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Address to the Australian Financial Review's Skilling Australia Conference: Sheraton on the Park Hotel, Sydney: 18 September 2006.
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18 September 2006
THE HON. JOHN HOWARD MP PRIME MINISTER OF AUSTRALIA ADDRESS TO THE AUSTRALIAN FINANCIAL REVIEW - SKILLING AUSTRALIA CONFERENCE
SHERATON ON THE PARK HOTEL, SYDNEY
Thank you for inviting me to again open this conference on a very important and complex issue.
As with most important, complex issues it is worth starting with a note of humility. When it comes to skilling Australia, no politician, bureaucratic flow chart or phalanx of PhDs can match the wisdom embodied in essentially uncoordinated decisions in homes, learning institutions and workplaces.
A more skilled Australia requires a genuine, ‘bottom-up’ partnership across governments, businesses, education and training providers and individuals.
This goes to a point I’ve made in other contexts - that truly successful nations thrive not on the fixed plans but on well-governed flexibility.
The future growth of any given occupation is difficult to predict with any certainty. A wide range of variables can change the mix of jobs in an economy over time.
Twenty years ago, no one foresaw the way the Internet would transform the world of work. Few if anyone had heard of bio-technology or nano-technology. Twenty years ago, Australia’s resources sector was seen by some very intelligent people as a millstone of ever declining terms of trade.
The high demand for skilled workers in Australia is the flip-side of an economy now in the 16th year of economic growth.
Job growth is strong. The unemployment rate has fallen to a thirty-year low and labour force participation is at an all-time high.
The fact that competition for good workers is high is not a bad thing. As Ian Macfarlane said last month: ‘Economies are meant to operate somewhere around the zone of full capacity, not permanently below it.’1
Nor should we overlook the skills pay-off from more people in jobs. From so-called ‘soft’ skills like teamwork and loyalty through to more technical, on-the-job training, actual experience in the workplace matters.
In a vibrant, growing economy, some level of skills shortages is part of the normal functioning of the labour market. As pressures emerge, people re-skill and respond to wage signals in order to adapt to changes in labour demand.
Much of the recent tightness in the labour market is associated with the commodity boom. The impact is geographically concentrated in Western Australia and Queensland, resulting in strong employment growth in the resource-related sectors of mining, utilities and transport.
A large increase in labour supply and contained wage growth suggests that the economy is adjusting well. Its resilience and flexibility have been enhanced by structural reforms and sound macroeconomic management over the last decade.
At a micro level, governments also have a role in matching workers with jobs. The Australian Government’s recently-announced pilot programme to assist job seekers looking to relocate to where job growth is strong is just the latest example of our flexible and responsive labour market policy.
This policy framework has allowed the economy to run at a very high level of capacity utilisation. Which makes Mr Beazley’s backward-looking workplace relations policy all the more irresponsible - a policy that would return Australia to the days of industry-wide, union-dominated, pattern bargaining.
A fluid, dynamic labour market is one of Australia’s greatest economic assets.
The contrast with previous episodes of commodity boom-related labour market tightness is stark. For example, in the mid-1970s demand pressures in some sectors led to a surge in wages and inflation across the whole economy.2
Greater diversity in wage growth across sectors is a key difference between now and then. Higher relative wages in sectors experiencing skills shortages act as an increased incentive for individuals to develop highly demanded skills.
If all wages were to go up by similar amounts (as in the days of centralised wage fixing), this incentive would disappear.
1 ‘Opening Statement to the House of Representatives Standing Committee on Economics, Finance and Public Administration’, 18 August 2006, Reserve Bank of Australia. 2
David Gruen, ‘A tale of two terms-of-trade booms’, Address to Australian Industry Group, Economy 2006 Forum, 1 March 2006, Department of the Treasury.
Australia’s continued prosperity depends on resources, workers and skills being able to flow between sectors and firms. I don’t for a moment dispute the fact that many businesses are having difficulty obtaining suitable staff.
Nor do I have any qualms in saying that the nation’s education and training institutions need further far-reaching reform. Australia does face a number of major skills challenges which I will speak to shortly.
All I ask is that you not mistake boiler-plate rhetoric about a skills crisis (mixed with crude partisanship and ignorance of economic reality) with anything approaching actual policy insight.
To illustrate what I mean, let me take up the issue of skilled migration, and in particular 457 visas.
These temporary work visas ensure that Australian industry can access skills not readily available in a very tight labour market. Independent research shows that the average salary of those on temporary work visas is high ($65,000) and that they are helping to pass on skills to working Australians.3
Far from undermining jobs, these targeted visas help to maintain them. They are part of an immigration programme structured to meet the skills needs of a strong and growing Australian economy.
Apart from bad economics, there is more than a whiff of hypocrisy on this issue from the labour movement.
Among the biggest users of 457 visas are State and Territory Labor Governments, with the largest single user being the NSW Health Department. State governments are intimately involved in the relevant Regional Certifying bodies.
Even the trade union movement is in on the act. The likes of the National Union of Workers and the Finance Sector Union have used these visas to recruit brother-workers from the US and the UK.
Still, you have to admire the chutzpah of Federal Labor given their scorecard last time in government read something like this:
â¢ a decline in real wages; â¢ a recession in the early 1990s that decimated lower skilled jobs; â¢ a massive fall in apprenticeship training; and â¢ a migration programme that put maximum pressure on the low skilled and had
more to do with party branch stacking than the skills needs of the nation.
3 Siew-Ean Khoo, Peter McDonald and Graeme Hugo, ‘Temporary skilled migrants’ employment and residence outcomes: Findings from the follow-up survey of 457 visa holders’, prepared for the Department of Immigration and Multicultural Affairs, August 2006.
To appreciate Australia’s skills challenge, not just today but in the long term, we need to explore the larger structural trends transforming the world of work. Australia’s labour market has changed dramatically over time, with more women in the workforce, changes in industry structure and the need for much greater workplace flexibility.
I’ve spoken before about the rise of the enterprise worker as the symbol of a more entrepreneurial culture. From greater self-employment and independent contracting to the blurring of traditional lines between management and labour, we have seen the emergence of a new breed of worker-entrepreneur.
Demand for more flexible work and training arrangements is coming from employers and employees alike.
Employers are demanding a higher level of skills, a broader range of skills and more frequent updating of skills. We see this in the changing occupational structure of the labour market with growing numbers of people working in managerial and other professional positions.
A tight labour market means employers must tap a wider and more diverse pool of labour. To attract and retain skilled labour, education and training must be a part of core business.
Employers are demanding greater choice and competition among training providers. They want training to be delivered when and where it is needed, whether in a classroom or in the workplace itself.
Workers want to be able to respond to change and access training opportunities throughout their working lives. An education and training system predicated on a world where someone was educated until young adult-hood and then entered a job lasting roughly 40 years has become basically obsolete.
Younger Australians in particular no longer expect or want a job for life. They want portable skills that let them move between jobs and locations.
All this points to why we need a more flexible and responsive education and training system - where the users are the drivers of the system.
Demographic trends, economic globalisation and technological change reinforce this imperative.
The retirement of the baby boomers will continue to put downward pressure on the number of participants in our labour market.
The Australian workforce will continue to grow but at a much slower rate. The Productivity Commission projects that whereas our working-age population grew on
average by about 175,000 people every year from 2000 to 2005, this will fall to 138,000 in 2010 and an average of about 57,000 a year between 2020 and 2030.4
In some industries, the number of workers aged 45 and over is already high and growing. The workforce of tomorrow will be more diverse with more older workers, more parents, more people with disabilities and more people wanting to work part-time.
To keep Australia strong and prosperous, there is no alternative but to further increase workforce participation and productivity. Our workplace relations and welfare to work measures are essential to this goal.
Demand for a more skilled workforce is also being driven by globalisation. The most recent era of globalisation - marked by the information technology (IT) revolution and the re-emergence of China and increasingly India as global economic powers - has been of enormous benefit to Australia. At the same time, heightened competition throws up many challenges for our economy.
Further technological advances can be expected to raise demand for skilled workers. Computers have come to perform more and more routine tasks and there is little reason to believe that technological change will abate.
Some of the more fanciful predictions about the disappearance of lower skilled jobs have clearly not materialised. Nor is there reason to believe they will in the future. Even so, the evidence that technological change favours more skilled workers, especially those with analytical, problem-solving and communication skills, is compelling.5
To compete and prosper in the decades to come, Australia will require a more skilled workforce whose members are adaptable throughout their careers to changing product and skills demands.
Progress in the last decade gives us a strong platform on which to build a more skilled nation.
Participation in education and training has never been higher. Expenditure (public and private) is above the OECD average overall and in the primary, secondary, post-secondary technical and tertiary sectors. At $15.5 billion this financial year, Australian Government spending on education and training is up 42 per cent in real terms on a decade ago.
The proportion of 15 to 19 year olds studying full-time rose from 63.9 per cent in 1995 to 67.4 per cent last year. Among 20 to 24 year olds, the relative increase in those studying full-time is even greater, rising from 15.2 per cent in 1995 to 24.9 per cent in 2005.
4 Productivity Commission, The Economic Impacts of an Ageing Australia, Research Report, 12 April 2005. 5
David Autor, Frank Levy and Richard Murnane, ‘The skill content of recent technological change: An empirical exploration’, The Quarterly Journal of Economics, 188(4), November 2003.
Australia ranks above the OECD average across all age groups on tertiary education attainment. Almost 718,000 Australian students were in higher education in 2005, nearly 30 per cent more than in 1995. A more diverse and innovative higher
education sector is now emerging from the shadow of past uniformity.
A record 1.6 million Australians are undertaking vocational and technical education (VTE) this year. More than 400,000 apprentices are in training - roughly 3.5 times the disastrous low point reached in 1993 when Mr Beazley was Minister for Employment, Education and Training.
Commencements in trades and related occupations continue to grow at a rate ahead of employment growth.
The Australian Government’s $2.5 billion investment in vocational and technical education this financial year amounts to a real increase of 85 per cent on a decade ago. Of the $10.8 billion committed over the next four years, states and territories will receive more than $5 billion. Employer incentives account for another $2.5
We are leveraging this investment to address what we see as the structural weaknesses in the training sector.
Our 25 Australian Technical Colleges (23 of which have been announced) have helped to restore the place of traditional trades in our national consciousness after a long period in which a trade training was deemed second-class.
With prodding, a number of state governments are finally rethinking their failure to provide young people with opportunities in the trades. We continue to press states to live up to undertakings to remove barriers to school-based apprenticeships.
A key aim of our funding agreement with the states is a more dynamic and responsive TAFE sector with increased competition, greater industry leadership and more performance-based employment arrangements.
We also believe states should free up governance arrangements so that TAFE Directors have greater independence and flexibility in responding to training demands.
The Commonwealth is continuing to drive system-wide reform through the Council of Australian Governments. Our priorities include full mutual recognition of skills qualifications across Australia and ensuring that progress towards an apprenticeship is based on competency and not time served.
After more than a hundred years, we finally have a national workplace relations system. It’s past time we had a national framework that lets someone work anywhere in Australia with their trade qualification.
As part of a broader National Reform Agenda, COAG has begun an ambitious Human Capital work programme. This is based on the recognition that a healthy, skilled and motivated population is critical to national prosperity. As a first step, specific
proposals in early childhood development, diabetes and literacy and numeracy in schools are being developed.
Beyond this, I’d like to mention three areas where I believe more effort and more reform is needed.
First, we need to improve the basic skills of our workforce.
About 3.5 million Australians aged between 25 and 64 are without Year 12 or equivalent qualifications. This largely reflects lower education participation by young Australians two and three decades ago and previous migration programmes which placed much less emphasis on skills.
Many adults lack essential literacy and numeracy skills. The most valuable information technology (in this or any age) is still the ability to read, write and count.
The days when functional levels of literacy and numeracy were not essential for just about every job are fast disappearing. They are now basic requirements in jobs which require the ability to operate computers and digital technology.
Traditionally, our education and training institutions have focused on new entrants to the labour market. In the 21st century, we must redesign them to also close the gap between the skills-rich and the skills-poor in the adult workforce.
The good news is that participation by older workers in education and training in Australia is currently very high by international standards (in fact, five times higher than the OECD average for 40 to 49 year olds). And in the last ten years the number of 45 to 64 year olds studying for a qualification has doubled.
A particular challenge is to reach groups with high need but low demand. For those without fond memories of school, the idea of going back into a classroom can be extremely daunting. Just as technological change is a challenge to many lower skilled Australians, we must explore how we can use technology to make adult learning more individualised and rewarding.
More flexible and responsive training services will be crucial in up-skilling our workforce. This is especially the case for small and medium-sized enterprises which often face great difficulty in restructuring work arrangements to allow their employees to learn and earn at the same time.
The higher educational attainment of younger generations of Australians provides some comfort about the longer term trend on basic skills. But only some. Our skills benchmarks should be the best, not the past.
Too many younger Australians are still not making successful transitions from school to work or further education and training.
The need for schools to put greater emphasis on so-called ‘employability skills’ has been a particular theme of groups such as the Business Council and the Australian
Chamber of Commerce and Industry. I encourage all state and territory governments to explore how they might take these ideas forward.
A second major skills challenge is to raise apprenticeship completion rates. Despite strong progress on commencements, we still lose too many apprentices before they complete their trade qualification.
Again, a crucial reason is simply the strength of the economy. When an unskilled labourer can earn up to three times the income of a first year apprentice, it will always be difficult to convince many people to slog through four years on a modest
Part of the problem arises from the historical influence of the award structure which has tended to compress wage relativities. Even today, short of self-employment, the economic return from completion of a four year apprenticeship is modest. A wage premium of about 13 per cent on average compared with a worker who has failed to complete Year 12 is far below an equivalent tertiary degree premium of more than 40 per cent.
Long-term incentives for skill development demand a flexible and dynamic labour market, which in turn highlights the folly of those who would return Australia to a more centralised and regulated system.
Last year, the Government introduced a $1,000 tax-free Commonwealth Trade Learning Scholarship with a payment of $500 to Australian Apprentices after the first year and another $500 at the end of the second. And we continue to look at steps we can take to make staying in apprenticeships more attractive.
Apprenticeships also need to be made more attractive to mature age workers, many of whom may have worked within an industry for some time and already have many of the relevant skills required in a particular trade.
With many tradespeople approaching retirement age, employers must do their bit to ensure that the specific needs of these workers are catered for. Again, our training system needs to give credit for experience on the job and provide shortened programmes suitable for experienced workers.
The third skills challenge we face is to increase the opportunities for people to obtain higher level skills. In particular, a strong skills base in science, engineering and technology is crucial to the foundations of Australia’s competitiveness.
The Government’s recent Audit of Science, Engineering and Technology Skills identified a number of challenges not just for governments, but for schools, universities, industries and the broader community.
As part of a larger science and innovation agenda, Julie Bishop has identified the critical need to improve the quality of science education in Australia. A mapping exercise is currently examining what initiatives are working and where the gaps are.
Longer-term, the Government recognises a growing demand for engineering graduates in Australia beyond the immediate pressures generated by the resources boom. In July, we announced an additional 510 new Commonwealth-supported
engineering places with a further 216 places allocated to other science fields.
In this ever more competitive global economy, Australia’s science, engineering and technology skills need to match the best in the world.
I have endeavoured today to place some of the headlines about a skills crisis in a context of economic strength and economic change.
Skilling Australia is a complex issue with many dimensions not least those related to our federal structure. It’s more than wrong to cast it as amenable to a quick government fix. It’s intellectually arrogant.
One of the 20th century’s most acute economists, Joseph Schumpeter, got to the nub more than 60 years ago when he described capitalism as ‘by nature a form or method of economic change [that] not only never is but never can be stationary’.
In our dynamic, flexible, capitalist economy, a degree of humility about predicting the future should not be dismissed lightly. Far from being an obstacle to good policy-making on an issue like skills, it amounts to a precondition.
Governments, businesses, training providers and individuals, all must pitch in if we are to build a more skilled Australia.
While it does not end there, the responsibility of the Australian Government certainly begins with getting the big things right - keeping our economy strong, maintaining the pace of reform, and offering all who strive to better themselves the opportunity to reach their full potential.
It may not make tomorrow’s headline in the Financial Review. But on this score, I believe Australia today has few equals.