News & Events
Implications of the economic downturn for vocational education and training
By Tom Karmel
Campus Review
25 May 2009
It seems only yesterday that the big issue for Australia’s education and training system was how to address skills shortages. How quickly things change. Now the issue is how the education and training system can best position the country for the upturn which will certainly happen, even if the timing is rather uncertain. How will the downturn affect vocational education and training, and how should it respond?
A common theme in policy circles is that it is a good time to invest in education or training. This makes sense when we think of education and training as an investment. For a young person who is facing unemployment the opportunity cost of another year in study is very low, particularly in comparison to the good times when a job could readily be picked up. Similarly, for a person in a job further skills will provide some insurance against future contingencies- their employer is less likely to dispense with their services, and if they do lose their job then it is easier to pick up another one. While being highly qualified does not guarantee a job we know that there is an inverse correlation between qualification level and unemployment (Figure 1).
Figure 1 Unemployment rates by level of post-school qualification, 1989–2008
Source: ABS Survey of Education and Work.
Thus we would expect an increasing demand for education and training, and this is what we observed in the early 1990s on the heels of much higher unemployment, when unmet demand from students was a much more important issue than it has been in recent years (figure 2).
Figure 2 Tertiary education applicants unable to get a place, 1994–2008
Source: ABS Survey of Education and Work.
The picture is very different for employers. While it makes sense to train workers who are not working at full capacity, inevitably training is one of the first things to go when cost cutting begins. One obvious example of this is apprenticeships where we have seen the number of apprentices decline very significantly in some trades in the downturn. Figure 3 gives the story for the trade that is, arguably, the most affected by a cyclical downturn. Part of this is because apprentices are laid off (hence recent government incentives to keep ‘out of trade’ apprentices in their apprenticeships), but the main reason is that the commencements dry up. As an aside, I would expect completion rates to actually increase during the downturn because apprentices rather than their employers more often initiate the cancellation of the training contract.
Figure 3 Apprentices in-training, 1967–2006
Source: Karmel and Mlotkowski 2008
The experience of trainees might be different. The argument is that in many cases the incentives for traineeships are substantial wage subsidies and therefore, in a cost cutting environment, employers may favour trainees over other employees. However, this is supposition because we have not observed what happens to trainees in a recession. It’s also worth remembering that the motivation behind the introduction of trainees, following Peter Kirby’s inquiry into labour market programs, was to soak up large numbers of young unemployed persons in the 1980s.
Now let’s anticipate the next upturn. Where are skills shortages likely to emerge and which areas should we be most concerned about? I point to three criteria:
- Occupations for which training lead times are long.
- Occupations where there is a close match between training and employment. If the match is poor then the training is more generic in nature and one would expect that the potential pool of labour is wide. An example is clerical occupations.
- Occupations where there is not a large pool of labour which can be drawn on when labour demand begins to grow.
In the VET sector I argue that it is the trades that best fit these criteria. The standard training for a trade apprentice is 3 to 4 years, although some achieve trade status in a shorter period. We know that there is a good match between training and the occupation (in fact the only other areas where the match is quite high is among carers in the community services industry, see Karmel et al. 2008). And finally, I argue that the pool of potential tradesmen is relatively small.
This last point is quite contentious because we know that there is a large number of ex-tradespersons; according to the ABS Survey of Careers Paths of Tradespersons (admittedly in 1993) about 40% of building tradesmen were not working in the trade1 . The question is how many can be attracted back into the occupation. I point to a couple of bits of evidence. First, the ABS Survey on the Career Path of Tradesmen showed that taking breaks from the trade is relatively rare, at around 20% of those with a trades qualification2 . That is, while some ex-tradesmen rejoin the trade, on balance most don’t. Second, some modelling work I have done shows that there is very substantial net attrition after the age of 25 years in all trades bar horticulture (Karmel and Ong 2007). . The net attrition rate is higher in bad times, and lower in good times, but always it is negative. This means that the entry by young people (except in horticulture) underpins employment growth. This doesn’t imply that ex-tradesmen won’t rejoin their trades- according to the 1993 data just under a half would consider a return3 - but that tapping the ex-tradesmen pool would not be sufficient to fuel increasing employment.
Thus it is not surprising that we saw skill shortages emerge after the recession of the early 1990s, as can be seen from the index of skilled vacancies (figure 4). These skill shortages continued into the next decade.
Figure 4 Skilled vacancy index by occupation, 1990–2008
Source: DEEWR, Skilled vacancy index data, April 2009.
Can anything be done about this? We should aim to maintain the pipeline of young people entering trades apprenticeships. If employers won’t take on sufficient apprentices in the downturn, perhaps we need to think about an alternative institutional pathway, with simulated work environments rather than actual workplaces. This model has been decidedly unpopular with employer groups, but it is time to at least think about it as an alternative, not a replacement, of the apprenticeship pathway.
1Table 1.5
2Table 2.1
3Table 2.9
References
Australian Bureau of Statistics (1994), Career paths of persons with trade qualifications, Australia, 1993.
Australian Bureau of Statistics, Survey of education and work, various issues.
Department of Education, Employment and Workplace Relations, Skilled vacancy data.
Karmel, T & Mlotkowski, P 2008, Modelling the trades: an empirical analysis of trade apprenticeships in Australia, 1967–2006, NCVER, Adelaide, viewed June 2008, http://www.ncver.edu.au/publications/2003.html.
Karmel, T, Mlotkowski, P & Awodeyi, T 2008, Is VET vocational?: the relevance of training to the occupations of vocational education and training graduates, NCVER, Adelaide, viewed October 2008, http://www.ncver.edu.au/publications/2013.html.
Karmel, T & Ong, K 2007, Will we run out of young men?: implications of the ageing of the population for the trades in Australia, NCVER, Adelaide, viewed December 2007, http://www.ncver.edu.au/publications/1935.html.
Kirby, P 1985, Report of the Committee of Inquiry into Labour Market Programs [Kirby report], Australian Government Publishing Service, Canberra, viewed November 2008, http://www.voced.edu.au/docs/landmarks/TD_LMR_85_649.pdf.
