economics@
The economic impact of skills shortages
The economic impact of skills The economic impact of skills shortagesshortages
Saul EslakeSaul EslakeChief EconomistChief EconomistANZ BankANZ Bank
Festival CentreFestival CentreAdelaideAdelaide
3131stst October 2006October 2006
Presentation to the
SA Training & Skills Commission / CEDA
2006 Workforce Development Conference
Presentation to thePresentation to the
SA Training & Skills Commission / CEDA SA Training & Skills Commission / CEDA
2006 Workforce Development 2006 Workforce Development ConferenceConference
www.anz.com/go/economicswww.anz.com/go/economics
economics@2
-15
-10
-5
0
5
10
15
20
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
% change from previous year
Australia is enjoying its longest run of continuous economic growth since at least 1900Australia is enjoying its longest run of continuous Australia is enjoying its longest run of continuous economic growth since at least 1900economic growth since at least 1900
Australian real GDP growth, 1901 - 2009
Note: data are for financial years ended 30 June.Sources: Angus Maddison, Monitoring the World Economy 1820-1992; Reserve Bank; ABS; Economics@ANZ.
25 quarters of negativegrowth in this period,
including 6 episodes of2 or more consecutivequarters of –ve growth
3 qtrsof –vegrowthin thisperiod
2 qtrsof –vegrowthin thisperiod
no quarterly data before 1959
(f)
economics@3
Unemployment is at a 30-year low, while the ‘employment rate’ is at a record highUnemployment is at a 30Unemployment is at a 30--year low, while the year low, while the ‘employment rate’ is at a record high‘employment rate’ is at a record high
Sources: ABS; Economics@ANZ.
Unemployment(pc of labour force)
Employment(pc of population 15+)
0
2
4
6
8
10
12
61 66 71 76 81 86 91 96 01 06
%
50
52
54
56
58
60
62
64
61 66 71 76 81 86 91 96 01 06
%
economics@4
A record proportion of businesses report labour shortages as a major constraint on growthA record proportion of businesses report labour A record proportion of businesses report labour shortages as a major constraint on growthshortages as a major constraint on growth
Source: National Australia Bank.
Businesses nominating ‘availability of suitable labour’ asa constraint on output
0
5
10
15
20
25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
%
economics@5
55-59 year olds
The long-term decline in labour force participation by older men appears to have reversedThe longThe long--term decline in labour force participation term decline in labour force participation by older men appears to have reversedby older men appears to have reversed
70
72
74
76
78
80
82
81 86 91 96 01 0625
30
35
40
45
50
55
60%
Men (left scale)
Women(right scale)
%
Note: data shown as 12-month moving averages. Source: ABS; Economics@ANZ.
Labour force participation rates by age
60-64 year olds
40
42
44
46
48
50
52
54
56
58
81 86 91 96 01 0610
15
20
25
30
35%
Men(left scale)
Women(right scale)
%
economics@6
After picking up strongly during the 1990s, After picking up strongly during the 1990s, productivity growth has slowed this decadeproductivity growth has slowed this decade
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
90 94 98 02 06
% ch. from yr earlier (3-yr moving average)
Labour productivity growth
75
80
85
90
95
100
80 85 90 95 00 05
%
% of US
% of OECD average
Australian labour productivity compared
Sources: ABS; Groningen Growth and Development Centre (University of Groningen andThe Conference Board Total Economy DataBase January 2006; Economics@ANZ.
economics@7
Possible reasons for the slowdown in productivity growth during the current decadePossible reasons for the slowdown in productivity Possible reasons for the slowdown in productivity growth during the current decadegrowth during the current decade
As the economy approaches ‘full employment’, marginal additions to the work force may be ‘less productive’
– ie skill shortages could be detracting from productivity growthDearth of productivity-enhancing reforms in recent years
– the overwhelming research consensus is that the acceleration in Australian productivity growth during the 1990s was the result of wide-ranging pro-competitive reforms undertaken from the mid-1980s onwards
– there hasn’t been much by way of productivity-enhancing reform since the late 1990s
Deluge of productivity-stifling legislation and regulation in recent years with the ostensible aim of enhancing ‘security’ and improving corporate governance
– in practice requiring the employment of tens of thousands of people who do absolutely nothing useful themselves but prevent those who are doing something useful from doing it as quickly or cheaply as they otherwise would
– and in reality probably don’t do much to enhance ‘security’ (if that really is under greater threat than hitherto) or reduce thelikelihood of corporate malfeasance
economics@8
Employment growth has been much more rapid among occupations calling for higher skill levelsEmployment growth has been much more rapid among occupations calling for higher skill levels
Employment growth by occupation, 2000-01 through 2005-06
-1
0
1
2
3
4
5
6
Managers& admini-strators
Profes-sionals
Associateprofes-sionals
Trades-persons
Advancedclerical &serviceworkers
Inter-mediateclerical,sales &serviceworkers
Inter-mediate
production& trans-
portworkers
Elemen-tary
clerical,sales &serviceworkers
Labourers& relatedworkers
% per annum
Total
Sources: ABS, Labour Force: Detailed Quarterly (6291.0)
economics@9
High-skilled occupations have accounted for nearly 2/3 of all jobs growth over the past five yearsHigh-skilled occupations have accounted for nearly 2/3 of all jobs growth over the past five years
Share of employment growth2000-01 through 2005-06
Sources: ABS, Labour Force: Detailed Quarterly (6291.0)
Share of total employment2005-06
Managers & admin, professionals & associate professionals Tradespeople
Advanced clerical/ other intermediate workers ‘Elementary’ workers & labourers
economics@10
There’s a clear correlation between educational attainment and employment experience There’s a clear correlation between educational attainment and employment experience
Unemployment rate by level of educational attainment, May 2005
0
1
2
3
4
5
6
7
8
9
10
Uni degree Adv. diploma /Diploma
CertificateIII/IV
Certificate I/II Year 12 Below Year 12
%
Average
Sources: ABS, Education and Work (6227.0), Economics@ANZ.
economics@11
The number of Australians undertaking higher education has flattened out in recent yearsThe number of Australians undertaking higher education has flattened out in recent years
Source: Department of Education, Science & Training
Higher education student numbers
300
400
500
600
700
800
900
1000
85 90 95 00 05
'000
Total
Domesticstudents
Vocational education and training student numbers
1200
1300
1400
1500
1600
1700
1800
95 97 99 01 03 05
'000
economics@12
0
5
10
15
20
25
30
35
40
45
50
Can
ada
US
A
Japan
Sw
eden
Finlan
d
Den
mark
Norw
ay
Australia
Korea
Belg
ium
Neth
erlands
UK
Ireland
Sw
itzerland
Iceland
Spain
NZ
Germ
any
France
Luxem
burg
Greece
Austria
Hungary
Mexico
Poland
Portugal
Slovakia
Czech
Rep
.
Italy
Turkey
%
OECD average
% of population aged 25-64 with tertiary education
Australia is above the OECD average but behind the leaders in tertiary education attainment …Australia is above the OECD average but behind Australia is above the OECD average but behind the leaders in tertiary education attainment …the leaders in tertiary education attainment …
Sources: OECD Education at a Glance (2006).
economics@13
0
10
20
30
40
50
60
Can
ada
Japan
Korea
Sw
eden
Belg
ium
Ireland
Norw
ay
US
A
Spain
France
Finlan
d
Australia
Den
mark
UK
Neth
erlands
Iceland
Luxem
burg
Sw
itzerland
NZ
Greece
Poland
Germ
any
Austria
Mexico
Hungary
Portugal
Italy
Slovakia
Czech
Rep
Turkey
%
OECD average
% of population aged 25-34 with tertiary education
… and other countries are catching up more quickly… and other countries are catching up more … and other countries are catching up more quicklyquickly
Sources: OECD Education at a Glance (2006).
economics@14
0
10
20
30
40
50
60
70
80
90
100
Czech
Rep
.
Norw
ay
US
A
Slovakia
Sw
itzerland
Can
ada
Japan
2
Germ
any
Sw
eden
Den
mark
Austria
NZ
Finlan
d
Hungary
Korea
Neth
erland
France
UK
Australia
Belg
ium
Ireland
Luxem
burg
Icelan
d
Greece
Poland
Italy
Spain
Turkey
Portugal
Mexico
%
OECD average
% of population aged 25-64 with at least an upper secondary education
The percentage of Australian adults with at least upper secondary education is below OECD averageThe percentage of Australian adults with at least The percentage of Australian adults with at least upper secondary education is below OECD averageupper secondary education is below OECD average
Sources: OECD Education at a Glance (2006).
economics@15
0
5
10
15
20
25
30
35
40
Australia
Italy
Iceland
Spain
Mexico
Hungary
NZ
Neth
erland
Austria
France
Belg
ium
Ireland
Poland
Japan
1
Den
mark
UK
Slovalkia
Portugal
Germ
any
Korea
Sw
itzerland
Norw
ay
Greece
Czech
Rep
Can
ada
Sw
eden
Turkey
Finlan
d
US
A
Luxem
bou
r
%
% of population aged 25-64 whose highest level of educational attainment is lower secondary
A relatively high proportion of Australians leave school before reaching upper secondary levelA relatively high proportion of Australians leave A relatively high proportion of Australians leave school before reaching upper secondary levelschool before reaching upper secondary level
Sources: OECD Education at a Glance (2006).
economics@16
Levels of educational attainment do matterLevels of educational attainment Levels of educational attainment dodo mattermatterEmployment prospects improve with increasing levels of educational attainment
– unemployment rate of those without post-school qualifications is more than double that of those with them
– unemployment rate of university graduates is more than one-third lower than that of people with other (non-tertiary) post-school qualifications
Incomes rise with educational attainment– early school leavers earn around 20% less than those
completing high school– who in turn earn 20% less than those completing vocational
education– who earn about 40% less than university graduates
Analysis by the OECD suggests that an extra year of schooling lifts per capita GDP by about 6%
This is broadly consistent with Australian research suggesting that a one-year increase in the average level of schooling
– would increase annual GDP growth by 0.5 pc pt per annum– would ultimately increase the level of GDP by 8%
Sources: ABS Education & Work May 2005 (6227.0); Access Economics (2005); OECD Education at a Glance (2006); Steve Dowrick, ‘The Contribution of Innovation and Education to Economic Growth (2002).
economics@17
Although SA productivity growth has exceeded the national average the SA level is still below averageAlthough SA productivity growth has exceeded the national average the SA level is still below average
Level of labour productivity2004-05
150
175
200
225
250
275
NSW Vic Qld SA WA Tas NT ACT
GSP per hour worked ($)
Nationalaverage
Labour productivity growth1999-00 to 2004-05
0.0
0.5
1.0
1.5
2.0
2.5
NSW Vic Qld SA WA Tas NT ACT
% per annum
Nationalaverage
* Productivity defined as real gross State product per hour worked. Sources: State Accounts (5220.0); ABS Employed persons by sex, age, hours worked, state (6291.0.55.001); Economics@ANZ.
economics@18
15-64 year olds withpost-school qualifications
SA has more people who haven’t made it past year 12, and fewer who have, than average SA has more people who haven’t made it past SA has more people who haven’t made it past year 12, and fewer who have, than average year 12, and fewer who have, than average
40
42
44
46
48
50
52
54
56
58
60
NSW Vic Qld SA WA Tas NT ACT
%, 2004
Nationalaverage
Source: ABS, Education and Work, Australia, (6227.0); Australian Social Trends (4102.0) 2005.
15-64 year olds whohave not completed Year 12
20
25
30
35
40
45
50
NSW Vic Qld SA WA Tas NT ACT
%, 2004
Nationalaverage
economics@19
Source: ABS, Australian Social Trends (4102.0) 2005.
Workforce employed inhighest-skill occupations
South Australia has an above- (below-) average proportion of workers in high- (low-) skill jobsSouth Australia has an aboveSouth Australia has an above-- (below(below--) average ) average proportion of workers in highproportion of workers in high-- (low(low--) skill jobs) skill jobs
20
22
24
26
28
30
32
34
36
38
40
NSW Vic Qld SA WA Tas NT ACT
%, 2003-04
Nationalaverage
Workforce employed inlowest-skill occupations
10
12
14
16
18
20
22
24
NSW Vic Qld SA WA Tas NT ACT
%, 2003-04
Nationalaverage
economics@20
The SA school system does well in improving student outcomes the longer they stay in schoolThe SA school system does well in improving The SA school system does well in improving student outcomes the longer they stay in schoolstudent outcomes the longer they stay in school
Average maths scores – Year 4
450
475
500
525
NSW Vic Qld SA WA Tas NT ACT
Nationalaverage
Source: Trends in International Mathematics and Science Study 2002-03
Average science scores – Year 4
475
500
525
550
NSW Vic Qld SA WA Tas NT ACT
Nationalaverage
Average maths scores – Year 8
425
450
475
500
525
550
NSW Vic Qld SA WA Tas NT ACT
Nationalaverage
Average science scores – Year 8
475
500
525
550
NSW Vic Qld SA WA Tas NT ACT
Nationalaverage
economics@21
And SA produces students with above-average reading, maths and problem-solving skills And SA produces students with aboveAnd SA produces students with above--average average reading, maths and problemreading, maths and problem--solving skills solving skills
Reading literacy
Mathematical literacy
0
20
40
60
80
100
NSW Vic Qld SA WA Tas NT ACT
Source: Australian Council for Educational Research; Program for International Student Assessment (PISA).
0
20
40
60
80
100
NSW Vic Qld SA WA Tas NT ACT
Problem solving ability
0
20
40
60
80
100
NSW Vic Qld SA WA Tas NT ACT
Below Level 1 (‘likely to be seriouslydisadvantaged in life beyond school’)
Level 1(lowest)
Level 2 Level 3
Level 4 Level 5 Level 6(highest)
Results based on testing of 12,500 students from 321 schools randomly selected from across Australia in 2003 as part of an OECD-sponsored assessment involving 41 countries.
economics@22
But the proportion of SA students going to Year 12 is no longer above the national averageBut the proportion of SA students going to Year 12 is no longer above the national average
Source: ABS, Schools Australia (4221.0)
School retention rates to year 12
40
50
60
70
80
90
100
82 87 92 95 96 97 98 99 00 01 02 03 04 05
%
National average
South Australia
60
65
70
75
80
85
90
NSW Vic Qld SA WA Tas NT ACT
% 2004
Nationalaverage
economics@23
Summary: skill shortages and the economySummary: skill shortages and the economySummary: skill shortages and the economy
There is evidence that skill shortages are adversely impacting growth in output in the Australian economy
Skill shortages are not detracting from growth in demand– to the extent that skill shortages are boosting the incomes of
skilled workers they may be boosting income growth and hence aggregate demand, at the margin
The combination of capacity-constrained output growth and buoyant demand is contributing to upward pressure on inflation (and hence interest rates) and to a widening in the current account deficit
– although skill shortages are not the only (or even necessarily the most important) contributor to these problems
Increased immigration of skilled workers is the only short-term solution to the shortage of skilled workers
– and the Government is allowing higher permanent and temporary immigration of skilled workers
The only sustainable long-term solution is increasing the quantity and quality of education and training
– the increasing electoral clout of seniors is making this more difficult to achieve politically