Demographic impacts on the future supply of vocational skills

This report examines the effect of an ageing population on the future skills supply. It gives a detailed analysis of projected vocational education and training (VET) employment and VET qualifications by occupation and age group to 2020, highlighting those occupations using VET-acquired skills. It also quantifies the compositional effects of changing demographics on both the quantitative (‘how many?’) and qualitative (‘what type?’) dimensions of the supply of vocational skills.

Key messages

• Over the next 15 years, the workforce will continue to grow but its age structure will change significantly. By 2020 people aged between 50 and 65 will comprise 45% of the working-age population. However, the age distribution of new entrants will remain constant for males and get a little younger for females.

• By 2020 almost all the non-trade occupations are expected to have more people aged over 55 than under 25. People in the trades have the youngest age profile and this is expected to persist for the next 15 years.

• The workforce will become more qualified as more qualified age cohorts move through the labour market (and because within VET-intensive occupations there will be an increase in associate professional and managerial and administrative occupations). Skill deepening will lead to even higher levels of qualifications.
  

• There will be a growing demand for the VET sector to:
  • assist in improving the skills and hence employability of people currently marginal to the workforce, including older workers
  • provide training that helps people upgrade or enhance their VET qualifications at higher levels (especially advanced diploma/diploma) and in the business/management disciplines
  • offer older workers a quick return on their training investment.
    

The report is part of a suite of research undertaken by the National Institute of Labour Studies, Flinders University, and the Centre for Post-compulsory Education and Lifelong Learning, University of Melbourne, whose findings are synthesised in A well-skilled future by Sue Richardson and Richard Teese. Two other NCVER publications address similar issues: Will we run out of young men? by Tom Karmel and Koon Ong (NCVER, 2007) and Higher-level vocational education and training qualifications: Their importance in today’s training market by Sue Foster et al. (NCVER 2007).

Tom Karmel
Managing Director, NCVER

Introduction

This report is a component of the research program entitled A well-skilled future: Tailoring VET to the emerging labour market, in which the evolving labour market and changing work organisation and management in the context of the vocational education and training (VET) sector are examined. The research has been undertaken by a consortium of researchers from the National Institute of Labour Studies and the Centre for Post-compulsory Education and Lifelong Learning of the University of Melbourne.

The ageing of the Australian population and its impact on the Australian labour market is an issue of national concern. The impact of population ageing on the supply of vocational skills is an important part of the story and yet to be properly understood. This study analyses and quantifies the effects of ageing on both the quantitative (‘how many?’) and qualitative (‘what type?’) dimensions of the supply of vocational skills in Australia. We measure skills supply in two ways: employment in a job that uses VET skills and the number of people with VET qualifications in the Australian workforce. Focusing particularly on VET-intensive occupations, this study provides an analysis, over a 15-year period to 2020, of projected VET employment and VET qualifications by occupation and by age groups.

From the nine major groups of occupations (as defined by the Australian Standard Classification of Occupations [ASCO]), five VET-intensive occupations are identified (among workers aged 25–49). ‘Tradespersons’ is found to be the only occupation where a majority of workers have VET qualifications. The other VET-intensive categories include: ‘Associate professionals’, ‘Managers and administrators’, ‘Intermediate’ and ‘Advanced clerical and service workers’.

We use cohort analysis methods to understand workforce dynamics and use age or age–sex specific analysis methods to project the share and size of employment and VET qualifications in each occupational category. The historical employment patterns in each occupation and for each age group between and within occupations over time are irregular, and so changes to employment shares need to be smoother. Based on the changing age structure of the workforce and the pattern of qualifications among the different age groups, the number of workers with VET qualifications (within each occupation) is projected.

Impacts of the ageing population on labour supply

Over the next 15 years, the workforce will continue to grow (by 1.7 million people), albeit with a declining rate of growth. The age composition of the workforce will change significantly to comprise a large proportion of older workers. The share of the prime-age group (25–49) reached a maximum of 48% of those of working age (15–65) in 1996 and has fallen steadily since then. It will decrease from 45% in 2005 to 37% in 2020. By 2014, there will be as many people aged 50–65 years as there are people aged 25–49 years. The older group will comprise 45% of the working-age population by 2020.

This study analyses the movement of people into and out of the workforce arising from the interaction between the age–sex structure of the population and age–sex specific participation rates in the future. As the large baby boomer generation approaches traditional ages of retirement, the number of outflows from the labour market is expected to increase. However, there will be virtually no change in the number of young people entering the workforce. In fact, the age distribution of new entrants will remain constant for males and get a little younger for females. Together, these trends highlight the importance of extending the working lives of older workers. Furthermore, there will be a necessity for the VET sector to assist in increasing the skills of people who are currently marginal to the workforce, as an important way to supplement the slowly growing workforce.

Projections of employment in VET-intensive occupations

The supply of skills is a difficult thing to observe. People obtain work skills by undertaking formal education courses and obtain formal qualifications in the process. We can measure supply as the numbers of people who have particular qualifications. But many people who have a qualification do not use that qualification directly in their job. And many people who work in a skilled or semi-skilled job have no formal qualifications, or have one not relevant to the job. Thus a reliance on measuring qualifications is not sufficient. A second way to measure supply is to assume that everyone who does a skilled job has the necessary skills for the job and therefore is part of the supply of those skills. With this approach, the changes of the overall employment in VET-intensive jobs and its distributions among occupations and across age groups can be deemed to be the supply of VET skills. We use both approaches.

Based on recent patterns of growth, the categories of ‘Generalist managers’, ‘Specialist managers’, ‘Business and administration associate professionals’, ‘Skilled agricultural and horticultural workers’, and ‘Intermediate service workers’ will be the largest and probably the fastest growing VET occupations. In contrast, there is likely to be a decline in employment of ‘Farmers and farm managers’, ‘Automotive tradespersons’, ‘Food tradespersons’, and ‘Secretaries and personal assistants’. Within the trades, ‘Construction tradespersons’ and ‘Skilled agricultural and horticultural workers’ are anticipated to grow in share by approximately 1.0 and 1.8%, respectively, over the period 2005 to 2020. In absolute terms, this means an additional 36 000 and 30 000 people, respectively.

For all of the VET-intensive occupations, the share of older workers (especially those aged 55 and over) will rise, and the share of prime age workers will decline. While the whole workforce will be older, the VET-intensive ‘Associate professional’ and ‘Advanced clerical occupations’ will be particularly affected. The occupations that will have the most rapidly ageing profile include ‘Science/engineering’, ‘Health/welfare’ and ‘Secretaries/personal assistants’. Almost all of the non-trade occupations are expected to have more people aged over 55 than under 25 by 2020. Those in the trade occupations (especially automotive, construction and food) have the youngest age profile and this is expected to persist for the next 15 years.

Projections of VET skills supply in VET intensive occupations

To estimate the persons with VET qualifications to be employed in each occupation, this study uses education clusters to assign a ‘VET skills ratio’ to the projected employment in each of the five VET-intensive major occupations. We expect a more rapid increase in the supply of qualified people in each of the major occupations than in the number employed. By 2020, the total number of people with VET qualifications projected to be employed in the five VET-intensive occupations will, at around 2.81 million, be almost half a million more than in 2004. Most of the increase will be for qualifications in the fields of Associate professional and Managerial and administrative work, with men predominating. There will be an increasing demand for training to upgrade or enhance people’s VET qualifications at higher levels (especially advanced diploma/diploma) and in the business/management disciplines. The smallest increases will be in the ‘Advanced clerical and service workers’ and the ‘Trades’. Overall, 60% of the additional VET qualifications will go to men.

The changing age profiles in 2-digit occupations are apparent in the synthetic cohort analyses of the projected VET qualifications, as people enter and exit specific VET occupations at different points in the life course. The analyses demonstrate that people with VET qualifications enter occupational groups in widely varying ways, and at different ages. People enter the trades (and farming) at a young age and start to leave the occupation by their mid-20s. In contrast, people enter the ‘Management’, ‘Associate professionals’ and ‘Intermediate’ clerical jobs at every age up to the mid-40s. The age and stage in the life course of the student body will differ, according to the type of VET qualifications being sought.

Implications for VET

The changes in age profile have implications for the VET sector. In the non-manual occupations, older workers are quite close substitutes for prime-aged workers and are likely to be as, if not more, productive. This is less true for the more manual VET occupations, including the trades. Both groups of older workers have large amounts of skills obtained from experience but lower levels of formal education than younger workers. For both reasons, they are likely to find it harder to use the formal VET system to update their skills, or to shift to the skills needed for a new occupation. The VET sector will be required to design and deliver courses for such workers to meet their particular requirements. These requirements include:

• having a quick return (in terms of higher wages or better job prospects) on the costs of obtaining the VET skill, since workers over the age of 55 may not expect to remain in the workforce for a long period

• being able to manage a very diverse range of backgrounds among students, as most will have obtained their (often considerable) skills from informal on-the-job experience, rather than from some more homogeneous curriculum

• accommodating people who, while wanting flexible course delivery to fit into their complex adult lives, will often not be very proficient in the use of the latest information technologies.

The formal recognition of prior learning is likely to be especially important as a means of engaging older workers in skills development opportunities provided by the VET system.

The VET sector will also be under pressure to expand its provision of higher-level qualifications—diplomas and associate diplomas—to meet the expansion of managerial and semi-professional jobs. It will be a challenge for the culture of the sector to provide high-quality teaching simultaneously to two very different groups—aspiring managers/professionals and older, perhaps marginally attached, workers who have no post-school qualifications.