Understanding the undertow: innovative responses to labour market disadvantage and VET

An Australian Government priority is to increase productivity by moving people from welfare into employment. Policy on this issue is difficult to develop because of the complexities surrounding both under- and unemployment.

This report considers underutilisation from two different perspectives. Not only does it contemplate the issue from the supply side—getting individuals ready to enter the labour market—it considers the readiness of the labour market itself to absorb labour.

Key messages

In the author's consideration of the role of intermediaries and vocational education and training (VET) in supporting workforce participation for underutilised groups, the following key findings emerge:

• Barriers to labour market participation can be categorised in two ways:
  • a state of information asymmetry, whereby those not in the labour force lack information about employment and options for accessing employment
  • a compromised state of labour market readiness, whereby those job seekers who are marginalised by the labour market are less ready to undertake employment. This paper argues that labour market readiness also incorporates the labour market itself, which may not be ready to absorb labour from these marginalised groups.
• Successful intermediaries illustrate that both demand and supply factors must feature in order to provide successful assistance to disadvantaged job seekers. They network, they adapt, and they even reinvent themselves to fill gaps in the support networks for their clients.
• Intermediaries suggest that VET by itself is not necessarily enough to enable transitions to employment for marginalised groups. For disadvantaged groups, social and economic supports are needed for them to be able to make the most of VET.

This report is the fourth from a three-year program of research investigating the relationship between VET, productivity and workforce participation. Readers are directed to the NCVER website for the earlier reports.

Tom Karmel
Managing Director, NCVER

Underutilisation has been identified as a major problem to face the Australian labour market in the coming 20 years (Mahmud, Alam & Hartel 2008). Policy initiatives geared towards raising skill levels among those marginally attached to the labour market are argued to yield large economic gains. Training and employment can help prevent high social and economic costs in the long term by reducing the number of people on welfare (Tessaring & Wannan 2004, p.5). In addition, a better skilled labour market is consistent with wider Australian economic goals to cultivate a 'knowledge economy'. However, success in the realm of labour market and training assistance programs for the disadvantaged appears to remain an elusive goal. This paper contends that innovative approaches are necessary and that these require the unique convergence of multiple factors in order to realise successful outcomes for those at the margins of economic independence. A number of specific questions guide analysis of these issues:

• What are the key potential pools of underutilised labour? (What do we know about new or underutilised pools of labour?)
• What role do intermediaries play as conduits in this process of defining and mediating skill need?
• How, if at all, can vocational education and training (VET) support growing workforce participation, especially among disadvantaged groups? (How might the VET system understand, mediate and anticipate shifts—and divergent shifts—in employer demand?)
• How might innovative practice be used to unite the quite disparate and distinct realms of policy pertaining to labour supply and labour demand and to enhance labour market outcomes among disaffected and disenfranchised job seekers?

In order to answer these questions, this paper has two central tasks. The first task is to consider the current evidence base and arrive at a means for understanding underutilisation, which will provide a useful analytical framework. The second task is to identify and discuss the innovations used to overcome underutilisation.

Understanding underutilisation—the creation of undertow

The literature on underutilisation identifies that certain characteristics can predispose individuals to labour market marginalisation, and that the impact of these forces can be devastating and prolonged. The experience of undertuilisation is commonly characterised as a cross section of three factors: motivation (desire to work), availability (willingness to undertake work within a specified time frame) and behaviour (exhibiting characteristics consistent with norms of job seeker behaviour, including frequency of job search). All of these are inherently supply-focused. This paper expands the notion of 'readiness' to incorporate the labour market itself. The paper asserts that the 'readiness' of the labour market to absorb labour is, by comparison, poorly addressed or left unacknowledged in approaches to labour market marginalisation.

This report likens the forces of these impacts to a 'labour market undertow'. Like ocean undertow, labour market undertow is generated by forces which move at the subsurface level (and therefore are difficult to observe and anticipate) and in directions counter to the larger movements or transitions of labour in and out of the labour market (for example, those created by more predictable demographic shifts). Being caught in a labour market undertow can shift individuals further and further from labour market entry, unless significant, relevant and timely assistance is rendered.

The role of the labour market intermediary

Much research has focused on the need to gain greater insights on the depth and breadth of the barriers to employment. While this is useful, it provides no broader conceptual framework through which the experience of underutilisation might be understood, and therefore responded to. This paper argues that the broad diversity of barriers, which can all profoundly impact on the ability to access employment, can be better explained as a two-factor state. In effect, all labour market barriers can be categorised into two categories or preconditions:

• a state of information asymmetry, whereby those not in the labour force often lack information about how to access employment or the training options argued to lead to labour market entry
• a compromised state of labour market readiness, whereby those job seekers who are marginalised by the labour market are less ready to undertake employment. This paper argues that labour market readiness also incorporates the labour market itself, which may not be ready to absorb labour from these marginalised groups.

These two preconditions create both the form and force of the 'labour market undertow'.

Intermediaries can be critical in 'rendering assistance' to those caught in labour market undertow. To provide this assistance effectively, labour market intermediaries must address the issues of information asymmetry and poor labour market readiness. In these strategies, VET has historically been considered as a powerful transformative tool because it allows labour to be reshaped and developed in order to meet demand. The intermediaries interviewed for this study were identified as 'high achievers' among employment assistance agencies and brokers. ¹

The intermediaries featuring as case studies for this paper use a combination of three basic strategies to develop and assist local underutilised labour. These three strategies of innovation are: networking; adaptation; and reinvention. Successful agencies exhibit a tendency to network and form ongoing and purposeful links with other agencies within their respective labour markets. This allows for a meaningful and regular exchange of information about clients and client progress and enables agencies to collaborate in order to source and fill gaps in the support network for their clients. These labour market intermediaries adapt, and strategically position themselves to continually adapt, in order to meet the needs of disadvantaged job seekers. This adaptation incorporates changes to both content and/or delivery of training to better meet student, worker and labour market need. A third and more radical innovation undertaken by these intermediaries is reinventing the organisation in order to provide the substantial services that may have been undertaken by other operators in the field. Historically, if a client required additional support prior to seeking transition to the labour market, they were referred by social welfare or employment services to other agencies better resourced to meet this need. Reinvention is important to the agencies in this study because it offers greater scope to provide for, or fill gaps in, the existing suite of essential services available to disadvantaged job seekers and workers. In developing responses to a local labour-utilisation challenge, these innovative agencies have managed to unite, or achieve greater alignment between, the supply and demand requirements of the labour market. Their approaches highlight a number of key findings relevant to the role of VET in labour market transition for disadvantaged groups.

Significance for VET

Intermediaries argue that VET is best described as an 'inert' ingredient in transitions to employment for marginalised groups, meaning that VET alone is not necessarily enough to enable people marginalised from the labour market to find employment. A key observation made across all of the qualitative interviews conducted for this study is that, in the absence of social and economic supports for disadvantaged groups, VET is not enough.

This paper argues that current approaches to VET flexibility focus on two notions—compression of delivery and segmentation of content. The intermediaries interviewed for this study argue that alternative strategies are required. They argue that flexibility in VET delivery, to meet the needs of target marginalised groups, may also require prolonging and embedding the VET experience. Equally, 'staples' of VET delivery such as workplace simulation (for example, 'doing prac') also require significant revision in light of the needs of those marginal to the labour market.

The insights provided by these intermediaries suggest that the notion of 'demand-led' requires rethinking. Rather than being 'demand-led', these case studies consider factors of demand in their approach to solutions for marginal workers. Successful outcomes are achieved because VET plays a role in lifting employment participation by improving the skill sets of those marginal to the labour force, but more importantly because VET is used to changing the local labour market itself, by expanding pockets of labour demand. For these intermediaries, conventional tools for understanding demand (for example, interviewing local employers, or networking with a regional development body) did not prove useful to the development of appropriate, locally relevant employment strategies.

This leads to a number of important questions relating to the role that VET might play in transitions to employment for those marginalised by the labour market. While VET is more than TAFE (technical and further education), it would appear that TAFE may be strategically well placed to play a role in the creation of employment pathways for underutilised groups. TAFE seems positioned to work as a well-networked national provider of 'equity focused' VET services. On the other hand, this broader equity charter is not reflected at an operational level in TAFE. This means that, where labour market transition initiatives exist (in the form of outreach programs, for example), they are often highly fragmented and are not unified or coordinated across different TAFE jurisdictions. In the institutions interviewed for the purposes of this study, TAFE coordinators in all cases had only been able to operate their intervention programs through funding they had received outside the TAFE network (through tendering for federal or state government money; for example, through return-to-work or upskill programs). In many cases, their successes could be said to have occurred 'despite' being within a TAFE setting, rather than because of it. As a consequence many intermediaries had sought to reinvent their operation to incorporate a training dimension (such as establish a registered training organisation geared specifically to the needs of target underutilised groups), rather than work directly with a local and already existing VET provider.

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¹ It should be noted that in some cases, local TAFE institutes perform some of the functions of labour market intermediaries in the form of employability skill training, resume assistance, and making initial contact with prospective employers. This occurs more commonly in rural and remote areas, where a local TAFE may tender for the contract to deliver services in a zoned area.