The future of employment in Australia

A new report from the National Council for Vocational Education Research (NCVER) provides forecasts of job openings in the Australian labour market for new entrants by occupation and industry between the years 2017 and 2024.

Every day, people, firms and public institutions are making choices about jobs and education and training: students and parents are making decisions about the education and training they or their children might undertake; job seekers and migrants are assessing their prospects of finding jobs in different occupations and making decisions on whether to retrain.

Similarly, firms are making decisions on recruitment and human resources management and education and training authorities are assessing whether to revise vocational education and training (VET) programs and whether to offer incentives to attract students into specific fields. Countries are making decisions on how to support workforce development and whether to invest in more education to attract direct foreign investments.

All of these decisions depend on the labour market information available at the time, although the information may be imperfect. Many are medium- to long-term decisions: individuals, firms and authorities are not preparing themselves for the current labour market but for several years into the future.

Labour market information is important for the efficient operation of dynamic and complex labour and training markets and, as discussed in a later section, this information can have an important role in reducing skills imbalances. Research shows that persistent skills imbalances can affect productivity growth.

Future employment patterns reflect the structural changes of a dynamic economy as it adjusts to changes in technology, business investment decisions, government spending, consumer preferences and international trade.

The outsourcing of services by firms, globalisation, the ‘gig economy’ and the offshoring of jobs have an additional effect on the structure, as does the reorganisation of firms and the adoption of new human resource management practices.

Structural adjustment often means the elimination of old jobs and the creation of new ones, as well as changes in the industrial and occupational distribution of employment.

The report examines two scenarios for future growth in the economy, with consequent effects for prospective employment.

Low growth scenario

The first, and most likely scenario, is consistent with the major macroeconomic parameters forecast by the Australian Government at June 2016. In this scenario, the report’s authors assumed that productivity would boost growth in GDP by 0.4 percentage points per year over the forecast period, with overall GDP increasing, on average, 2.7% per year between 2017 and 2024.

Total employment will increase from 11.8 million in 2016 to 13.7 million in 2024, an increase of 1.9 million, or 15.8%. This is a little more than the growth in the working-age population, which will grow by 13.8% over the same period.

The occupational structure of employment in this scenario will shift over time towards professionals and away from sales workers. The industrial structure will also shift over time towards professional, scientific and technical services, health care and social assistance and manufacturing, although there will be a decline in vehicle manufacturing, and away from construction, retail trade and public administration and safety.

Between 2017 and 2024, job openings for new entrants will total 4.1 million, with 54.8% from replacement demand. In this model, the sources of job openings in an occupation are expansion demand and replacement demand from retirement and job turnover.

In some occupations, replacement demand will be the source of a much higher proportion of job openings. Many such occupations have low entry-level requirements, pay low wages and employ large numbers of young people, who stay for relatively short periods before moving on to occupations in their chosen long-term career, for which they may have been undertaking training.

Replacement demand is also high for occupations with relatively older workforces, although the assumption that all workers retire at age 70 years may also be a factor in this for a few occupations.

High growth scenario

In the high-productivity scenario, productivity’s contribution to GDP growth is 0.8 percentage points, which is twice as much as in the most likely first scenario, but with aggregate employment still constrained to be the same.

The model assumes that productivity improvement affects the technical efficiency of all industries equally, although the impact on industry growth will vary because of demand factors. Stronger productivity growth not only leads to higher GDP growth but also to an increase in both domestic consumption and exports and a small devaluation of the Australian dollar.

The increase in productivity growth shifts the distribution of employment and job openings slightly towards high-skill jobs, which suggests a skill-biased technical change. Industries that gain employment are professional, scientific and technical services, and manufacturing, while those that lose employment are health care and social assistance and retail trade.

In health care and social assistance, because output cannot increase, the effect is net job losses. Net loss in job openings for midwifery and nursing professionals, for example, means an increase in patient-nurse ratios, which are, however, dependent on policy, rather than being market-driven.

This suggests that the assumption of uniform productivity growth across all industries in the model may not reflect Australian labour markets accurately.

The importance of replacement demand

The twin analyses demonstrate the importance of considering replacement demand when assessing job openings for new entrants. Job openings reflect more than simply growth in employment. They can also provide a more realistic way to assess future training needs where required for an occupation. Some jurisdictions are already using such information to prioritise areas where public investment in training should occur.

The report’s forecasts aim to provide a benchmark to initiate discussion and inform policy, although they are indicative, not prescriptive, of potential future structures of employment. They represent a view of the sort of employment patterns to expect in Australia in the medium term. In practice, the forecasts can usefully form part of a suite of information sources, which together provide a holistic view of the labour market for policymakers in education and training.

The information on future job opportunities given in this report may be useful for individuals making decisions on investment in education and training.

The Productivity Commission has noted that, while the Australian Government has taken some steps to overcome information barriers, the burgeoning number of websites risks a confusing maze of information, working against the purpose for which such sites exist.  Collating the information on future job trends in a single document should go someway to easing the confusion.