Navigating the skills shortage challenge: demographics, strategies and solutions

In today’s dynamic economic landscape, the persistent issue of skills shortage has emerged as a pressing concern, reverberating across all industries in Australia.

In today’s dynamic economic landscape, the persistent issue of skills shortage has emerged as a pressing concern, reverberating across all industries in Australia. As businesses strive to meet the demands of rapidly growing population, the scarcity of skilled workers remains a challenge.

Population data plays a crucial role in understanding the intricate demographic dynamics that shape both the present and future of our workforce. Through the examination of various population groups, potential strategies can be explored to navigate this challenge, seeking effective means to bridge the disparity between the supply and demand of skills.

For an overview of the existing business landscape, the ABS Characteristics of Australian Businesses data proves invaluable. This dataset, based on surveys and released in June 2023, offers insights into business performance, financial status, market trends, and skill scenarios.

In the year ending June 2022, ABS recorded about 2,569,900 operational businesses. Almost a million (38 per cent) businesses indicated a shortage of skilled personnel. This figure is notably higher compared to the 24 per cent of businesses that reported a skills shortage in the year ending June 2020.

Shortages were most prevalent in the fields of trades, labour, care/support, hospitality, nursing, medical domains, engineering, cleaning, and driving.

The accommodation and food services sector exhibited the most pronounced skills shortage, with about 56 per cent of businesses acknowledging a deficit in skilled staff. Following closely was the arts and recreation services industry at 47 per cent, and the retail trade industry at 45 per cent.

Conversely, industries facing the least severe shortages included transport, postal, and warehousing, registering a 27 per cent shortage, followed by the rental, hiring, and real estate services sector at 30 per cent.

The survey also documents the strategies implemented by businesses to address this predicament. About 41 per cent of enterprises indicated raising wages/salaries and enhancing employment conditions as a means to attract workers. Moreover, about 9 per cent of businesses extended working hours, while 37 per cent amplified their utilisation of on-the-job internal training.

Additionally, about one in four businesses embraced new recruitment approaches and opted for subcontracting or outsourcing. Despite these efforts, attracting talent remains a formidable challenge.

Labour shortages were most prevalent in the fields of trades, labour, care/support, hospitality, nursing, medical domains, engineering, cleaning, and driving. Picture: NCA NewsWire / Nicki Connolly

The population data doesn’t offer much reassurance, as it signals that the challenge of skill shortages will persist in the decades ahead. According to the Australian Bureau of Statistics (ABS), the population of Australia was estimated to be about 26.2 million in 2022, with approximately 65 per cent falling into the working age (15-64) bracket. This figure has declined by 2 percentage points over the past decade and is projected to drop further to 64 per cent by 2032.

The Centre for Population anticipates a modest 3 per cent growth in the younger population (aged 0-14) between 2022 and 2032. During the same period, the working-age population is expected to experience a growth of 12 per cent, while the older population (aged 65 and above) is set to surge by a substantial 31 per cent. The implications of an ageing population are multifaceted. Firstly, the reduced tax base could lead to a decrease in government revenue, impacting the funding of essential public services. Pension systems are also likely to face challenges, given the increased number of retirees relying on pension funds.

The considerable growth in the elderly population will necessitate a proportional expansion of the workforce dedicated to healthcare, social services, and age-related sectors.

The Care Workforce Labour Market study conducted by the National Skills Commission and published in September 2021 unveiled that all roles within the care and support workforce were anticipated to experience either strong or at least moderate demand. Notably, the demand for workers in the residential aged care sector was predicted to grow by about 3.2 per cent annually over the next three decades.

Catering to the needs of the ageing population will also call for substantial infrastructure enhancements. This encompasses accessible housing, improved healthcare facilities, transportation options tailored to seniors, and age-friendly urban planning which includes community spaces to encourage social interaction and physical activity. The realisation of these infrastructure projects will rely significantly on the construction and property industry for extensive support which will in turn require a considerable labour supply.

Then, there’s the phenomenon known as the “baby bust” which started in 2011. This marked the inaugural year when Baby Boomers (born between 1946 and 1963) started reaching their customary retirement age of 65. The concept of a baby bust arises due to a larger number of workers leaving the workforce at the age of 65 in comparison to the influx of workers entering at the age of 15.

The considerable growth in the elderly population will necessitate a proportional expansion of the workforce dedicated to healthcare, social services, and age-related sectors. Picture: Thinkstock

The baby bust decelerates the rate of growth of workforce. Efforts such as increasing the intake of highly skilled migrants were implemented to alleviate this situation. Nevertheless, the pandemic played a pivotal role in exacerbating the shortage of workers even further.

Prior to the pandemic, the Australian Bureau of Statistics (ABS) projected the population to reach 30.6 million by 2032. However, in 2023, the Centre for Population revised these estimates downward to 29.6 million. The adjustments in population estimates highlight the challenge of recruiting early career professionals, which is expected to be even more difficult than initially anticipated.

Every age group within the range of 0 to 19 has experienced a reduction in the post-pandemic projections.

This decline constitutes about 69 per cent of the total population loss in the adjusted estimates. Similarly, every age group between 25 and 52 has also encountered a decrease in these projections, while the older population remains unaffected by these revisions.

This proves that hiring and retaining workers will be a major issue. To effectively tackle these challenges, organisations should take a proactive approach by identifying which areas are likely to be impacted the most and devising strategies to address these skill shortages.

This could entail initiatives such as upskilling current employees, exploring diverse talent pools, and establishing partnerships with educational institutions to foster a skilled workforce most of which are already being practised by #businesses as indicated in the ABS survey data.

Furthermore, the need for a well-defined staffing strategy cannot be overstated.

This involves pinpointing the specific roles that are most susceptible to shortages and actively planning for recruitment and succession. Such a strategy ensures that the organisation remains prepared to swiftly fill critical positions, mitigating disruptions to its operations.

Given the scarcity of skilled personnel, harnessing technology becomes even more vital. The integration of AI and automation solutions can optimise workflows, streamline processes, and alleviate the burden on human resources.

By automating routine tasks and enhancing back-office efficiency, organisations can liberate their workforce to be used in sectors which face acute shortages such as healthcare and construction industries.

The enduring issue of skills shortage poses a continuous and widespread challenge for various industries. Population data serves to emphasise the enormity of this obstacle.

Through the examination of region-specific data, we can identify areas where this challenge will be particularly pronounced. This enables local governments and businesses to tailor strategies to address the issue effectively. In the immediate future, the adoption of proactive measures such as upskilling, expanding talent pools, and harnessing technological advancements presents feasible solutions to tackle this challenge head-on.

Hari Hara Priya Kannan is Data Scientist at The Demographics Group