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1367.5 - Western Australian Statistical Indicators, Dec 2005  
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Skills shortages in Western Australia: Part 1

INTRODUCTION

Recently, skills shortages have emerged as a major labour issue in Western Australia. Headlines such as 'Booming WA has skills shortage' and 'Skills shortage may threaten WA mining projects' have become regular newspaper features. Business surveys have indicated that firms are finding it harder to find suitable labour, with the Chamber of Commerce and Industry Western Australia-BankWest Survey of Business Expectations reporting that 63% of Western Australian businesses considered labour availability to be 'scarce' in the September quarter 2005, compared to 44% a year earlier. Other reports have also indicated that businesses are poaching workers from others or sourcing skilled labour from interstate and overseas.


This article is the first part of an analysis of skills shortages in Western Australia. It will examine the indicators of skills shortage in Western Australia and explore the nature of the recent shortage, by determining whether the shortage is a skills or labour shortage, identifying where the problem is most concentrated in terms of occupations and related industries, and investigating whether the issue is cyclical (due to an insufficient supply of labour) or structural (due to a mismatch of skills). The second part of the analysis will identify major contributing factors to the skills shortage and investigate the impacts of skills shortages on the Western Australian economy.


IMPACTS OF SKILLS SHORTAGES ON THE ECONOMY

Concerns have been raised over the possible impacts of skills shortages on the economy. Western Australia has experienced a lengthy period of economic growth since late 2000. As a measure of domestic economic activity, state final demand increased for 20 consecutive quarters, from the December quarter 2000 to the September quarter 2005. Over this period, quarterly growth in state final demand averaged 1.6%, more than double the average over the previous five year period (0.7%), and well above the long-term average of 1.1%. Growth in the domestic economy accelerated rapidly from the recession in the early 1990s to peak at 2.6% in the June quarter 2003. Since that time, however, growth has slowed to an average of 1.5% per quarter over the last year.


There have also been reports of businesses delaying new projects as a result of the declining availability of skilled workers, supported by the recent deceleration in investment growth. Growth in private new capital expenditure in Western Australia dropped to 5.1% in the September quarter 2005, following larger increases of 6.3% and 5.5% in the previous two quarters.


Economic commentators have also cautioned that shortages of skilled labour increase the likelihood of a rise in inflation, as rising wages place upward pressure on prices, which in turn raises the possibility of interest rate increases. Recently, the Reserve Bank of Australia (RBA) noted that "underlying inflation is expected to increase gradually over the year ahead, reflecting the current upward drift in the growth of labour costs" (Reserve Bank of Australia 2005).


WHAT IS A SKILLS SHORTAGE?

A skills shortage occurs when the demand for skilled workers exceeds supply. The demand for skilled workers tends to rise during periods of strong economic growth, when rising profitability and investment in new capital and technology encourage businesses to employ more workers to increase production. The supply of skilled workers can be constrained by inadequate provision of education and training, changes in employment arrangements, qualified workers not working in the occupation for which they are qualified and demographic change in the working age population.


Some skills imbalances will always exist in a dynamic labour market due to the mismatch between the types of skills required and the types of skills available. The degree of mismatch will vary between occupations and industries, and will usually be greater in areas of the economy in which there is rapid structural change. In a competitive economy with price and wage flexibility, skills imbalances can be expected to resolve over time as a result of market adjustment. However, adjustment takes time and it is during this period that skills shortages can be experienced.


The term skills shortage can be used to describe a variety of situations, not all of which represent an actual market shortage. In order to distinguish situations of skills shortage from other situations of shortage, the Department of Employment and Workplace Relations (DEWR) differentiates between skills shortages, skills gaps and recruitment difficulties.


Skills shortages exist when employers are unable to fill or have considerable difficulty in filling vacancies for an occupation, or specialised skill needs within that occupation, at current levels of remuneration and conditions of employment, and reasonably accessible location. Shortages are typically for specialised and experienced workers. An occupation may be in shortage even though not all specialisations are in shortage. Occupations may be in shortage in particular geographical areas and not in others. Skills shortages generally involve skills that require a significant period of training and/or experience.


Skills gaps occur where existing employees do not have the required qualifications, experience and/or specialised skills to meet a firm's skill needs for an occupation. Workers may not be adequately trained or qualified to perform tasks or may not have upskilled to meet emerging skill requirements.


Recruitment difficulties occur when employers have some difficulty in filling vacancies for an occupation and may be due to characteristics of the industry, occupation or employer, such as relatively low remuneration, unsatisfactory working hours, location hard to commute to, ineffective recruitment advertising or processes or firm-specific and highly specialised skill needs.


MEASUREMENT OF SKILLS SHORTAGES

Skills shortages are usually measured by one of two methods - employer-based surveys or analysis of labour market indicators. It is important to note that there does not currently exist a single measure of skills shortage, and the choice of measurement is largely determined by the availability and reliability of data. The use of employer-based surveys can provide very specific and detailed information, but may be problematic due to the reliance on employers' perceptions of shortage and the reporting of skills gaps and recruitment difficulties as skills shortages. Analysis of labour market indicators provides a market-wide perspective and is more objective, but also suffers shortcomings such as the inability to distinguish between job vacancies and hard-to-fill vacancies. The major labour market indicators of skilled vacancies, employment, unemployment, participation, hours worked and wages are not direct measures of shortages, but large rates of change in these indicators can point to the emergence of a skills shortage, in the absence of complete labour market adjustment. Based on the availability and reliability of data, this article will use the labour market indicators approach to investigate skills shortages in Western Australia.



EXTENT OF SKILLS SHORTAGES IN WESTERN AUSTRALIA

Evidence of a skills shortage in Western Australia can be found by examining movements in a range of labour market indicators, including the skilled vacancies index produced by DEWR, as well as a number of indicators obtained from labour market surveys conducted by the Australian Bureau of Statistics (ABS). Currently, many of these indicators are at record highs or lows - following a sustained period of strong growth in the Western Australian economy - indicating that the demand for labour, including skilled labour, may be exceeding supply. At this point it is assumed that shortages are mainly for skilled labour, and evidence to support this is presented later in the article.


SKILLED VACANCIES INDEX

The skilled vacancies index, compiled by DEWR, is based on a count of skilled vacancies in major metropolitan newspapers. As shown in the graph below, movements in Western Australia's skilled vacancies index largely mirrored movements in the national index for the 20 year period between June 1982 and June 2002. During that time, there were three peaks in skilled vacancies, the first in 1989, the second in 1995 and the third in 2000, all of which indicate likely periods of skills shortage.

Skilled vacancies index(a): Trend
Graph: Skilled vacancies index(a): Trend



Since July 2002, there has been a large and increasing divergence between the skilled vacancies indexes for Western Australia and Australia. The state index rose by 88.0% over the last three years, while the national index fell by 3.5%. As a result, the skilled vacancies index for Western Australia (218.4) was almost double the Australian index (110.5) in June 2005. Some of this difference may, however, be attributable to the growing trend in Western Australia for businesses to use several labour hire agencies to advertise a single skilled vacancy, resulting in a greater number of multiple advertisements, artificially inflating the number of skilled vacancies in the state.


Movements in the skilled vacancies index provide some indication that the recent skills shortage may be more severe than those previously experienced in Western Australia. Skilled vacancies reached an all-time high in Western Australia in June 2005, with the index 30.5% higher than the next highest peak in March 1989. Leading up to the recent peak, skilled vacancies rose for 47 months between August 2001 and June 2005, longer than the growth experienced in any of the previously identified periods of skills shortage - 15 months in 1989, 39 months in 1995 and 14 months in 2000. The growing discrepancy in skilled vacancies between Western Australia and the nation further indicates the relative severity of the state's shortage of skilled labour.


EMPLOYMENT

During a skills or labour shortage, strong growth in demand for labour will initially lead to growth in employment as any excess labour is absorbed, before being constrained by the availability of labour, including skilled labour. This pattern of employment growth has been evident in Western Australia in recent years.


Fluctuations in employment usually follow the fluctuations in economic growth, with a slight lag. Recently, there was a significant lag between growth in economic activity and employment. Growth in state final demand peaked at 2.6% in the June quarter 2003, while growth in employed persons peaked at 1.9% in the March quarter 2005. This lag of seven quarters was the longest between peaks in economic and employment growth in the past 20 years. When employment growth did eventually rise, it was sustained at a high level for three quarters before beginning to trend downwards again. The apparent inability of employment to respond adequately to strong labour demand conditions suggests that the supply of labour, including skilled labour, may have constrained employment growth.

Economic(a) vs employment(b) growth: Trend
Graph: Economic(a) vs employment(b) growth: Trend



UNEMPLOYMENT

The unemployment rate, which is the proportion of unemployed persons in the labour force, can be expected to decline during a skills or labour shortage, as businesses utilise a greater proportion of workers in the labour force. The recent downward trend in Western Australia's unemployment rate supports this concept. From July 2001, the unemployment rate (trend) in Western Australia dropped by 3.4 percentage points to its lowest level on record in November 2005 (3.9%). The large fall in the state's unemployment rate to historically low levels provides evidence of an economy that has continued to exhaust its available supply of labour, including skilled labour.

Unemployment rate: Trend
Graph: Unemployment rate: Trend



PARTICIPATION

During a period of skills shortage or strong labour demand, participation in the labour force can be expected to increase, as improved job opportunities and employment conditions encourage people to enter the labour market. The participation rate, which measures the proportion of the civilian population aged 15 years or over who are either in work or actively seeking employment, climbed sharply in Western Australia in recent years. Between September 2004 and June 2005, the participation rate rose by 2.7 percentage points in trend terms - the most prolonged rise in the series for ten years - reaching its highest level on record of 68.1% in June 2005. Since then, the participation rate has only dropped marginally to 67.7% in November 2005.

Participation rate: Trend
Graph: Participation rate: Trend



HOURS WORKED

An increase in hours worked can be indicative of a skills or labour shortage, as employers try to make the most of their existing workforce. Data for Western Australia show only a very slight upward trend in average weekly hours worked by employees over recent years. Average weekly hours worked peaked in December 2004 at 36.5 hours, the highest level since December 1999 (36.5 hours). Average weekly hours worked in November 2005 was only slightly lower at 35.3 hours.


Further analysis reveals that the rise in average weekly hours worked was driven by part-time rather than full-time employees. Between December 1999 and December 2004, growth in average weekly hours worked by part-time employees (0.7 hours) was more than three times the growth in average weekly hours worked by full-time employees (0.2 hours). The relatively strong rise in hours worked by part-time employees suggests that businesses have increasingly utilised part-time workers to supplement the hours worked by full-time workers, and that marginally attached workers who are more likely to work part-time may have been attracted back into the labour market.


An alternative measure of hours worked can be obtained from the biennial Survey of Employee Earnings and Hours. It measures the total time weekly hours worked by non-managerial adult employees. The series for Western Australia recently peaked in May 2004 at 33.5 hours, the highest level since May 1996 (33.5 hours). Between May 2002 and May 2004, total time (non-managerial adult) weekly hours worked increased by 0.7 hours, the largest increase on record.


WAGES

Rising wages can also indicate the presence of a skills or labour shortage. When the labour market is 'tight' or the demand for labour (including skilled labour) is well above supply, the price of labour rises. During these times, workers are in a stronger position to bargain for larger wage increases and businesses tend to pay higher wages to retain or attract workers. Recently, wages growth in Western Australia has been strong, and the wage price index of total hourly rates of pay (excluding bonuses) has grown faster than the general level of prices. Between the June quarter 2004 and the September quarter 2005, the wage price index increased by 6.6%, compared to an increase of 4.8% in the state's consumer price index. Average quarterly growth in wages over this period was 1.3% - almost one and a half times higher than the long-term average of 0.9%. There have also been record levels of quarterly growth in recent times, with growth in the September quarter 2004 (1.7%), the December quarter 2004 (1.4%) and the June quarter 2005 (1.0%) all the highest on record for those quarters.

Wages(a) vs prices(b) growth: Original
Graph: Wages(a) vs prices(b) growth: Original




NATURE OF THE SKILLS SHORTAGE IN WESTERN AUSTRALIA

The recent shortage of skilled labour in Western Australia appears to be widespread, affecting many occupations and related industries. According to the DEWR labour market ratings for 2004-05, there were 31 skilled occupations in shortage across the state. An understanding of the nature of the skills shortage in Western Australia can be gained by determining whether the shortage is mainly in skilled labour as opposed to a general labour shortage, identifying the occupations and industries in which it is most concentrated and investigating whether the issue is cyclical or structural.


SKILLS SHORTAGE OR LABOUR SHORTAGE?

One way in which a skills shortage can be distinguished from a general labour shortage is by examining whether shortages exist for both skilled and unskilled labour. This can be achieved by comparing the demand for skilled and unskilled occupations, using employment as the indicator of demand.


The Australian Standard Classification of Occupations (ASCO) is a hierarchical skill-based classification which enables the separation of skilled and unskilled occupations. For the purposes of this analysis, skilled occupations include the ASCO major groups of Managers and administrators, Professionals, Associate professionals and Tradespersons and related workers. Unskilled occupations include the major groups of Advanced clerical and service workers, Intermediate clerical, sales and service workers, Intermediate production and transport workers, Elementary clerical, sales and service workers and Labourers and related workers.


As shown in the graph below, growth in skilled employment outpaced growth in unskilled employment over the last ten years, and particularly since early 2002. Growth in the number of employed persons in skilled occupations rose by 18.0% from the February quarter 2002, while the number of persons employed in unskilled occupations grew by only 4.8%. To put this in context, growth in skilled employment accounted for 78.9% of the total increase in employment in Western Australia, while growth in unskilled employment accounted for the remainder (21.1%).

Skilled vs unskilled employment(a): Original
Graph: Skilled vs unskilled employment(a): Original



The most dramatic rise in skilled employment occurred in the more recent quarters, with the number of persons employed in skilled occupations rising by 6.0% in the three quarters to May 2005. As a result, skilled employment now accounts for a greater proportion of people employed in Western Australia (53.0%) than it did before the recent skills shortage - 49.4% in the February quarter 2001. Because skilled occupations have recently been in greater demand in Western Australia, it appears likely that the current shortage is more pronounced for skilled rather than unskilled labour.


OCCUPATIONS

The relative strength of demand for skilled labour in Western Australia suggests that skilled occupations are those in which the recent shortage is most concentrated. Analysis across a wider range of indicators further supports shortages of labour in skilled occupations, and reveals that some less skilled occupations are also experiencing shortages. The occupation major groups that have displayed the strongest signs of shortage across the range of labour market indicators are analysed below. Analysis for all indicators is from early 2002 to mid-2005, or the most recent time period available.

LABOUR MARKET INDICATORS FOR SELECTED OCCUPATIONS(a)(b)

Labour market indicator
Unit
Tradespersons and related workers
Professionals
Labourers and related workers
Intermediate production and transport workers
Managers and administrators
Western Australia

Employed persons
Change over reference period(c)
no.
19 183
26 565
7 479
8 662
26 173
107 234
Proportion of total state change
%
17.9
24.8
7.0
8.1
24.4
100.0
Occupation ranking(d)
no.
3
1
7
6
2
. .
Unemployed persons
Change over reference period(c)
no.
-4 973
-2 406
-857
323
-856
-16 109
Proportion of total state change
%
30.9
14.9
5.3
-2.0
5.3
100.0
Occupation ranking(d)
no.
1
4
5
9
6
. .
Wage price index(e)
Change over reference period(f)
%
15.4
13.0
16.8
12.6
12.4
12.8
Occupation ranking(d)
no.
2
3
1
4
5
. .
Total time adult weekly earnings
Change over reference period(g)
$
183.70
86.20
126.70
155.20
39.70
91.60
Occupation ranking(d)
no.
1
4
3
2
6
. .
Total time (non-managerial adult) weekly hours worked
Change over reference period(g)
hours
3.0
2.0
1.0
2.5
-0.2
0.7
Occupation ranking(d)
no.
1
3
4
2
6
. .

. . not applicable
(a) Labour market indicators that are available and reliable for the state by occupation level.
(b) Australian Standard Classification of Occupations (ASCO) major group.
(c) Reference period is from the February quarter 2002 to the May quarter 2005.
(d) Occupations are ranked based on either the proportion of the total state change, or the change over the reference period, for each indicator.
(e) Index of total hourly rates of pay excluding bonuses.
(f) Reference period is from the March quarter 2002 to the June quarter 2005.
(g) Reference period is from May 2002 to May 2004.
Source: ABS data available on request: Labour Force, Australia, cat. no. 6202.0; Labour Price Index, Australia, cat. no. 6345.0; Employee Earnings and Hours, Australia, cat. no. 6306.0.


Tradespersons and related workers

From early 2002 to mid-2005, Tradespersons and related workers recorded the third largest increase in employment (19,183 persons) among the occupations, accounting for 17.9% of the total state increase. Tradespersons and related workers recorded the largest decline in unemployment since last job (4,973 persons) of all occupations, accounting for 30.9% of the total state decrease. The index of total hourly rates of pay (excluding bonuses) for Tradespersons and related workers rose by 15.4%, well above the total state increase of 12.8% and the second largest occupation increase. Tradespersons and related workers recorded the largest occupation increases in both total time adult weekly earnings ($183.70) and total time (non-managerial adult) weekly hours worked (3.0 hours), more than double the total state increases of $91.60 and 0.7 hours respectively.


Structural steel and welding tradespersons, Fibrous plasterers, Cabinetmakers, Communications tradespersons and Electricians were the occupation unit groups contributing most to employment growth for Tradespersons over the reference period.


According to DEWR, the number of skilled vacancies for Trades increased by 189.8% between March 2002 and June 2005. The largest increases in skilled vacancies over this period occurred for Metal trades (up 487.6%), Electrical and electronics trades (up 304.9%) and Construction trades (up 241.1%).


Professionals

Professionals recorded the largest increase in employment (26,565 persons) of all occupations, and accounted for 24.8% of the total state increase from early 2002 to mid-2005. Professionals recorded the fourth largest decline in unemployment since last job (2,406 persons) among the occupations, accounting for 14.9% of the total state decline. The index of total hourly rates of pay (excluding bonuses) rose by 13.0% for Professionals, higher than the total state increase of 12.8% and the third largest occupation increase. Professionals recorded the fourth largest increase in total time adult weekly earnings - up by $86.20. Total time (non-managerial adult) weekly hours worked by Professionals rose by 2.0 hours, more than double the total state increase of 0.7 hours and the third largest occupation increase.


Registered nurses, Primary school teachers, Accountants, Computing professionals and Mining and materials engineers were the occupation unit groups contributing most to employment growth for Professionals over the reference period.


According to DEWR, the number of skilled vacancies increased by 58.7% for Building and engineering professionals and 37.1% for Science professionals between March 2002 and June 2005.


Labourers and related workers

The number of persons employed as Labourers and related workers increased by 7,479 from early 2002 to mid-2005, the seventh largest increase among the occupations, accounting for 7.0% of the total state increase. Labourers and related workers recorded the fifth largest decrease of all occupations in the number of persons unemployed since last job (857), accounting for 5.3% of the total state decrease. The index of total hourly rates of pay (excluding bonuses) for Labourers and related workers rose by 16.8%, significantly higher than the 12.8% total state increase and the largest occupation increase. Total time adult weekly earnings for Labourers and related workers increased by $126.70, well above the $91.60 total state increase and the third largest occupation increase. Labourers and related workers recorded the fourth largest occupation increase in total time (non-managerial adult) weekly hours worked (1.0 hour), higher than the total state increase of 0.7 hours.


Construction and plumber's assistants, Other miscellaneous labourers and related workers, Other process workers, Handypersons and Concreters were the occupation unit groups contributing most to employment growth for Labourers and related workers over the reference period.


Intermediate production and transport workers

From early 2002 to mid-2005, the number of persons employed as Intermediate production and transport workers increased by 8,662, the sixth largest increase of all occupations, accounting for 8.1% of the total state increase. However, Intermediate production and transport workers were the only occupation to record an increase in unemployment since last job - up by 323 persons. The index of total hourly rates of pay (excluding bonuses) for Intermediate production and transport workers rose by 12.6%, the fourth largest occupation increase. Intermediate production and transport workers recorded the second largest occupation increase in total time adult weekly earnings ($155.20), more than one and a half times the total state increase of $91.60. Intermediate production and transport workers also recorded the second largest occupation increase in total time (non-managerial adult) weekly hours worked (2.5 hours), more than three times the total state increase of 0.7 hours.


Storepersons, Structural steel construction workers, Truck drivers, Other mobile plant operators and Miners were the occupation unit groups contributing most to employment growth for Intermediate production and transport workers over the reference period.


Managers and administrators

Managers and administrators recorded the second largest increase in employed persons (26,173) among the occupations from early 2002 to mid-2005, accounting for 24.4% of the total state increase. Managers and administrators recorded the sixth largest decline of all occupations in unemployment since last job (856 persons), accounting for 5.3% of the total state decline. The index of total hourly rates of pay (excluding bonuses) for Managers and administrators increased by 12.4% - the fifth largest occupation increase. Total time adult weekly earnings for Managers and administrators increased by $39.70, the sixth largest occupation increase. However, total time (non-managerial adult) weekly hours worked by Managers and administrators fell by 0.2 hours.


Livestock farmers, General managers, Crop farmers, Sales and marketing managers and Other specialist managers were the occupation unit groups contributing most to employment growth for Managers and administrators over the reference period.


INDUSTRIES

The recent shortage of skilled labour in Western Australia appears to be most concentrated in those industries experiencing the largest growth in demand for the occupations highlighted above. Not surprisingly, the same industries appear as major contributors to demand for several occupations. The Australian and New Zealand Standard Industrial Classification (ANZSIC) industry divisions contributing most to employment growth in the selected occupations were as follows:

  • Tradespersons and related workers (up 19,183 persons) - Construction (10,245), Mining (4,904) and Manufacturing (2,769);
  • Professionals (up 26,565 persons) - Property and business services (8,516), Health and community services (6,901) and Education (5,120);
  • Labourers and related workers (up 7,479 persons) - Construction (6,951), Manufacturing (4,332) and Health and community services (1,546);
  • Intermediate production and transport workers (up 8,662 persons) - Construction (4,025), Agriculture, forestry and fishing (3,775) and Mining (3,003); and
  • Managers and administrators (up 26,173 persons) - Agriculture, forestry and fishing (5,695), Property and business services (5,301) and Manufacturing (2,995).

Combining these results with the industries displaying the strongest signs of shortage across the range of labour market indicators, five industries emerge as being those in which the recent skills shortage is most concentrated. These industry divisions are analysed below. As per the occupation section above, analysis for all indicators is from early 2002 to mid-2005, or the most recent time period available.

LABOUR MARKET INDICATORS FOR SELECTED INDUSTRIES(a)(b)

Labour market indicator
Unit
Construction
Manufacturing
Property and business services
Mining
Health and community services
Western Australia

Employed persons
Change over reference period(c)
no.
21 968
9 793
28 243
12 481
24 484
107 234
Proportion of total state change
%
20.5
9.1
26.3
11.6
22.8
100.0
Industry ranking(d)
no.
3
5
1
4
2
. .
Unemployed persons
Change over reference period(c)
no.
-1 673
-1 634
-1 772
286
-446
-16 109
Proportion of total state change
%
10.4
10.1
11.0
-1.8
2.8
100.0
Industry ranking(d)
no.
4
5
3
17
11
. .
Wage price index(e)
Change over reference period(f)
%
22.5
14.5
11.8
14.2
11.3
12.8
Industry ranking(d)
no.
1
3
7
4
8
. .
Average weekly adult full-time earnings
Change over reference period(c)
$
381.10
243.20
78.80
250.30
209.50
192.70
Industry ranking(d)
no.
1
4
14
3
6
. .
Total time (non-managerial adult) weekly hours worked
Change over reference period(g)
hours
3.6
1.0
0.1
2.4
1.0
0.7
Industry ranking(d)
no.
2
7
10
4
6
. .

. . not applicable
(a) Labour market indicators that are available and reliable for the state by industry level.
(b) Australian and New Zealand Standard Industrial Classification (ANZSIC) division.
(c) Reference period is from the February quarter 2002 to the May quarter 2005.
(d) Industries are ranked based on either the proportion of the total state change, or the change over the reference period, for each indicator.
(e) Index of total hourly rates of pay excluding bonuses.
(f) Reference period is from the March quarter 2002 to the June quarter 2005.
(g) Reference period is from May 2002 to May 2004.
Source: ABS data available on request: Labour Force, Australia, cat. no. 6202.0; Labour Price Index, Australia, cat. no. 6345.0; Average Weekly Earnings, Australia, cat. no. 6302.0; Employee Earnings and Hours, Australia, cat. no. 6306.0.


Construction

From early 2002 to mid-2005, Construction recorded the third largest increase in employment (21,968 persons) of all industries, accounting for 20.5% of the total state increase. Construction recorded the fourth largest decrease among the industries in the number of persons unemployed since last job (1,673), accounting for 10.4% of the total state decrease. The index of total hourly rates of pay (excluding bonuses) for Construction rose by 22.5%, almost double the total state increase of 12.8% and the largest industry increase. Average weekly adult full-time earnings in Construction increased by $381.10, significantly higher than the $192.70 total state increase and the largest industry increase. Total time (non-managerial adult) weekly hours worked by employees in Construction increased by 3.6 hours, more than five times the total state increase of 0.7 hours and the second largest industry increase.


Building structure services, Other construction services, Installation trade services, Building completion services and Site preparation services were the industry groups contributing most to employment growth for Construction over the reference period.


Manufacturing

Employment in Manufacturing increased by 9,793 persons from early 2002 to mid-2005, the fifth largest increase among the industries, accounting for 9.1% of the total state increase. The number of persons unemployed since last job in Manufacturing declined by 1,634, accounting for 10.1% of the total state decline and the fifth largest decline of all industries. The index of total hourly rates of pay (excluding bonuses) for Manufacturing rose by 14.5%, well above the total state increase of 12.8% and the third largest industry increase. Average weekly adult full-time earnings in Manufacturing increased by $243.20, higher than the total state increase of $192.70 and the fourth largest industry increase. Manufacturing recorded the seventh largest industry increase in total time (non-managerial adult) weekly hours worked (1.0 hour), higher than the total state increase of 0.7 hours.


Manufacturing - not further defined, Basic non-ferrous metal manufacturing, Beverage and malt manufacturing, Furniture manufacturing and Printing and services to printing were the industry groups contributing most to employment growth for Manufacturing over the reference period.


Property and business services

Property and business services recorded the largest increase in employment (28,243 persons) among the industries from early 2002 to mid-2005, accounting for 26.3% of the total state increase. The number of persons unemployed since last job in Property and business services fell by 1,772, the third largest decline of all industries, accounting for 11.0% of the total state decline. The index of total hourly rates of pay (excluding bonuses) for Property and business services increased by 11.8% - the seventh largest industry increase. Average weekly adult full-time earnings in Property and business services rose by $78.80, the fourteenth largest industry increase. Property and business services recorded the tenth largest industry increase in total time (non-managerial adult) weekly hours worked, up by 0.1 hours.


Other business services, Technical services, Real estate agents and Computer services were the industry groups contributing most to employment growth for Property and business services over the reference period.


Mining

The number of persons employed in Mining increased by 12,481 from early 2002 to mid-2005, accounting for 11.6% of the total state increase and the fourth largest increase of all industries. However, the number of persons unemployed since last job in Mining increased by 286, one of only two industries to record an increase over the period. The index of total hourly rates of pay (excluding bonuses) for Mining rose by 14.2%, higher than the total state increase of 12.8% and the fourth largest industry increase. Average weekly adult full-time earnings for employees in Mining increased by $250.30, higher than the $192.70 total state increase and the third largest industry increase. Total time (non-managerial adult) weekly hours worked by employees in Mining rose by 2.4 hours, more than three times the total state increase of 0.7 hours and the fourth largest industry increase.


Mining - not further defined, Metal ore mining and Other mining services were the industry groups contributing most to employment growth for Mining over the reference period.


Health and community services

From early 2002 to mid-2005, Health and community services recorded the second largest increase in employment (24,484 persons) among the industries, accounting for 22.8% of the total state increase. The number of persons unemployed since last job in Health and community services declined by 446, the eleventh largest decline of all industries, accounting for 2.8% of the total state decline. The index of total hourly rates of pay (excluding bonuses) for Health and community services increased by 11.3%, the eighth largest industry increase. Average weekly adult full-time earnings for Health and community services rose by $209.50, higher than the total state increase of $192.70 and the sixth largest industry increase. Health and community services also recorded the sixth largest increase in total time (non-managerial adult) weekly hours worked (1.0 hour), higher than the total state increase of 0.7 hours.


Hospitals and nursing homes, Community care services, Child care services and Medical and dental services were the industry groups contributing most to employment growth for Health and community services over the reference period.


CYCLICAL OR STRUCTURAL IMBALANCE IN THE LABOUR MARKET?

As mentioned previously, large movements in labour market indicators reflect imbalances between the demand and available supply of labour, and it is possible to identify periods of skills shortage by monitoring these trends over time. Labour market imbalances are either cyclical or structural in nature. Cyclical imbalance tends to follow the ups and downs of the business cycle, as the demand for labour is directly related to the demand for goods and services in the economy. Structural or reallocation imbalance occurs when there is significant variation in rates of growth between sectors or regions, creating a mismatch between labour demand and supply.


The Beveridge curve, as shown below, plots the civilian unemployment rate (total unemployed as a percentage of the labour force) against an imputed job vacancy rate (job vacancies as a percentage of the labour force) for Western Australia. Over the last 20 years unemployment and vacancies have generally been negatively related. Higher unemployment has been associated with lower vacancies, and lower unemployment with higher vacancies.


When the labour market is 'tight' and demand for labour (including skilled labour) is high, most workers who wish to work have found employment, so the unemployment rate is low. The vacancy rate, however, is relatively high as employers experience some difficulty finding suitable workers to fill jobs.

BEVERIDGE CURVE, Western Australia - 1984-85 to 2004-05
Diagram: BEVERIDGE CURVE, Western Australia—1984–85 to 2004–05



The position of the Beveridge curve indicates where the economy is in the business cycle. Recessions are generally times of high unemployment and few job vacancies (points on the lower right hand side of the graph), while expansions are generally times of low unemployment and high job vacancies (points on the upper left hand side of the graph). In addition, the location of the curve relative to the origin indicates the overall level of labour market activity. When the curve moves inwards towards the origin it represents an improvement in the job matching process, as workers find jobs faster - filling vacancies and reducing unemployment. An outward movement of the curve suggests a decline in the efficiency of the matching process, probably due to greater structural mismatch, as both vacancies and unemployment rise.


Between 1984-85 and 2004-05, the Beveridge curve for Western Australia moved in a counterclockwise loop. The recession of the early 1990s corresponds to points on the bottom right hand side of the curve, when unemployment was high and job vacancies low. Since that time the economy has generally been in a period of expansion (despite some weakening in the late 1990s) with rising job vacancies and declining unemployment.


More recently, the Beveridge curve provides some insight into the nature of the skills shortage in Western Australia. Between 1996-97 and 2003-04, there was a large inward shift of the curve, indicating that the labour market showed considerable structural improvement, with both vacancies and unemployment declining. In 2004-05, a large spike occurred in job vacancies, accompanied by a decline in unemployment, reflecting the rapid expansion of the economy. It is these movements, coupled with the fact that the expansion was widespread across a range of industries, that provide evidence of the cyclical nature of the current shortage of skilled labour in the state.



CONCLUSION

Skills shortages have recently emerged as an area of particular concern for Western Australia. Large movements in labour market indicators provide some evidence that Western Australia is currently experiencing a skills shortage, which appears to be more severe than those previously experienced. Recent strong demand for skilled labour, relative to the demand for unskilled labour, supports the existence of a labour shortage that is more skilled than general in nature. Further analysis of labour market indicators reveals that shortages are most concentrated in the occupations of Tradespersons and related workers, Professionals, Labourers and related workers, Intermediate production and transport workers and Managers and administrators; and the industries of Construction, Manufacturing, Property and business services, Mining and Health and community services. Movements in the Beveridge curve indicate that the current shortage of skilled labour in Western Australia is cyclical (due to an insufficient supply of labour), reflecting the recent strong growth in the state's economy.


Part 2 of the analysis of skills shortages in Western Australia is proposed for inclusion in the March quarter 2006 issue of Western Australian Statistical Indicators. It will identify major contributing factors to the skills shortage, by reviewing factors influencing the supply of and demand for skilled labour in the state, including labour force characteristics, interstate and overseas migration, education and training, business profitability and confidence, consumption and investment expenditure, and export revenue. The impacts of skills shortages on the Western Australian economy will also be investigated, by examining the relationships between skills shortages, productivity and economic performance.



REFERENCES

Australian Broadcasting Corporation (ABC) 2004, Skills shortage may threaten WA mining projects, ABC News, 19 November 2004, Sydney.


Australian Bureau of Statistics 1997, Australian Standard Classification of Occupations, Second Edition, cat. no. 1220.0, ABS, Canberra.


Ball, Y. 2004, Booming WA has skills shortage, Australian Financial Review, 1 October 2004, Sydney.


Cheesman, B. 2005, Talent shortage forces firms to poach brickies, Australian Financial Review, 8 February 2005, Sydney.


China Daily Information Company 2005, Labour shortage hits Australian growth, China Daily, 24 May 2005, Beijing.


Colman, E. and Maiden, S. 2005, Global hunt for 20,000 workers, The Australian, 16 August 2005, Sydney.


Department of Education, Science and Training 2002, Nature and Causes of Skill Shortages, Reflections from the Commonwealth National Industry Skills Initiative Working Groups, Australian Government, November 2002, Canberra.


Department of Employment and Workplace Relations 2005, WA Labour Market Ratings 2004/05, Labour Economics Office, Perth.


Department of Treasury and Finance 2004, Western Australian Economic Summary June Quarter 2004, Government of Western Australia, Perth.


Department of Treasury and Finance 2005, Western Australian Economic Summary Winter 2005, Government of Western Australia, Perth.


Government of British Columbia 2001, How do we forecast Skills Shortages?, viewed 18 May 2005, <www.labour.gov.bc.ca/skills/how-can-we-forecast.htm>


Monash University-ACER Centre for the Economics of Education and Training 2004, Skills shortages: The evidence and the policy response, Paper presented at the CEET Conference, 29 October 2004, Melbourne.


Parry, G. and Kemp, S. 2002, Exploring Macroeconomics, Tactic Publications, Perth.


Shah, C. and Burke, G. 2003, Skills shortages: concepts, measurement and implications, Working paper no. 52 November 2003, Monash University-ACER Centre for the Economics of Education and Training, Melbourne.


Reserve Bank of Australia 2005, Statement on Monetary Policy, 7 November 2005, Sydney.


NON-ABS DATA

Counts of skilled vacancies: Department of Employment and Workplace Relations 2005, State Grouped Counts, downloaded 23 November 2005, <www.workplace.gov.au/workplace/Category/ResearchStats/LabourMarketAnalysis/VacancyReports/>


Skilled vacancies index: Department of Employment and Workplace Relations 2005, Vacancy Report Data, downloaded 24 August 2005, <www.workplace.gov.au/workplace/Category/ResearchStats/LabourMarketAnalysis/VacancyReports/>


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