Supply of, and Demand for, ‘Skills’
During and in the run-up to the 2007 Federal Election, a point was made about a ’skills shortage’ and its effect on the economy. I do not know enough about economics to give an authoritative response but I do have an amateur’s opinion on the subject. A recent article in the Herald-Sun (with variants in other publications) about the Federal Labor Government boosting training places by 20,000 prompted me to write this post.
I understand that the ideal situation is, from an economic perspective, one where all the demand for skills is fully satisfied by skilled workers. I also understand that it is quite difficult to precisely estimate future demand because of the large number of variables involved in such a prediction (and the uncertainty associated with each one). So should we aim to be cautious in an economic sense and aim to have an oversupply of skilled workers or should be cautious in a social sense and have unmet demand for skilled workers? I’ll explain why I call unmet demand for skilled workers ’socially cautious.’
When someone trains for a particular career they do not do it so that they will end up a ‘product’ that is placed in a metaphorical warehouse should the market one day demand their services. They do it because they think that it will give them a better life. Often they become very emotionally involved in their career choice and it becomes a significant part of their life. They pour their hopes into it. In a situation where the supply of workers in their profession exceeds demand (the economically cautious position) some of these trainees will end up either unemployed, or will have to accept a different job to the one they set their hearts set on. They may even have to start training for another career. I call these things socially harmful because they cause distress and frustration among a subset of the population.
If we set a target that is below the estimated future demand (we’re socially cautious) we will often end up with too few qualified workers and thus a skills shortage, with whatever economic consequences that entails. If we set a target above the estimated future demand (we’re economically cautious) then we will often end up with too many qualified workers and thus a lot of disappointed and potentially bitter individuals. If our estimates are always of a fuzzy nature where at most we can predict a very broad ‘band’ of possible targets that will often be wrong, why are we so harsh on governments that ‘fail’ to prevent skills shortages that were due to the inherent imprecision of our estimates?
I remember in the early 1990’s when Paul Keating spoke of Australia becoming a ‘clever country’, excelling not just in mining and other resource related industries, but in science, technology and the arts. At the time I naively concluded that a career in science would be a good choice. One I graduated with an honours science degree I discovered that there was no work available. I don’t suggest that the then Prime Minister actively encouraged me to do that particular degree, but how much more frustrating would it be to someone whose government actively encouraged them to train in a particular field in order to meet a skills shortage only to find out that there is no job for them once they complete their training and that the government knew in advance that a significant oversupply would occur unless their overestimated targets proved correct?
I think this element has been ignored in the media discussion of the skills shortage. What happens when the government encourages many people to train for jobs that (probably) won’t be there? And even worse, what if the best predictions of future demand suggest that for a significant number of trainees the jobs won’t be there but because the government erred on the side of economic caution they nonetheless encouraged people to train for that particular career anyway? It seems that this process is balancing the economic harm that comes from unmet demand for skilled workers against the social harm that comes from training people up for jobs that for many will not be there. This balancing process is more complex and not readily broken down to ’sound-bite’ format and that is why it is rarely discussed by anyone in the media or by politicians.
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