3. Job polarisation and changing skills needs at the local level in Australia

COVID-19 has impacted labour and skills demand in Australia as it has elsewhere. Labour shortages and skills mismatches, alongside timeliness issues in implementation of new technology, were some of the factors hampering productivity in Australia prior to the pandemic. Shortages and mismatches are emerging alongside job polarisation whereby some local labour markets are shedding middle-skill jobs and shifting mainly towards high-skill jobs. Developing digital skills will be critical to meeting demands from emerging job opportunities. Employers will also have to ensure the available skills are put to good use in the workplace to maximize productivity gains. Section 3.1 of this chapter highlights recent trends in labour demand and hiring across regions in Australia. Section 3.2 overviews evidence on how labour shortages and skills mismatches were affecting local labour markets in Australia prior to the pandemic. Sections 3.3 and 3.4 delve into local trends in job polarisation, highlighting which regions are gaining or losing low, middle, and high skilled jobs. Finally, section 3.5 highlights actions needed on both the skills supply and demand sides to prepare workers for the future of work, with a focus on digital skills and skills use in the workplace.

COVID-19 hit some Australia regions hard with a significant drop in overall hiring. Looking at Burning Glass (BG) data between January and April 2020, Victoria experienced the sharpest drop in vacancies, which almost halved. On the other hand, Tasmania saw an overall decline of only 10%.

This being said, looking at just regions in Australia does not reveal how some jobs and occupations experienced an even sharper reduction in hiring due to COVID-19. The drop in vacancies was sharpest for hospitality, food, and tourism jobs in Australia, with a reduction of 54%. The least impacted were jobs in science and research which can increasingly be performed through teleworking, and jobs in healthcare including nursing. The demand for hospitality, food, and tourism jobs dropped the most significantly in Australian Capital Territory (-76%), followed by New South Wales (-56%), and Victoria (-66%). Online job vacancies in healthcare including nursing increased by 39% in Tasmania, and by 25% in New South Wales.

The significant reduction in job vacancies between February-May 2020 reflected the immediate impacts of COVID-19 and associated restrictions on people and businesses. The pandemic resulted in an overall decline of 42.4% in hiring according to Australia’s Internet Vacancy Index (IVI), which was a much steeper decrease in overall job vacancies than previous downturns in Australia. For example, the largest single quarter decline in the 1980s recession was 18.6% (in May 1982) and 26.7% in the 1990s recession (in November 1990) (Australian Bureau of Statistics, 2021[1]).

However, by October 2020, labour demand exceeded pre-pandemic levels across Australia. Job vacancies increased by 74% (68 000 vacancies) in Australia between May 2020 and October 2020. Job vacancies were added for 13 consecutive months between May 2020 and May 2021 with a total gain of 150 000 vacancies, before dipping down slightly in July 2021 (-9 000 vacancies since May 2021). (Australian Bureau of Statistics, 2021[1]).

COVID-19 has highlighted inequalities in the labour market, with some workers more vulnerable to job losses. Most low-skilled, low-wage workers, and young people have been hit particularly hard by the pandemic, as they tend to work in the sectors most at risk, are less likely to hold jobs allowing them to telework, and are more likely to be on temporary contracts. While these groups have been hit hard by the pandemic, some of them have actually led the way in terms of economic recovery. The Social economy could play an important role in helping the most disadvantaged groups.

Economic shocks can lead many employers to permanently raise skill requirements as they retool their operations to become more competitive and viable, making many jobs further out of reach for some job seekers (Austin and Hershbein, 2020[2]). Within Australia, job advertisements had fallen across all skill level groups in 2020, but started to rebound in August for some categories of workers. Skill Level 2 occupations (corresponding to Advanced Diploma or Diploma level education) recorded the largest decrease over 2020, down by 29.4% (4 900 job advertisements) since August 2019. Job advertisements increased across the two highest skill level groups in August 2020. The strongest increase was recorded for Skill Level 1 occupations (commensurate with a bachelor’s degree or higher education level), with job advertisements up by 5.3% (or 2 600 job advertisements) over the month of August (National Skills Commission, 2020[3]). On the other hand, recruitment for the three lower skilled occupational groups (Skill Levels 3 to 5) continued to decline in August. The largest decrease was recorded for Skill Level 3 occupations (corresponding to Certificate IV or III education level), with job advertisements down by 2.8% (or 490 job advertisements) over the month (National Skills Commission, 2020[3]). Although by April 2021, these indicators surpassed their pre-pandemic levels, such a shock will still leave a lasting impression on the labour market and likely to cause many employers to raise skill requirements for certain jobs.

COVID-19 has led not only to job losses but also changing hiring requirements among firms. The National Skills Commission’s Recruitment Experiences and Outlook Survey shows that in the four weeks leading up to November 13, 2020, some 47% of employers surveyed were currently recruiting or had recruited in the past month. The rate of employers recruiting has increased markedly from 24% recorded in the four weeks up to June 26, 2020. Some 43% of recruiting employers reported having recruitment difficulty, with this rate remaining relatively steady since the end of September 2020. The most commonly reported reasons for employers’ recruitment difficulty were a lack of suitable applicants, and a lack of applicants in general.

COVID-19 has had an impact on employers’ staffing expectations. While at the beginning of the 2020, employer surveys conducted by the National Skills Commission were showing that the majority of employers were expecting their staff to increase in the following months, this changed when Australia closed borders due to the pandemic. By late April 2020, 21% of surveyed employers were expecting to decrease their staff in the near future. Only 3% were expecting staff to increase. Employer expectations about staffing have improved as of the end of April and throughout the following weeks. By 6 August 2021, the proportion of businesses expecting to increase staff in the coming months stood at 19% while the proportion looking to decrease staff stood at 4%.

Finding the right talent and skills has been a longstanding challenge among Australia firms. For example, about 34% of employers in Australia reported that they could find the talent they needed, according to the 2018 Manpower Group Talent Shortage Survey. The number was higher for medium-sized organisations (50-249 employees), standing at 43% in 2018. The share of employers reporting shortages was lower in Australia than around the world on average, where it stood at 45%. In addition, this share has been declining in Australia over the past decade, from a high of 61% of employers in 2007. In 2018, it was however still higher than in 2006, when it stood at 32% (ManpowerGroup, 2018[5]).

One in four employers reported that the lack of suitable applicants was the main reason why they could not find the skills they need. As companies digitalise, automate and transform, finding candidates with the right blend of technical skills becomes more important than ever. Yet, many employers report the lack of required hard skills (e.g., programming) as the driver of skills shortage (21%).

While the skills provided by the education and training system need to correspond to those required by firms, it is also important to ensure that the labour market matches workers to jobs where they can put their skills to the best use. Although there is no universally agreed upon definition, mismatch can be measured with reference to different dimensions, whether skills, fields of study or qualifications. Skill mismatch describes situations in which workers’ skills exceed (over-skilling) or fall short (under-skilling) of those required for their job under current market conditions. Field-of-study mismatch arises when workers are employed in a different field from what they have specialised in. On the other hand, qualification mismatches arise when workers have an educational attainment that is higher (over-qualification) or lower (under-qualification) than that required by their job (OECD, 2017[6]).

Some mismatch is frictional and results from workers accepting jobs in which they are mismatched by field of study as they search for the job that best fits their skills and interests. Mismatch also results from the fact that individuals’ decisions to invest in training were made in the context of an economy that has changed; or from changes in an economy’s or occupation’s skill demand as a result of technological change, the global division of labour, economic cycles and changes in the way firms are organised. The seeming inevitability of mismatch does not preclude countries from developing policies and programmes to reduce it or to limit their negative effects on individuals’ and an economy’s outcomes (Montt, 2015[7]).

OECD research finds that Australia has a high rate of skills mismatch, suggesting that labour resources might be more efficiently allocated (Adalet McGowan and Andrews, 2015[8]). Mismatches between workers’ skills and the demands of their jobs can have negative effects on different levels. At the individual level, they can affect job satisfaction and wages. At the firm level, they can increase job turnover and potentially reduce productivity, and at the macroeconomic level, they can increase unemployment and reduce growth through the waste of human capital and the implied reduction in productivity (OECD, 2018[9]). An increase in job turnover can have the effect of rising wage competition and a more broadly skilled workforce but it can also exacerbate polarisation and leave some workers behind. Australia’s large distances between main population centres play a role in explaining mismatches. Inter-state differences in education and vocational training systems may be hindering labour mobility. OECD empirical work on factors driving skill mismatch suggests Australia would also benefit from making housing supply more responsive (OECD, 2018[10]).

Both field of study and qualification mismatches in Australia are slightly higher than the OECD average (see Figure 3.6). Several individuals enter a field-of-study with the expectation to pursue a career in that field and, if mismatched, workers face the disappointment of unmet expectations. Mismatched workers by field may also be more likely to earn a lower salary compared to their matched peers. They are also less likely to be satisfied in their work. For employers, the consequences that field-of-study mismatch brings on workers translate into lower levels of productivity, higher on-the-job-search for other jobs and, potentially, higher turnover (Montt, 2015[7]).

Looking more specifically at qualification mismatches, there are strong variations across Australian regions. Qualification mismatches are highest in the Northern Territory and lowest in the Australian Capital Territory (see Figure 3.7). In all states and territories, under-qualification represents a larger issue than over-qualification, with more than 20% of individual workers in each state and territory achieving a lower level of education than the modal level for all workers in that occupation. Under-qualification leads to a negative impact on productivity, as workers lack the qualifications needed to perform the job. Prolonged periods of under-qualification growth can be a sign of increasing skills shortages, as employers do not find workers with the qualifications they need for the job and therefore hire under-qualified staff (OECD, 2017[6]). Over-qualification is highest in Victoria among all states and territories, with about 20.3% of workers who are over-qualified for the job. Over-qualification poses concerns regarding the use of skills in the workplace, as it may affect job satisfaction and ultimately productivity.

Looking at the occupational structure and skills available in the workforce across regions in Australia shows that most of them are in a high-skill equilibrium, although differences exist (see Figure 3.8). Capital city regions tend to be in a high-skill equilibrium, as they are characterised by a strong supply of skills (measured by educational attainment), high employment shares in high-skill occupations and high earnings. This is the case for example of Sydney – City and Inner South, Brisbane - Inner City, Melbourne - Inner, Adelaide – Central and Hills, Hobart, Australian Capital Territory, among others. On the other hand, more rural and remote regions such as Mackay – Isaac – Whitsunday, Logan – Beaudesert and Far West and Orana, find themselves in a low-skill trap, whereby both the demand and supply of high-skill jobs and individuals are lacking. These regions face a particularly challenging situation, as they lack high-skill jobs and they also struggle to attract higher-skill individuals. Other regions, including for example Hume, Coffs Harbour – Grafton, Riverina, and Shepparton, are in a skills deficit, suggesting that although the demand for high-skill jobs is present, this is not matched by an adequate supply of labour force. Finally, few regions, such as Sydney – Blacktown, Ballarat, and Melbourne – South East, are facing a skills surplus, suggesting that the supply of high-skill individuals is not met by the availability of high-skill jobs.

Labour markets across the OECD have become more polarised over the last decades, with declines in the share of employment in middle-skill jobs relative to jobs with higher or lower skill levels (OECD, 2017[11]). Polarisation has taken place across most OECD countries in recent decades, though these changes have unfolded differently across regions. Across the OECD, polarisation patterns have been especially noted in the United States and United Kingdom since the 1980s (Goos and Manning, 2007[12]) (Autor and Dorn, 2009[13]). In continental Europe, research suggests occupational changes have followed multiple patterns depending on the period analysed and methodology used, though polarisation and upskilling are prominent (Eurofound, 2015[14]; Fernández-Macías, 2012[15]; Goos, Manning and Salomons, 2009[16]; OECD, 2019[17]). As occupational structures are not evenly distributed within countries, however, the OECD has found the relative share of occupations to change differently across regions. Indeed, since 2000, evidence suggests regional variations in the share of low-, middle-, and high-skilled jobs to be as high as 20% in certain countries, such as the United States, Spain and Italy (OECD, 2020[18]).

The Australian labour market has shifted primarily towards high-skill jobs (see Figure 3.9). Between 2006 and 2016, the employment share of high-skill jobs has increased by about 3.4 percentage points, while the share of low-skill jobs has increased by 0.4 p.p. and that of middle-skill jobs decreased by about 3.6 p.p. The shift towards high-skill jobs has been going on for some decades in Australia. Previous OECD work on the 1990s-2010s period had found that employment shares in Australia had shifted towards high-skill jobs, while the share of both middle- and low-skill jobs had decreased. The employment share of high-skill jobs grew by nearly 20 percentage points between the mid-1990s and the mid-2010s.

While there is no universal consensus, digitalisation and automation have been identified as key drivers of job polarisation. According to the Routine-biased technical change theory (RBTC), digitalisation and automation substitute human labour in jobs involving easy-to-codify routine manual and cognitive tasks (Autor, Levy and Murnane, 2001[19]). Jobs that involve routine tasks tend to be found in the middle of the skills distribution. As such, RBTC sees automation as a driver of job polarisation, as algorithms, artificial intelligence (AI) and new technologies progressively replace jobs in the middle of the skills distribution. Such middle-skill jobs include clerks, cashiers, telephone operators, bank tellers or bookkeepers (OECD, 2017[11]). However, recent research has showed that, contrary to common belief, new forms of technology, such as AI, could change the types of jobs most at risk of automation going forward (Muro, Whiton and Maxim, 2019[20]). Research also suggests labour market institutions contribute to occupational change and polarisation. For instance, the OECD has found that higher union density rates may help mitigate polarisation by reducing job suppression in certain parts of the skills distribution (OECD, 2017[11]). Research on the topic also suggests many of these factors do not explain polarisation on their own, but rather constitute a set of variables that interact with each other to shape occupational change (OECD, 2015[21]).

Research suggests that, across the OECD, polarisation has taken place primarily within-industries (accounting for two-thirds of occupational change) rather than across industries (one third of occupation change) (OECD, 2017[11]). In this way, the decline in middle-skill occupations has occurred across almost all economic sectors, often offset by a rise in high-skilled occupations within sectors. Certain sectors, such as manufacturing industry, have tended to undergo a higher degree of loss in middle-skilled jobs. Moreover, the OECD has found occupational change to vary significantly within countries, with different changes in occupational distributions based on local characteristics (OECD, 2018[22]).

In all Australian states and territories, employment shares have shifted from middle-skill to high-skill jobs between 2006 and 2016 (see Figure 3.10). The decline in middle-skill jobs was sharpest in Victoria, where it amounted to about 4.4 percentage points, while it was less pronounced in Northern Territory (-0.7 p.p.). The employment share of high-skill jobs increased by about 3.8 percentage points in Victoria, the largest increase recorded across Australian states and territories. Northern Territory and Western Australia are the only states and territories where the employment shares of both middle-skill and low-skill jobs have decreased.

In most states and territories, employment shares have also shifted towards lower levels of skills, although to a lesser extent than the shift towards high-skill jobs. The size of the increase in the employment share of low-skill jobs was substantial in Tasmania, where it increased by 1.5 percentage points. It has been argued that the decrease in middle-skill jobs, traditionally protected by collective bargaining agreements, has been associated with a weakening of unions and changes in labour law during this period. Between 1986 and 2018, union membership in Australia fell from 45.6% in 1986 to 13.7% in 2018, paralleled by a decrease in the share of workers covered by collective bargaining, which fell from 83% to 58.9% in the same period (OECD, 2019[17]).

Job polarisation dynamics vary substantially at the local level in Australia. Some Australian regions have experienced increases in the employment share of middle-skill jobs over the past decade. The most prominent example is the Outback North region of Western Australia, where middle-skill jobs increased by nearly 5 percentage points between 2006 and 2016. Increases in mining activity may partly explain the increase in middle-skill jobs in the region. Employment has shifted primarily towards high-skill jobs in the large majority of regions, but there are some places where instead the shift has been towards lower levels of skills. In Southern Highlands and Shoalhaven (New South Wales), the employment share of low-skill jobs has increased by 1.7 percentage points, while the share of high-skill jobs by only 1.2 p.p. In West and North West (Tasmania), the share of low-skill jobs has increased by 2.4 p.p., compared to 1.6 for high-skill jobs.

Looking at net job creation, while the large majority of regions have created jobs in high- and low-skill occupations, many regions have also created middle-skill jobs (see Figure 3.11). While this has been compensated in most cases by faster employment growth in high-skill occupations, resulting in employment share shifts towards high-skill jobs, the reliance of local employment on middle-skill jobs may create challenges in some regions, as these are the occupations most likely to be automated.

The debate on job polarisation is part of more general public concerns around growing inequalities and a shrinking middle class across the OECD. Over the last decade, wage levels in the top of workers in the top of the skill distribution have increased substantially more than for the middle class across OECD countries. It is estimated that median incomes increased a third less than the average income of the richest 10% over the last 30 years, while the cost of important parts of the middle-class lifestyle have increased faster than median income over the last two decades (OECD, 2019[24]).

Income inequality represents a challenge to inclusiveness in both Australia as in many OECD countries. The top 20% of the income distribution in Australia lives in a household with five times as much income as the bottom 20%. In addition, people in the highest 1% live in households with an average weekly income that is 26 times the income of a person in the lowest 5% (AUD 11 682 vs AUD 436/week) (Australian Council of Social Service and University of New South Wales, 2018[25]). Income inequality in Australia has risen slightly, and is somewhat above the OECD average. However, this increase has slowed and inequality has stabilised in the last decade (OECD, 2018[10]).

Recent research finds that changes in the occupational structure of employment in Australia can explain part of the overall increase in inequality that has occurred in the country. Changes in average earnings by occupation have also contributed to earnings inequality changes (Coelli and Borland, 2015[26]). Over the past 30–40 years, in Australia there has been a steady growth in earnings inequality for both male and female employees. Since the mid-1990s, this growth has been most pronounced at the top of the earnings distribution. Increasing earnings inequality in Australia appears to be related to changes in the occupation composition of employment; but earnings differentials between workers with different levels of education attainment have remained stable. Technological change that has allowed workers undertaking routine tasks to be replaced by machines, and institutional shifts such as the decline of trade unions, are underlying factors that seem important causes of increases in earnings inequality (Borland and Coelli, 2016[27]).

OECD estimates also show that middle-skill workers are more likely to be in lower income than before in Australia. Australia is among the OECD countries in which the share of middle-skill workers attaining upper-income class has decreased since the mid-1990s, while the share of middle-skill workers entering the low-income class has increased significantly. The OECD estimates that 4.8% less middle-skill workers comprised the upper-income class in the mid-2010s compared to the mid-1990s, while 5.1% more middle-skill workers entered the lower-income class (OECD, 2019[28]). The COVID-19 crisis is likely to accelerate such income inequality trends, harming the employment prospects of those with lower educational attainment disproportionately (Furceri et al., 2020[29]).

However, the relationship between polarisation and a shrinking middle class is more complicated than a one-to-one relationship. In general, across OECD countries, growth in high-skill occupations has outpaced growth in middle- and low-skill occupations, shifting the overall labour market distribution towards higher-skill jobs. Other factors may be more important in explaining the shrinking middle class. Notably, the changing relationship between skills and income classes means that middle-skill workers are now more likely to be in lower-income classes than middle-income classes. The wage structure is also characterised by growing divides between top earners and everyone else, rather than growth in jobs at both ends of the wage scale (i.e. polarisation) (OECD, 2019[28]).

In addition to digitalisation and automation, polarisation has often been linked to changes in the labour supply, or the type of skills available in the labour force. In particular, the rising educational attainment of the population may have contributed to job creation at the upper end of the skills distribution. Indeed, when the educational attainment of the workforce rises, employers have an incentive to shape production processes around higher-skill jobs (Murphy and Oesch, 2017[30]).

Tertiary education attainment has increased in Australia as across the OECD over the past decades. About 27.5% of 25-64 year-olds attained tertiary education in Australia in 2000, while today more than 45.7% do so. The share of tertiary educated adults in Australia has been consistently above the OECD average. However, it lags behind some top performers across the OECD, including for instance Canada. About one in three tertiary graduates in Australia graduated in Business as their field of study. Health is the second most often picked field of study.

In general, more Australians attain non-school qualifications, including bachelor’s degrees and above, Advanced Diplomas and Certificates. The share of the population with a bachelor’s degree and above as their highest qualification level has increased from 17.6% to 24.3% between 2006 and 2016. More people achieve Advanced Diploma and Diploma, as well as Certificate Level, while the share of those with no non-school qualifications has fallen. In addition, the share of Australians with higher levels of education is likely to increase over the coming years, as enrolment rates in tertiary education have continued to rise.

While the share of people undertaking non-school education has increased across Australia, the picture is rather uneven across states and territories. For example, in the Australian Capital Territory, 60.6% of the population aged 15+ (about 195 000 people) has non-school qualifications, with the majority of them having a bachelor’s degree (72 000 people). On the other hand, only 44.7% of the population residing in Northern Territory (about 80 000 people) has non-school qualifications, with less than 13 000 people having a bachelor’s degree.

Regional differences are even more pronounced when looking within states and territories (see Figure 3.15). In New South Wales for instance, where about 16% of the population (977 000 people) have a Bachelor Degree, the share of the population with a Bachelor Degree ranges from 50.7% in Sydney-North Sydney and Hornsby (about 156 000 people) to 11.9% in Hunter Valley exc. Newcastle (22 000 people). Similarly, in Victoria, where 16.5% of the population has a bachelor’s degree (798 000 people), the share varies substantially at the regional level. About 49.1% of the population (230 000 people) has a bachelor’s degree in Melbourne – Inner, while only 11.7% in North West (12 000 people).

Differences in the qualifications of the local labour force reflect disparities in the availability of labour market opportunities at the local level. Highly qualified people were more likely to be employed in professional occupations across Australia. The most common occupations in 2016 for people with a bachelor’s degree or above were Registered nurses and Primary and Secondary school teachers. Men with a bachelor’s degree or above were more likely to be Accountants (56 000) or Software applications programmers (51 600), whereas women were more likely to be Registered nurses (141 700) or Primary school teachers (111 700). For those with other non-school qualifications, the most common occupations were Sales assistants, Electricians and Child carers. Men with other qualifications were more likely to be Electricians (90 700) or Carpenters and joiners (73 200), whereas women were more likely to be Child carers (75 900) or Sales assistants (67 800) (Australian Bureau of Statistics, 2017[32]). Regions where the share of population with a bachelor’s degree and above is higher also tend to have shifted more towards high-skill jobs.

Investments today in lifelong learning and vocational training can ensure workers are ready for the upturn, while also supporting regions to make transitions to new economic opportunities. During the 2008 Global Financial Crisis (GFC), investments mainly targeted individuals to acquire skills in new and emerging sectors. However, such efforts were sometimes undermined by low firm demand and sub-optimal use of those skills in the workplace. Flexible forms of skills development can be instrumental in responding to the accelerated reallocation of labour in local economies, including greater access to e-learning opportunities that focus on the needs of workers, especially disadvantaged ones while working with firms to promote workforce innovation and better human resources management practices. This tailoring and proximity to firms and workers will be an essential asset for the recovery (OECD, 2020[33]).

COVID-19 has highlighted the importance of digital skills in the labour market. The crisis has accelerated the adoption of digitalisation in the workplace, to help reduce avoidable physical interactions. This has meant finding ways to reinvent work and, in some cases, a partial disruption of jobs and changes in the way workers perform them (McKinsey & Company, 2020[34]). Developing the appropriate digital skills in the workforce is an important component in Australia’s effort to compete in this rapidly emerging global digital economy.

Australian adults have a strong set of digital skills, compared to the OECD average, according to the OECD’s Survey of Adult Skills (PIAAC) (see Figure 3.16). Australian adults have above average proficiency in problem-solving in technology-rich environments, with about 40% scoring in the top two levels, compared to about 30% on average across the OECD (OECD, 2018[35]). In addition, Australia has a lower share of adults with low ICT skills and information-processing skills than the OECD average (7.5% and 1.7% of adults in Australia, compared to 16.3% and 3.0% across the OECD).

The demand for digital skills has a local dimension in Australia. Burning Glass (BG) data shows that within Australia there is a substantial difference at the local level in the demand for digital skills, which emerges from advertisements of jobs requiring digital skills. For example, jobs advertisement linked to ICT specialist jobs are heavily concentrated, within New South Wales, and specifically Sydney, being the city where more than 40% of total jobs are advertised. In addition, ICT job openings are concentrated predominantly in urban areas in Australia, more so than in some other OECD countries according to Burning Glass data. The degree to which digitalisation is occurring in Australian workplaces is highly variable, as are the approaches of employers in meeting their digital skill requirements. The National Centre for Vocational Education Research (NCVER) identifies three different categories of employers, based on their approaches to technology uptake and skills acquisition: aggressive technology adoption and skills-development approach; keen technology adoption but cautious skills-development approach; appreciation of growing need for digital skills, but no investment in skills development (NCVER, 2020[37]).

In addition to basic digital proficiency, it will be crucial for Australians to develop know-how of specific digital applications. A recent survey conducted by the NCVER shows that the top five technologies with the greatest impact on skill requirements across Australian industries are mobile, cloud, automation, big data and the internet of things. The increasing digitalisation of work through the application of mobile and smart devices, robotics, enterprise systems, cloud computing and augmented and virtual reality will continue to significantly affect working methods and practices and the types of skills required to succeed in future workplaces. The majority of survey respondents indicated that their need for ICT professionals, which are mostly high-skilled and well-paying jobs, has increased over the past five years, with the required skills becoming more difficult to find. On the other hand, because of the adoption of digital technologies, some employers are having an easier time than previously in meeting their digital skill requirements (NCVER, 2020[37]).

The future of work requires workers to develop a broad mix of skills, including digital skills but also strong basic, cognitive and socio-emotional skills, to succeed in the workplace. The digital revolution makes the same kind of skills mix necessary in all walks of life. Without basic skills, workers are locked out of the benefits the Internet can offer, or limited to its most elementary uses. Recent work by the Brookfield Institute for Innovation + Entrepreneurship in Canada highlights the importance of “hybrid skills” in the workplace (see Box 3.5). Policies need to offer everyone ways to get the most out of new technologies. This is particularly true for regions that are already lagging behind (OECD, 2019[40]).

Australia outperforms the OECD average in adult literacy and numeracy proficiency. Data from the OECD Programme for the International Assessment of Adult Competences (PIAAC) shows that the mean literacy score for Australian adults is 280.4, compared to the average across the OECD of 266.2. Australia’s score in literacy is the fourth highest across all OECD countries. Similarly, Australian adults score on average 267.6 in numeracy, compared to 261.9 (OECD, 2019[36]).

There are however differences among segments of the population in terms of basic proficiency, and these are sometimes more accentuated than the OECD average. For example, when looking at literacy proficiency, differences are particularly accentuated by education, occupation and immigrant background. Tertiary educated adults perform better than those with less than upper secondary education, skilled workers outperform those in elementary occupations, and native born/native language adults score better than foreign born/foreign language ones (OECD, 2013[41]).

One in five Australians – around three million adults – have low literacy and/or numeracy skills, according to the PIAAC Survey. For the purposes of this report, adults with low literacy or numeracy skills are not able to reach Level 2 proficiency in literacy or numeracy on a scale that goes up to Level 5. Australia has a similar share of adults with low literacy and/or numeracy skills as New Zealand. It has a smaller proportion of adults with low skills than the United States, the United Kingdom (England and Northern Ireland) and most European Mediterranean countries but a larger share than Nordic countries, Japan, and the Netherlands (OECD, 2017[42]). Adults lacking the basic foundational skills and might face more hardship in switching jobs or transition to new opportunities in light of COVID-19.

Adults in Australia, including those with low skills, are more likely to continue in education and training after leaving formal education than their peers in other countries. However, fewer Australian adults participate in training compared to some top performing OECD countries. About 55.7% of adults participate in training in Australia, lower than in the United States (60%), Canada (58.4%) and England (56.4%). However, Australia performs better than Germany (53%) (see Figure 3.17). Among the reasons for not participating in training, most Australians cite being too busy at work (26.9% of Australians not participating in training). Not having the time and being enrolled in education are the following most cited reasons (21% and 18.4%) (see Figure 3.18). The reasons for not participating in training differ slightly among men and women. About 30% of women who do not participate in training cite the lack of time as the reason, while this is an issue for only 10% of men not participating in training. On the other hand, 37% of men claim that they were too busy at work to participate in training, compared to less than 20% for women.

There are differences in adult training participation in Australia based on a number of socio-economic characteristics (see Figure 3.19). For example, age: adults aged 25-54 are more likely to participate in training than those aged 15-24 and 55+ (59.4%, 58.3% and 40.6% respectively). This is intuitive, as most adults receive training at work, and younger adults are likely to be in school, while older people are likely to be retired. However, this also points to potential challenges, especially for older adults, who might risk losing their job to automation or in light of the COVID-19 pandemic, and are less likely to participate in training. Adults working in micro and small enterprises are less likely to participate in training than those working in medium-sized firms (56.1%, 64.4% and 75.4% respectively), although those least likely to participate in training are adults working in large firms (45.9%). Finally, educational attainment is also a key variable influencing adult training participation. Those with less than high-school education are about half as likely to participate in training than adults with above than high-school education (36.1% and 74.4% respectively). About one in two Australian adults with a high-school degree participates in training. Part of this difference can be explained by the job characteristics of low-skilled individuals. For example, low-skilled adults are typically in jobs that provide fewer training opportunities (Grotlüschen et al., 2016[43]).

Closing gaps in access to training is particularly important, given the uneven impacts of COVID-19 across the skills spectrum. Low-skill, low-wage, and young people may be the most vulnerable to job losses. These same groups are also more likely to hold jobs at higher risk of automation, a process that firms may accelerate in light of the pandemic. Going forward, it will be crucial to ensure that these categories of workers can access skills development opportunities to prepare for the upturn and transition into new jobs (OECD, 2020[33]).

The COVID-19 crisis proved an important testing ground for online training and career guidance, as in-person services were not available (OECD, 2020[44]). Equity has emerged as an important concern, as low-skilled or low-wage workers who did not have sufficient digital skills or access to adequate internet connection could not take advantage of these opportunities. Going forward, training should be aligned with the results of skill assessment and anticipation exercises. Career guidance counsellors can be instrumental in directing adults towards skills in demand. Skills profiling tools and programmes could help ensure that training is efficiently focused on the jobseeker’s skill gaps. Australia’s Department for Education, Skills and Employment is encouraging workers affected by COVID-19 to consult its Skills Match online tool. The tool helps users to identify the skills they already have based on their previous work experience. It then presents new job ideas that use similar transferable skills (OECD, 2020[45]).

Across the OECD, policy makers have often emphasised the importance of boosting the supply of skills, with a focus on the number of people with vocational or academic qualifications. Less policy attention has been devoted to the use of skills in the workforce and the alignment between the competences of workers with the needs of the business. Having a workforce with the right skills is not sufficient to achieve economic growth and boost productivity. For economies to grow and individuals to succeed in the labour market, skills need to be put to productive use at work (OECD, 2016[48]). Promoting the increased use of skills can help employers move towards higher value-added employment and improve business performance. More productive jobs tend to be of higher quality and have higher wages, thereby improving social and economic outcomes at the local level (OECD/ILO, 2017[49]).

Australia is already among the top performers across the OECD when it comes to skills use in the workplace. Australia scores above the OECD average in the use of information-processing skills in the workplace, including reading, writing, numeracy, ICT and problem-solving. Specifically, it ranks first among all OECD countries in the use of problem-solving skills in the workplace.

Promoting the emergence of high-performance work practices could be a further opportunity for Australia to put skills to good use. The term “high performance work practices” (HPWPs) refers to a set of human resources practices that are associated with greater skills use and informal learning. HPWPs include aspects of work organisation and job design (such as teamwork, autonomy, task discretion, mentoring, job rotation, applying new learning), as well as management practices (such as employee participation, incentive pay, training practices and flexibility in working hours). OECD work shows that the share of jobs with HPWPs in Australia is around the OECD average, lagging behind top performers such as Denmark, Finland and Sweden (see Figure 3.20). The share of jobs with high work organisation HPWP is lower in Australia than on average in the OECD. Looking specifically at management practices, Australia is among the top OECD countries in the share of jobs providing flexible working hours, while only very few employees receive bonuses (OECD, 2016[50]).

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