Skills shortage exposes our reliance on migrant workers
Shallow labour pools will fill again, but this crisis was always going to happen.
In the exchange between expat Aussies coming home and foreign students going home, Australia lost 94,000 long-term residents over the year to June 2021.
Generally, Australia attracts a net overseas migration of close to 200,000 per year, which means there’s been a net loss of close to half a million long-term residents from the Australian continent during the two years of the Covid pandemic.
The borders are open now but it’s a bit like filling a backyard swimming pool with a garden hose. It will take time to deepen the labour pool, perhaps another year or more.
Plus, due to diminished fertility rates from the 1970s onwards, there are generally fewer younger workers entering the workforce globally than there are older (including baby boomer) workers exiting the workforce.
The bottom line is that the skills shortage will ease but this is an issue that will perplex and confound business for decades yet.
The solution is more (locals) training, streamlining the immigrant worker application process, and perhaps for businesses requiring precise technical skill sets (such as various streams of engineering) it may come down to identifying and attracting individual skilled labour, globally.
Let’s look at the numbers coming out of the August 2021 census.
At that time there were 13 million workers working in Australia, some 12 million of whom filled out the census stating that they were in work and also citing their country of birth. Requiring these two data points is perhaps the reason why the census didn’t pick up a greater proportion of this (fascinating) cohort.
Based on stated responses, about 1.4 million workers were added to the Australian workforce over the five years to 2021.
A bit over half (779,000) were added from within the Australian continent. The next biggest source of labour was India with 174,000 net new workers followed by 55,000 from China, another 55,000 from Nepal and 49,000 from the Philippines.
The key takeout is that half the net growth in the Australian workforce (actual in-work workers) over this five-year period was sourced from overseas and this included a two-year period during which the borders were closed.
The scale of this data hints at the fact that the underlying proportion of net new workers is generally much higher than a mere 50 per cent.
In the five years to 2016, the Australian workforce (as stated via the censuses) increased by 626,000 – of which 159,000, or 25 per cent, was sourced from within Australia.
The bottom line is this: over the past two intercensal periods (2011-16 and 2016-21) the proportion of net new workers added to the Australian workforce has dropped from 75 per cent to 50 per cent.
We have had to “find” about a quarter of all net new workers required from somewhere within the Australian continent: about 100,000 have been drawn from the ranks of the unemployed; others have been sourced from greater workforce participation; more again would have arrived as returning expat Australians of working age.
This has been a tough experience for a nation that has sailed along for decades without questioning its just-in-time-supermarket-shopping attitude to fulfilling our every labour need. Need a welder? Go to Manila. Need an engineer? Try Delhi. Want a chef? Dublin’s good.
Australia’s reliance upon the fragilities of access to overseas labour has been exposed by the pandemic. But to be fair the same “awakening” could have been revealed by a geopolitical incident that for example blocked the free flow of goods, services and people into and out of Australia.
The net new worker cohort – 1.4 million workers over five years – has been layered across the workforce like icing on a cake. The bedrock (OK, so it’s a rock cake) pokes through in the mid-40s and the mid-50s.
There are dips in the Australian workforce in these years caused by the introduction of contraception in the late 1960s (fewer kids) and by diminished immigration in the mid-1970s (Australia wasn’t such a hotshot immigration destination in the calamitous ’70s).
There have been structural shifts over time with women remaining in the workforce in their mid-30s and also from the age of 50 onwards.
Men have more or less retained their long-term labour force participation rates throughout their early and mid careers.
However, from the late 50s onwards, as with women, men also remain longer in the workforce. And I suppose this is a dividend of the shift to knowledge work: it’s possible, even preferable for many, to remain in the workforce longer. This option isn’t open to, for example, a welder who has probably been bending over welding since the age of 15.
Melbourne, Sydney and Perth are Australia’s most global capital cities when measured by the proportion of local workers born overseas. These workers tend to cluster perhaps in order to be near family but they also cluster near universities, manufacturing hubs and immigration hostels. Net new workers includes foreign students working in the gig economy.
Whereas 33 per cent of the Australian workforce at the 2021 census was born overseas, this proportion in Sydney’s Wolli Creek tops 69 per cent. In Melbourne’s Truganina, this proportion reaches 67 per cent. And in Quinn’s Rocks on Perth’s northern edge, this proportion is 55 per cent.
The timing of the pandemic and its consequential border closures has alerted Australia, and the developed world, to the scarcity of one of the 21st century’s most valuable assets: skilled workers who are prepared to relocate within and between countries.
This hasn’t been an issue over the past 30 years; it is now and that’s because labour pools everywhere are shallowing (if there is such a word). And that’s because fertility rates have been declining for any number of reasons. (That’s another demographic topic altogether.)
In the slower-growth world that lies ahead, in a world where the rate of growth in working taxpayers is either plateauing or shrinking, a different kind of thinking needs to emerge within Australia and beyond.
Here is one of the great demand drivers behind digitisation. Business must get greater productivity per unit of labour if labour is indeed scarcer. This is best achieved via automation, mechanisation, AI and digitisation. We need to lean into this way of working and living.
In the meantime, we have a serious need for skills, for labour, for the garden hose filling the backyard swimming pool so that it may deliver a deeper supply of labour options.
The evidence from the 2021 census is that we are switching our labour sources from China to India. We are as ever reliant upon workers arriving in Australia from Nepal, the Philippines, South Africa and beyond.
The skills shortage is the perfect demographic storm converging upon the hapless citizenry of the early 2020s. Fewer kids born 20-40 years ago. Borders closed due to pandemic. Digital transformation of the economy requiring uniquely skilled workers at scale.
Plus, and this really is the maraschino cherry on top: baby boomers being so piqued by the pandemic are now thinking they have just lost two of their “remaining good years” (yes, that’s how they think) and are resolving to exit – retire from – the workforce post pandemic.
That is why there’s a skills shortage, but equally this shortage was always going to happen at some point in the 2020s. The pandemic and closed borders for Australia just brought everything forward a few years.
Bernard Salt is founder and executive director of The Demographics Group; data and research by data scientist Hari Hara Priya Kannan.
It is the biggest issue confronting Australian business today, and no doubt business in other nations. It is the skills shortage. It is partly due to the closure of borders for two years to late 2021.