How supply and demand forces shape VET markets

Markets are influenced by two major factors. These are supply of goods and services, and demand for these same goods and services. In the case of the vocational education and training (VET) market, demand derives from the clients who receive the training, and the supply relates to the institutions that are able to provide the training. VET is considered by governments to be important for both economic and social development. The Australian government has in the past acted to influence the VET market through supply-side intervention. There have been significant funds provided for the establishment of infrastructure and subsidisation of courses deemed to be beneficial for Australia's social and economic development. Unfortunately the supply-side intervention has been fraught with significant misjudgements. Many students having completed courses and gained qualifications remained unemployed, or employed in jobs where the skills they developed were not considered to be useful.

In the early 1990's the Australian government, on the recommendation of the Employment and Skills Formation Council (ESFC), adopted a policy for VET which emphasised the influence of demand factors rather than those of supply. A demand-driven market was thought to produce better social and economic outcomes from VET.

This report considers the effect that this shift in government thinking has had on industry training advisory bodies (ITABs), training providers (both public and private), and the employers of people with qualifications and skills. It considers the successes and failures produced by the changes in government intervention in the training market.

This report examines four major issues in relation to the effects of these changes on stakeholders. These include: to what extent are understandings about supply and demand within the training market held in common among the key stakeholders in particular industries? What can be documented regarding the ways in which stakeholders utilise their understanding of the training market and how it operates? How do the factors influencing supply and demand interact to shape the nature and operation of the VET market? And what impact is there on the training market from 'non-market factors' such as government planning, equity and access considerations etc.?

A questionnaire survey of more than 50 representatives from four major industries was conducted. The findings provided qualitative evidence of how changes in the training and education sector are perceived by stakeholders. Industries included in the analysis are tourism and hospitality, electronics and electrical engineering, secretarial and administrative services and hairdressing.

Variation of perception among the industries included in the survey was common. In addition to the variation among industries, difference of opinion among stakeholders within industries is also evident from the survey.

Evidence suggests that the efforts to increase the role of demand in determining training efforts are influenced by a number of factors. These include the history or tradition of training in the industry, and the size of the enterprises in the industry and their ability to negotiate with training providers. The composition of industries' workforces and their employment patterns, and the level of technological innovation within an industry also affect changes. Other less significant factors include regulations relating to occupational health and safety and licensing requirements for workers in an industry.

Conflicts among employers and training providers within industries are emphasised by the study. Employers want increased output of students with skills or qualifications to reduce the cost of labour. Training providers want to limit the numbers of students enrolled in courses to increase the demand for the course and maintain or increase the price of provision. The study provides evidence that ITABs play a pivotal role in mediating this conflict between training providers and employers.

The report finds no single method or strategy that guarantees best results for stakeholders from the training market. The characteristics of the individual enterprise and its workforce will determine the most suitable training methods and techniques. The introduction of demand-side policies aimed at increasing the role of employers in the training market has been influential in developing new training methods and techniques and increasing the choices available to stakeholders. What will remain at the base of the training market structure is a mixture of supply and demand influences. These interacting influences will be continually shaped through negotiations between employers and providers.

The report concludes that both supply and demand components are required to produce successful outcomes from VET: a marriage of supply and demand, replicating each other, rather than a one-sided market?either supply or demand. The shift towards a demand-driven market emphasised by the policy shift in the early 1990's has recognised this and has allowed the VET market to play a role as a social and economic development instrument.