Skills crisis can be solved with training and good faith bargaining

Australia faces a skills crisis. Workforce shortages have been reported across a wide range of industries. Strong projected employment growth suggests these shortages are likely to be a feature of Australia’s labour market into the future.

There has been much debate over how best to address Australia’s skills and workforce needs. This was a key focus of the recent Jobs and Skills Summit, with the Australian government calling for the creation of an “effective skills and education system that better reflects the needs of the economy and is supported by industry investment in training and a responsive migration system”.

Misalignment between current labour market policies threatens Australia’s skills base. Training, immigration and industrial relations policies all have important roles to play, but their design means they are at cross-purposes.

One example of this is the Temporary Skill Shortage visa, which despite having the objective of addressing skills shortages, is designed to address individual employers’ recruitment difficulties.

Recruitment difficulties may be the result of an employer offering uncompetitive wage rates and unattractive working conditions, rather than skills shortages that are experienced by all employers in the same sector.

Furthermore, the Temporary Skill Shortage visa does not take sufficient regard of job quality measures, which can affect the attractiveness of jobs in shortage to prospective workers who could fill those shortages.

Labour market reforms since the 1990s have prioritised “marketised” training policies that have discouraged employer investment, “demand-driven” temporary visas that have contributed to migrant worker exploitation, and industrial relations arrangements that have undermined workforce development and retention. This has resulted in policies that are poorly equipped for addressing the labour market’s longer-term needs.

Governments, employer groups and unions need to work together to address this situation. The constructive approach of the Jobs and Skills Summit is a good start, but more concrete solutions are needed. Sector-wide collective bargaining is the most promising solution. This would strengthen “co-ordination” over workforce development, which is important for fixing the skills system.

At present, Australia has weak co-ordination mechanisms by leaving individual employers responsible for their own training arrangements. This means that employers face a “prisoner’s dilemma”: many are reluctant to train due to concerns that their skilled workers may be “poached” or recruited by their competitors before the costs of their training investment can be recovered. This situation has contributed to skills shortages.