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High Skills Don't Always Mean More Jobs

The Financial Review - 24 February 2000

Labor 's long awaited employment policy statement, Workforce 2010, keys off the previously published forecast by the Monash Centre of Policy Studies (COPS) that, unless policies are changed, unemployment will average about 8 per cent over the next decade. This forecast leads Labor to argue that, principally by improving training programs, it is realistic to target  unemployment of 5 per cent.


For this purpose Workforce 2010 also adopts COPS' forecasts of employment growth in individual industries and occupations. Opposition Leader Beazley portrays these as a road map for his  "knowledge nation" vision of the future - "a nation that takes the high road to a high wage, high skill economy".


Forecasting a decade ahead is a hazardous business and necessarily depends importantly on projecting recent trends forward. But unpredictable changes often can send forecasts astray. For example, GDP growth has averaged 1.5 per cent pa higher than COPS 1996 no policy change forecast to 2002-03 - even though its employment forecast has been about right so far.


Treasury is forecasting 7 per cent unemployment for 1999-00 and its projections of 2.0 per cent pa employment growth out to 2002-03 are half a per cent a year higher than COPS' forecast, implying lower average unemployment. But the no policy change forecast of 7- 8 per cent average unemployment adopted by Workforce 2010 is within the range of most current  estimates.


Labor is thus correct in suggesting that, in order to reduce  unemployment  significantly and sustainably, major policy changes are needed. The key question is what policy changes.


Policies that increase labour supply by improving education, training and work experience programs can help lower unemployment. This would be achieved principally through a (temporary) slowing in wages growth that would then increase labour demand, leading to higher investment and lower (permanent) unemployment.


But the lowering of wages growth from increased labour supply is likely to be marginal and demand may not increase sufficiently to permanently reduce unemployment. The track record of supply-side programs both in Australia and overseas suggests that, at best, they make only a marginal contribution to reducing aggregate unemployment.


Workforce 2010's supply side strategy envisages that workforce skills profiles be developed and training and retraining programs implemented to target threatened labour surpluses or shortages. But Labor is (rightly) so unsure of such a strategy that it would initially run the skills profiling only as a pilot program in high unemployment regions and expects much of the funding for training programs to come from current allocations!  This strategy certainly provides no justification for targeting 5 per cent unemployment


The reality is that changing circumstances often quickly outdate occupational predictions and governments are unlikely to be able closely target changing jobs and training requirements. In any event, the employment forecasts in Workforce 2010 itself indicate that  the occupations with good employment prospects mostly require no more than either people or computer skills.


Mr Beazley is naive in thinking that reducing unemployment depends primarily on having a "high" skill economy, and his criticism that only 28 per cent have post-school qualifications is wrong. Many jobs will continue to require only basic skills and in 1999 nearly 44 per cent already have post-school qualifications, up from 39 per cent ten years ago. Deregulating restrictions on employment of young people so as to allow on-the-job training may be almost as important.


Of course, Australia must continue to provide educational, job and research opportunities for highly qualified scientists, engineers, and medical people. Arguably, however, a country does not require a large group of such people in order to make innovatory advances.


What is principally required is direct action to increase labour demand by major deregulation of the labour market. This would increase employers' flexibility to determine workplace arrangements. The highly interventionist nature of current regulatory arrangements, coupled with the pro-union bias of industrial tribunals, severely inhibits employers from taking on additional employees at the margin.


Labor's Workforce 2010 makes no reference at all to this vital issue. Other indications suggest that Labor would even re-regulate in ways that would discourage enterprise and individual bargaining. This reflects the agenda of trade unions, to whose apron strings Labor remains tied even though last year's dramatic fall in trade union membership to less than 20 per cent in the private sector emphasises their unrepresentativeness.


The supply side measures proposed by Workforce 2010 represent a poor attempt at an employment policy. Both sides of the equation need attention but the predominant need is direct action to stimulate demand through deregulation.