Where tradies work: A regional analysis of the labour market for tradespeople

Before the global financial crisis there was much discussion about skills shortages in Australia. The economy was nearing full employment and skills shortages were perceived as constraining growth.

As the Australian economy recovers from the economic downturn, attention once again turns to avoiding or addressing skills shortages—as illustrated by the current inquiry into the applicability of government employment policies in addressing the skills shortages in regional Australia currently being conducted by the House of Representatives Standing Committee on Employment and Workplace Relations.

It is therefore timely to look at how the labour market has responded to changes in the supply and demand of tradespersons through the varying economic conditions of the past 20 years.

Key messages

• The major factors affecting demand for tradespersons are the business cycle, population movements and structural changes in the Australian economy.
• The analysis showed that the labour market for tradespersons is largely efficient. Migration—both from overseas and internal—and changes in earnings appear to have been important ways of adjusting supply and demand.
• Migration from overseas played an important role in the economic development of urban Western Australia and in the mining boom in remote Western Australia. In terms of regional movement, capital cities continue to attract tradespersons from rural and regional areas.
• There is considerable variation in median earnings within and between different trades and regions. While the relative earnings of the lowest-paid tradespersons have fallen over time, the earnings of the highest-paid have grown. This difference between the lowest- and highestearning tradespersons is most extreme in remote regions.

Tom Karmel
Managing Director, NCVER

The economic boom of the late 1990s and early 2000s focused attention on skills shortages in Australia and their role in preventing the economy from reaching its full potential. This report looks at the extent to which the supply of tradespersons has adjusted to changed economic conditions.

While there is much anecdotal evidence on the regional dimension of skill shortages, this has mainly concentrated on flows of labour into the resource-rich states of Western Australia and Queensland. There has been no comprehensive analysis of the regional distribution of skilled labour, such as tradespersons, or the extent of population movement of skilled labour between regions during Australia's recent boom.

This report investigates demand, supply and adjustment in the labour market for tradespersons—individuals working in occupations defined within the Australian and New Zealand Standard Classification of Occupations (ANZSCO) Major Group 4 and within the various sub-groups. Data from the Australian Bureau of Statistics (ABS) Censuses of Population and Housing provide insights into different stages of the business cycle, from the middle of a recession in 1991, to the recovery in 1996, the boom in 2001, to the subsequent severe skills shortages evident in 2006.

A profile of tradespersons shows that in 2006 the majority are male, work in capital cities and are employed in construction, manufacturing and retail trade. An analysis of tradespersons between 1991 and 2006 indicates the cohort is ageing faster than the general population. During this time, the median age for all tradespersons has progressively increased from 33 years in 1991 to 37 years in 2006. The ageing of the population of tradespersons could have implications for their supply, unless there are adjustments to the market, such as increases in skilled migration.

The major factors determining the demand for tradespersons appear to be the business cycle, population movements and structural changes in the Australian economy. The recent prolonged economic boom was marked by significant growth in the construction and mining sectors and the relative decline in manufacturing employment. These changes were mirrored by the changing pattern of demand for tradespersons. Construction experienced noticeable excess demand for tradespersons, and mining actually employed more tradespersons than would have been expected, given their normal skill mix.

With the possible exception of manufacturing and retail trade, technological change has not significantly altered the employment mix vis-à-vis tradespersons. Structural change, arising from changes in relative demand for different goods and services, has been the dominant factor driving changes in relative demand for tradespersons.

When skilled labour is in short supply, one option for firms is to use unqualified labour as a substitute for qualified tradespersons; the research demonstrated a significant rise in the number of unqualified tradespersons in some industries during the economic boom.

Adjustment in the labour market in response to supply and demand takes the form of quantity (employment) and price (wages) movements. This research finds evidence of both forms of adjustment for tradespersons.

Migration of skilled labour from overseas is one form of quantity adjustment and the relocation of tradespersons from overseas has been a significant part of efficient adjustment in the labour market. Migrants played a particularly important role in the economic development of urban Western Australia and also in the mining boom in remote Western Australia.

There was also regional movement in tradespersons. Capital cities continue to be an important source of demand for tradespersons living in rural and regional areas. Given the mobility of skilled labour, both internally and from overseas, there appears to be no apparent need to locate training in regions where a specific demand occurs.

Earnings appear to have played a very important function in adjusting supply and demand for tradespersons over the business cycle and in periods of structural change. This is particularly the case for Western Australia, with its large population growth and booming mining sector.

Rises in wages in specific skills-intensive occupations act as signals for investment in education for the acquisition of these skills. Although median earnings in many trades are not high compared with other occupations, there is considerable variation within and between different trades and regions. The relative earnings of the lowest-paid tradespersons have consistently fallen over time. However, the labour market is increasingly providing better rewards for the best tradespersons. Remote regions are the worst and best places to be for tradespersons, depending on which earnings group they belong to.

A large number of fully qualified tradespersons are lowly paid and this could explain the low percentage of people fully qualified. This suggests that, to justify undertaking trades training, much shorter periods of training would be required to raise the rate of return on a qualification.

The report concludes that there was no overall severe shortage of tradespersons during the economic boom, although there was significant excess demand in some local labour markets and excess supply in some others. The quantity and price adjustments, discussed above, worked in response to changes in supply and demand for tradespersons.