It pays to invest in training to tackle looming skills shortages

COMPANIES  can't rely on the government to fix the problem, which is going to get worse.

IN the period leading up to the global financial crisis in 2008, talk of skill shortages was widespread.

Employers were finding it difficult to attract staff, particularly those with specific mining skills.

But labour shortages extended beyond mining to include service workers, especially in Western Australia and Queensland.

Wages were beginning to rise in mining to lure workers to remote places, either to live or on fly-in, fly-out basis. The issue of skill shortages disappeared for a period, as Australia came to terms with the worldwide economic slump, but the issue has come back with a vengeance as employers scramble to increase their workforces to fulfil their burgeoning order books.

But what is really meant by the term "skill shortage" and how does this compare with the term "labour shortage"?

Are there different types of skill shortages?

And what are the appropriate business and policy responses?

The first thing to note is that a skill shortage is not defined as an employer being unable to secure a worker with the required skills at a wage the employer wants to pay.

Economists look for a significant bidding up in wages of the group thought to be in short supply as evidence of a shortage.

But through the 2000s to 2008, there was very little evidence of skill shortages at the macro level.

Wages continued to be well-behaved, with steady and relatively small real annual increases.

Towards the end of the period, there was some evidence of wages pulling ahead in mining but the trend was hardly an explosion.

The skill shortages of that period had more to do with an understandable failure to predict the strength of the resources boom and the associated need for labour. After all, the Western Australian economy had been in recession in 2002.

What seems to have happened was an unexpected upward shift in the demand for certain types of labour and because of delays in expanding training in the relevant fields, many employers were caught short. So what is the difference between a skill shortage and a labour shortage?

The former is a sub-set of the latter, but labour shortages extend across the broad spectrum of skill levels and occupations.

A lack of applicants for relatively unskilled jobs (waiters, kitchen hands, shop assistants) is characteristic of a labour shortage.

Professor Sue Richardson of Flinders University has undertaken some important research into the different types of skill shortages and she identifies four key types.

The first relates to the situation where there are relatively few people with an essential technical skill that they are not using and where the training period is relatively long. The second is similar, save that the training period is relatively short. The third case involves sufficient numbers of people with the technical skills that they are not using, the so-called "skills mismatch". And last is the case of sufficient numbers of people with the technical skills but the quality of applicants begins to decline, the case of "quality gap".

In practice, there are examples of all four types but the one of most concern is the first.

Without appropriate planning and resourcing, this type of skill shortage can persist for long periods.

Governments and companies need to take appropriate action, in anticipation of likely trends, to ensure these types of shortages do not become endemic.

Bidding up wages can assist in the third case: those qualified workers employed in unrelated occupations capable of being lured away by superior remuneration and conditions.

There have always been reasonably high wastage rates out of the skilled trade occupations in Australia.

With market instruments, this type of skill shortage is amenable to a degree of resolution, but in the context of labour shortages, the jobs vacated may be difficult to fill.

So what have the federal and state governments been doing to deal with re-emerging skill shortages?

In keeping with its liking for "catchy" slogans, the federal government has its Skilling Australia for the Future policy, in which it has committed to train more than 700,000 people in the five years, beginning in 2008.

There have been criticisms directed at this policy for focusing too much at the lower certificate levels, at the expense of areas where the shortages are greatest.

State governments have also been attempting to lift their game and there is currently a process of reform affecting the vocational education and training sector.

It is too early to make an accurate assessment of these efforts.

The real message for many companies is that skill shortages are real and likely to become more urgent in coming years.

Rather than rely on governments to provide solutions, these companies will need to provide their own way out and to invest heavily in training and retraining staff. Skilled migration may also be part of the mix.

A final point to note is the danger of contrivance in the definition of skill shortages, where certified skills designated for certain jobs may not, in reality, be needed. This sort of "credentialism" can occur as result of government regulation or trade union imposed rules that are unrelated to the efficient and safe conduct of the particular occupation.

Companies should resist this sort of spiral.

Professor Judith Sloan is a labour market economist and company director