per annum.

Those rates are much faster than in the baseline scenario.

VET participation in the target scenario reaches 21.1% of employed persons by2025, compared with 17.8% in the baseline scenario. Some 81% of this lift inVET participation can be ascribed to exogenous training initiatives designed tohelp achieve the target scenario. The other 19% of additional training is an

employment-driven response of demand for higher skills given a stronger performing economy (a higher employment level and higher productivity growth).

In the target scenario the cost of VET would amount to 0.60% of GSP in NSW in2025 – a moderate increase on current levels of 0.51% of GSP. Note that in thetarget scenario not only is the estimated cost of VET higher, but the level of GSPis also higher than in the baseline, with additional employment and productivitygrowth translating into a faster growing economy. Or, in other words, part of theconsiderable increase in cost has been met by an almost as large an increase inthe economy’s size (and therefore capacity to pay).

8.1 SCENARIO RESULTS

This chapter reports projected VET activity under the target scenario. Results are presentedfor New South Wales projections (Australia wide projections have also been developed).Projections under the baseline or IGR scenario are used as the point of comparison.

Chart 32 shows much faster growth in the number of VET students in the target scenariothan the baseline, particularly through the first five years of the forecasts. Theunemployment rate starts to fall over that period, and the ‘exogenous’ training initiativesdescribed in the previous chapter are being put into place.




57

CHART 32: PROJECTED GROWTH IN VET STUDENTS, NSW, TARGET AND BASELINE SCENARIOS

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2010 2015 2020 2025

IGR scenario

Target scenario

Average annual growth in number of VET students over 5 year period (%)

Over the 20 year forecast period (2005 to 2025) average growth in the number of VETstudents is projected at:

2.28% per annum for New South Wales (compared with 0.98% in the baselinescenario); and

2.55% per annum for Australia (compared with 1.39% in the baseline scenario).

While that is a substantial lift in student numbers, it should be borne in mind that averageannual growth in VET students over the period from 1992 to 2000 was 7.4% per annum inNew South Wales (and 6.4% per annum for Australia as a whole). The implications of thetarget scenario for VET look modest compared to that performance.

Chart 33 shows a similar pattern in terms of overall VET hours for the target scenario relativeto the baseline scenario.




58

CHART 33: PROJECTED GROWTH IN VET HOURS, NSW, TARGET AND BASELINE SCENARIOS

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2010 2015 2020 2025

IGR scenario

Target scenario

Average annual growth in number of VET hours over 5 year period (%)

Over the 20 year forecast period (2005 to 2025) average growth in the number of VET hoursis projected at:

2.61% per annum for NSW (compared with 1.08% in the baseline scenario); and

3.00% per annum for Australia (compared with 1.51% in the baseline scenario).

Chart 34 highlights the overall lift in VET participation which occurs in the target scenario.

For NSW, VET participation is at 21.1% of employed persons by 2025, compared with 17.8%in the baseline scenario.




59

CHART 34: VET PARTICIPATION RATE OVER TIME, NSW, TARGET AND BASELINE SCENARIOS

0%

5%

10%

15%

20%

25%

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

IGR scenario

Target scenario


Forecast

Chart 35 splits this increase in VET participation into exogenous and employment-drivencomponents, with exogenous training referring to the additional training measures in thetarget scenario highlighted earlier in Chart 30 and Chart 31.

Over the full forecast period, the exogenous training initiatives account for around 81% of theadditional training places. The remaining 19% of additional training places occur as a resultof the higher employment and higher productivity economy of the target scenario.

In terms of numbers of extra VET students in NSW, the two components in 2025 amount to:

143,000 additional students from the exogenous training initiatives; and

53,000 additional students from an employment-driven training response.




60

CHART 35: VET PARTICIPATION RATE OVER TIME – EXOGENOUS AND EMPLOYMENT-DRIVEN

TRAINING COMPONENTS, NSW, TARGET AND BASELINE SCENARIOS

0%

5%

10%

15%

20%

25%

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

IGR scenario

Target scenario

IGR plus exogenous training initiatives


Forecast

Exogenous training

Employment-driven response

Projections can also be made of the total cost of VET in 2025 under the target scenario,using the same rules of thumb as outlined earlier for the baseline scenario. That used a unitcost for delivering VET of $13.76 per hour of training provided. Projecting this cost forwardat 3.5% per annum (a premium to CPI growth, given the labour-intensive nature of VETteaching, and the potential for productivity growth to be lower than in some other sectors)and applying the projected level of VET delivered in 2025 (198.9 million hours) leads to aprojected cost of New South Wales VET in 2025 of $5.6 billion (compared with $4.1 billion inthe baseline scenario).5

That would amount to 0.60% of GSP in 2025 – a moderate increase on current levels –where GSP had grown in line with the sum of projected employment, productivity and CPIgrowth. The equivalent measure in the baseline scenario was 0.50% of GSP.

Note that in the target scenario not only is the estimated cost of VET higher, but the level of GSP is also higher than in the baseline, with additional employment and productivity growthtranslating into a faster growing economy. Or, in other words, part of the considerableincrease in cost has been met by an almost as large an increase in the economy’s size (andtherefore capacity to pay). Projected growth rates for New South Wales GSP in the twoscenarios are shown in Chart 36.

5Note that this average unit cost per hour of training delivered applies to all additional hours of training in the

target scenario. No adjustment has been made for training programs targeting, for example, older males whohave been out of the labour force for a period of time, where there may be a higher than average cost per traininghour. On the other hand, re-fresher training targeting those who already have qualifications may be less costlythan average to deliver. For the purposes of a broad benchmark, we see applying the current average cost of training as appropriate.




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CHART 36: PROJECTED NOMINAL GSP GROWTH, NSW, TARGET AND BASELINE SCENARIOS

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1995 2000 2005 2010 2015 2020 2025

IGR scenario

Target scenario

% change in nominal GSP

Forecast

Chart 37 shows the projected composition of VET activity in NSW in 2025 under the twoscenarios being examined. The notably higher level of employment in the target scenariotranslates into a relatively greater focus on continuing training by this point in time. New Apprenticeship training declines as a share of total training with the number of new entrantsto the labour force little changed in the target scenario, and less important as a component of overall training. Re-entrant training has also declined as a share of total training, with lessre-entrant training required over time given the diminished number of people unemployed or

marginally attached to the labour force (a by-product of the employment success of the targetscenario).

CHART 37: COMPOSITION OF VET ACTIVITY, NSW, 2025

Table 10 examines the composition of VET growth in terms of economic drivers, withaggregate employment growth a strong driver. Aggregate employment growth is stronger

BASELINE SCENARIO

Continuing Training,54%Re-Entrants, 33%

Apprenticeship


Apprenticeship New

Entrants, 10%

TARGET SCENARIO


60%

Re-Entrants, 31%

Apprenticeship


Apprenticeship New

Entrants, 8%




62

though the distribution of that employment growth is similar in the target scenario to thebaseline scenario, with workforce structure changes initially a notably negative for VET (asdemand for trades skills wanes at present and in the short term) while it is a less significantinfluence beyond that. ‘Other factors’ play a major role in lifting training over the first fiveyears, with these mostly representing the exogenous training initiatives.

TABLE 10: DRIVERS OF GROWTH IN VET HOURS, NSW, TARGET SCENARIO


Aggregate employment 1.4% 1.2% 1.1% 0.8%

Workforce structure changes -1.4% -0.2% -0.3% 0.3%

Workforce longevity 0.3% 0.3% 0.3% 0.3%

Casualisation 0.1% 0.1% 0.1% 0.1%

Part-time 0.2% 0.2% 0.2% 0.2%

All other factors 3.9% 2.0% -0.1% -0.7%

Total 4.5% 3.6% 1.3% 1.0%

Chart 38 shows the age and gender distribution of the VET population in both the target andbaseline scenarios in 2025. While the baseline scenario factored in some further growth infemale labour force participation (and therefore VET), male labour force participation in thebaseline projections was virtually unchanged. However, the target scenario sees marginallygreater focus on lifting male labour force participation, while there is also an increase infemale participation, but less than proportionate to the male rise. The male share of VETstudents rises from 50.7% in the baseline scenario to 50.8% in the target scenario in 2025,reflecting slightly more emphasis on lifting labour force participation for males of primeworking age in the target scenario, though this is balanced by faster employment growthfavouring service sector jobs where females are more prevalent.

By age the target scenario very much favours VET being delivered to the older age cohorts.Overall, only some 11% of the additional VET students in the target scenario in 2025(additional to those in the baseline scenario) are aged under 25. That compares with 39% of students being under 25 for VET delivered in 2025 in the baseline scenario. Putting thebaseline forecast and the projected difference together sees an age profile in 2025 in thetarget scenario where 33% of VET students are aged under 25.




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CHART 38: SHARE OF VET STUDENTS BY AGE AND GENDER, NEW SOUTH WALES, TARGET AND

BASELINE SCENARIOS

0% 2% 4% 6% 8% 10% 12% 14% 16%

19& under

20-24

25-29

30-39

40-49

50-59

60+ Female 2025 IGR

Female 2025 target

Male 2025 IGR

Male 2025 target

Share of total VET students

Finally, Table 11 shows projected VET activity by broad occupational group over the 20 year forecast period for the target scenario. Overall demand for VET is stronger across the boardby occupational group with stronger economic activity favouring business serviceoccupations in particular. Demand for trade skills is more robust under this scenario,particularly initially.




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TABLE 11: GROWTH IN VET HOURS BY OCCUPATION GROUP, NSW, TARGET SCENARIO


Managers and administrators 6.5% 4.3% 1.6% 1.1%

Science and engineering professionals 6.1% 3.7% 0.8% 0.4%

Accounting, auditing, sales and marketingprofessionals 6.3% 3.9% 1.2% 0.8%

Computing and information professionals 8.8% 5.4% 2.9% 2.5%

Health professionals 7.8% 4.8% 1.8% 1.1%

Education professionals 9.1% 4.2% 0.7% 0.2%

Artists, social welfare and miscellaneousprofessionals 7.6% 4.7% 1.7% 1.5%

Medical and science technical officers 7.5% 4.0% 0.5% 0.0%

Building and engineering associateprofessionals 5.3% 2.6% -0.4% -0.5%

Business and finance associate professionals 4.3% 4.0% 1.4% 1.1%

Shop, hospitality and other sales supervisors 4.6% 4.3% 1.9% 1.5%

Enrolled nurses, welfare and other healthprofessionals 9.1% 6.9% 3.8% 3.0%

Police officers and other associateprofessionals 4.6% 3.8% 1.4% 1.0%

Mechanical engineering and automotivetradespersons -1.4% 2.6% 0.4% -0.1%

Fabrication engineering, electrical, plumbingand construction tradespersons -2.2% 2.6% 1.0% 0.9%

Food tradespersons 1.1% 3.1% 1.1% 0.6%

Printing tradespersons 7.6% 1.2% 0.0% 0.2%

Wood tradespersons 1.9% 1.7% -0.3% -0.3%

Hairdressers -6.5% 0.8% 0.8% 0.5%

Textiles and miscellaneous tradespersons 3.6% 2.4% -0.2% -0.9%

Advanced clerical workers 3.0% 2.0% -0.1% -0.2%

Farm managers, horticultural and skilledagricultural workers 0.9% 2.9% 0.2% -0.1%

General clerks, keyboard operators and other clerks 7.2% 3.5% 0.7% 0.4%

Intermediate sales and related workers -2.0% 1.4% 0.5% 0.2%

Carers and aides, hospitality and other serviceworkers 5.2% 4.6% 2.2% 1.8%

Intermediate production and transport workers 9.4% 1.2% -0.1% 0.9%

Elementary clerical, sales and service workers 5.2% 4.6% 2.1% 2.2%

Labourers and related workers 3.4% 2.6% 0.3% 0.1%

Total 4.5% 3.6% 1.3% 1.0%




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8.2 PLAUSIBILITY OF THE TARGET SCENARIO

The target scenario is a projection of a stronger economy rather than a specific forecast. Buthow realistic is it?

For the purposes of this report that comes down to examining assumptions on labour forceparticipation rates, assumptions on ‘exogenous’ training initiatives designed to provideimpetus to skills development for those who might otherwise miss out, and looking at finaloutcomes for employment linked training and overall demand for VET.

Labour market assumptions

The target scenario has movement higher in labour force participation rates. Specifictargets are set for males aged 35-44 (95% participation) and males aged 45-54 (91%participation).

CHART 39: MALE PARTICIPATION RATES IN AUSTRALIAN AND NSW OVER TIME

79

81

83

85

87

89

91

93

95

97

99

1966 1970 1974 1978 1982 1986 1990 1994 1998 2002

35-44 (Aust)

45-54 (Aust)35-44 (NSW)

45-54 (NSW)

Source: ABS, IPART

Chart 39 shows that such rates can be seen as feasible as they have been achieved in thepast.

The other gains in labour force participation come mainly from females, and those aged 55+who delay their retirement. Chart 40 shows that female labour force participation rates inmany OECD countries in 2003 were higher in the 25-54 age cohort than the correspondingrates in Australia. There were also a number of countries with higher female participationrates among the 55-64 age cohort. This suggests that the participation rates of females in Australia could essentially continue the upward trend of recent years and reach still higher rates.




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CHART 40: FEMALE PARTICIPATION RATES IN OECD COUNTRIES, 2003

0

10

20

30

40

50

60

70

80

90

S w e d

e n

D e n m

a r k

N o r w a y

C a n a

d a

N e t h e r l a n d s

U n i t e

d K i

n g d o m

U n i t e

d S t a t e s

A u s t r a l i a

J a p a

n

25-54 55-64

Source: OECD Employment Outlook 2005

The unemployment rate target of 3% would certainly be a good economic outcome, but far from an unprecedented one. Prior to inflation shocks in the 1970s the Australian economyused to operate comfortably with an unemployment rate of less than 2%, and theunemployment rate in the UK is currently less than 3%. The target scenario here onlyachieves that outcome in 2020. Moreover, in times past a low unemployment rate requiredstrong labour demand. In the future, there is a chance that unemployment rates will movelower due to weakness in the supply of workers.

Finally, productivity gains of 2% per annum, rather than the normal forecast assumption of 1.75% per annum are a reasonably modest lift, and still within the productivity growthperformance Australia has achieved at times in recent years.

‘Exogenous’ training initiatives

The exogenous training initiatives are characterised as additional training, largely in order toassist people into employment or to help prevent them from leaving it, as they otherwise mayhave.

Some of the initiatives have been framed around specific programs, while others appear consistent with current experience.

Additional training for those currently unemployed or not in the labour force (to help bringthem across into employment) is benchmarked on 650 hours of training per participant.This benchmark of hours delivered is consistent with a range of current programs includinggeneral skills programs such as:

the Language, Literacy and Numeracy Program (LLNP),

the Adult Migrant English Program (AMEP), and

the Priority Places Program.




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The LLNP provides basic language, literacy and numeracy training for eligible job seekerswhose skills are below the level considered necessary to secure sustainable employment or pursue further education and training. It is designed to help remove a major barrier toemployment and improve participants’ daily lives. Participants in the program undertake upto five blocks of training where each block consists of 160 hours contact (thereby totally up to

800 hours of training, though most participants will not complete 5 entire blocks). Abenchmark of 650 hours of training would be supported by the LLNP experience with helpingparticipants rejoin the workforce.

The AMEP provides up to 510 hours of basic English language tuition to migrants andrefugees from non-English speaking backgrounds. Up to an additional 100 hours is alsoavailable to refugees and humanitarian entrants through the Special Preparatory Program.The aim of the program is to help newly arrived migrants and humanitarian entrants to settlein Australia, including the attainment of employment. The 650 hour benchmark is consistentwith the Department of Immigration and Multicultural Affairs assessment of the hoursrequired to enhance the skills of newly arrived migrants.

The Commonwealth Department of Education, Science and Training (DEST) previously ran a

Priority Places Program which targeted mature aged people (45+) or disabled people or parents re-entering the workforce. Benchmark hours provided varied by course, including:

671 – 820 hours for Certificate III in Automotive;

371 – 620 hours for Certificate III in Community services;

521 – 860 hours for Certificate III in Food industry; and

771 – 860 hours for Certificate III in Retail wholesale.

The benchmark of 650 hours used for the modelling here is within the range for many of these courses.

This additional training for those unemployed or not in the labour force is benchmarked on a

50% success rate, meaning that on average, two programs of training need to be providedto generate a successful move into the labour force. The 50% success rate is supported byoutcomes from programs such as

the Outreach Australians Working Together program,

the Get Skilled program, and

the Helping Young People at Risk program (targeting disadvantaged youth).

The Outreach Australians Working Together program was aimed at people aged 40-65 whowere mainly long term unemployed. This group faced a range of barriers to accessingvocational education and training. The courses offered under the program were typically lessthan a single semester in duration and often led to further study for participants. In 2004,15% of the participants were surveyed six months after they had completed the course. Of

this cohort, it was found that 40% were in paid work and a further 30% were engaged involuntary work. An assumption of 50% success rate is supported by the results of theOutreach program.

The Get Skilled program is aimed at long term unemployed people. Courses are tailored tothe needs of disadvantaged unemployed participants from diverse backgrounds such asoverseas trained professionals, youth at risk, women and people with a disability. They aredesigned as pre-employment courses aimed at leading to apprenticeships or traineeships. A




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survey of outcomes found that 56% of the graduates went on to employment. Again thisresult is consistent with a 50% success rate assumption.

The Helping Young People at Risk program provides support to the most disadvantagedyoung people (aged 15 to 18) in the community. The program aims to re-engage them in

education and training and provide pathways for them to undertake further education or gainemployment. In 2003-04 it was found that 70% of students completed their course of study.Of this group, 74% continued with education and training programs. This amounts to around52% of the starting cohort for whom the course could be labelled a success.

Data from NCVER Student Outcomes surveys also supports a 50% success rateassumption:

the share of TAFE graduates who were not employed before training being employedafter training varied from 40% to 52% over the period from 1995 to 2005; and

information from an equity group of students (comprising Indigenous, non-Englishspeaking background and disability students) showed a 44% success rate in findingemployment after training, with that figure 56% for the 20-24 age cohort.

By far the most significant ‘additional’ training initiative is the one which sees rates of continuing training increase by 25% above their current level. This is characterised as apreventative measure to avoid the experience of the last two decades where maleparticipation has fallen as people have found that they have not been able to maintain their skills and they have been forced into premature retirement.

‘Normal’ rates of continuing training in New South Wales are benchmarked on recentexperience for hours of training relevant to the specific occupation compared withemployment in that occupation. These rates are held constant in the baseline forecasts.How plausible then is a 25% increase?

We examined 2004 data to produce the equivalent ratios for the five largest States (New

South Wales, Victoria, Queensland, South Australia and Western Australia) for eachoccupation (at the 3 digit ASCO level) – some States provide a more intensive level of VETper occupation than others.6 Some examples of where VET delivery in New South Wales isbelow the maximum benchmark follow:

for every person employed in the occupation ‘general clerks’ in New South Walescurrently 52 hours of VET are delivered, but the maximum benchmark across the topfive States is 71 hours of VET per general clerk employed in Victoria;

for every person employed in the occupation ‘hairdressers’ in New South Walescurrently 40 hours of VET are delivered, but the maximum benchmark across the topfive States is 99 hours of VET per hairdresser employed in Queensland; and

for every person employed in the occupation ‘process workers’ in New South Walescurrently 11 hours of VET are delivered, but the maximum benchmark across the topfive States is 40 hours of VET per process worker employed in South Australia.

If one applied the highest rate of continuing training per occupation (selected across the fiveStates) to current New South Wales employment, then current continuing training would be

6It was not possible for this example to separate out New Apprenticeship hours, so they were included within the

continuing training comparison across States.




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some 75% higher. That suggests the target chosen (of a 25% increase across the board) iswell within what is currently being delivered as a maximum benchmark across States.

Final outcomes for training

Apart from assumptions on additional ‘exogenous’ training, the forecasts include an‘employment-driven’ component – additional training delivered consistent with the higher employment levels. This additional training is far from controversial – it is benchmarked on,and therefore entirely consistent with, current experience.

Finally, a test of sensibility comes from the final outcomes of the target scenario whichcertainly seem to be within the plausible range:

VET participation (students as a share of employment) in the target scenario in NewSouth Wales rises to 21.1% in 2025, which is the same as was achieved in 2000.

Average annual growth in the number of NSW VET students over the 20 year projection in the target scenario is 2.28% per annum, which is up on recent levels, butwell below the 7.4% per annum lift achieved from 1992 to 2000.

The cost of VET as a share of GSP is projected to rise in the target scenario, but onlyto 0.60% of GSP in 2025, up from the 2004 estimate of 0.51% of GSP.




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Documents

Access Economics Final Report - Future Demand for Vocational Education and Training in NSW - 16 June 2006 - Website Document