Australian manufacturing is in the grip of a skills crisis.
The latest Clarius Skills Index shows a skills shortage. Some of the country’s major infrastructure projects have already been affected. According to Clarius, demand now exceeds supply in a number of employment categories and metalworkers are now the most sought after group.
This is particularly acute in the automotive industry, people who repair and maintain motor vehicle engines, electrical and electronic systems and bodies, paint vehicles, construct specialized vehicle bodies, and who fit or replace interior trim and upholstery in vehicles. According to Clarius, the automotive sector is short of 2000 people.
Manufacturers are only too well aware of the potential impact. A report prepared by Deloitte Australia and the Australian Industry Group shows that manufacturers are quietly confident, if somewhat cautious, about their prospects in 2010. They expect average wage growth of 3.5%. But, the report warns, they are concerned about skills shortages blowing out their wages bill. The latest Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index (PMI) shows Australian manufacturing expanding at its fastest rate in almost eight years but the skills shortage could slow that growth down sharply.
Without government assistance, manufacturers will need to start thinking proactively to address the skills shortage.
First, this means spending more on training. Your staff will be more likely to stick around if you train them and develop career paths.
Companies also need to start thinking laterally about advertising for recruits by getting the message out on SMS, local notice boards, in stores, through the company website, through friends and networks, major web recruitment sites and niche online job recruiters, universities, training colleges, clubs and job expos.
Smart companies turn staff into recruiters, perhaps paying them bonuses to find good people. The great advantage using staff is that they know what is required and understand the company’s needs. Employees usually have their ears to the ground. The added advantage with staff referrals is that it is easier to integrate the person into the organisation when they have been nominated by staff.
Another way is to develop more family friendly policies to attract more skilled candidates, particularly women and mature age workers. This is particularly useful for attracting employees with family and a growing number who have caring commitments for elderly parents, children and partners.
Building a part time workforce is also recommended. It can be more flexible and cost effective than hiring people full time.
Another way is to create reliable systems. Documenting all processes, including the skills required, that keep a business running is an important job that many managers never seem to get around to. But by having everything written down, companies would find it easier can fill the employment gap with less experienced staff. This is less expensive than developing people on the job.
And then there is the possibility of companies collaborating, sharing training resources or even skilled employees, perhaps for some return. It’s a bold idea but companies like Cisco have already been canvassing the idea of collaboration to entice more into technology careers. Manufacturers could do the same.
A number of structural and economic forces are creating the skills shortage.
First, Australia’s booming mining industry might be making it worse. EE-Oz, the official skills council for the electrical and energy industries, is warning that Australia faces a severe shortage of electricians, mine workers and machine operators because mining companies are poaching potential trade teachers. The mining companies are offering them salaries 30 per cent higher than a teacher’s wage. An EE-Oz survey of public training organizations found that 65% could not match salaries being offered by resource giants.
The survey also found that due to the lack of new teachers coming through, the average age of the existing teacher workforce had risen to 55. With an ageing teacher population, the shortage is expected to worsen significantly over the next five years. This means that apprentices can be waiting up to a year for training. The result: fewer coming through, making the skills shortage even worse.
At the same time, IT job salaries have soared because of the rebound in the Western Australian resources sector. Mining companies, which are themselves facing profound and growing skills shortages, are poaching IT professionals and that will create problems for manufacturers.
Leading economics forecaster Access Economics has warned of a two-speed economy in which the resources and related sectors will surge but the soaring Australian dollar, higher interest rates and commodity prices will hurt other industries, including manufacturing. And basically, it means that the resources industry will be in a stronger position to recruit talent, exacerbating the skills shortages problems for manufacturers.
The massive infrastructure spend by the Federal Government might also be contributing to the looming crisis. Infrastructure spending is absorbing many of civil, structural and construction engineers as state and federal governments increase investment in this area. The infrastructure spending is also targeting tradesmen, especially in metal work, servicing and maintenance, electrical engineers and IT professionals, all of them important for manufacturing. Manufacturers, governments and the rail industry in particular are chasing the same thing: workers and more workers.
Another reason for the skills shortage is the ageing baby boomer population. This will be an enormous issue in Australia. The baby boom here lasted longer than in other countries. Furthermore, there are many more boomers than older veterans because fewer people were born during the Depression and war years.
Global KPMG research shows how big a problem it will be. Boomers are now leaving the workforce faster than generation Y will be entering. The first boomers will be turning 65 next year and many will be retiring. KPMG demographer Bernard Salt calls it the “baby bust”. He says the boomer hegemony saw 200,000 enter the workforce each year. This will fall to 100,000 by 2012. It will continue scaling down, slipping to 50,000 by 2025. Fewer people entering the workforce every year will create skills shortages. According to some industry estimates, an ageing manufacturing industry workforce will see 170,000 tradespeople leave industry over the next five years but only 40,000 entering it. The result: a shortage of 130,000 skilled manufacturing workers in the next five years.
Research by Dr Phil Toner at the University of Western Sydney reveals that the skills shortages are created by high output from manufacturing and other industries.
Another driving force, he says, is the decline in the number of apprentices. The key indicator here is the training rate at which losses from the existing stock of tradespeople – caused by death, retirement, disability and leaving the trade occupations – are being replaced by young workers coming through. The problem, Toner found, was that the training rate had declined by 16% compared to the rate in the 1980s-early 1990s. Toner says this is the equivalent of losing one year’s new apprenticeship starts every 6 years.
As with the baby boomers, the demographic forces are also at work. Only with apprentices, they are coming from the other direction. Fewer young people are now available for apprenticeships. In the late 1970s 15-19 year-olds represented around 12 percent of the total Australian population aged 15 years or older. But with an ageing population, 15-19 year-olds account for around only 7% of the population aged 15 years or older. This is a decline of over 40%.
At the same time, there are rising school retention rates and more young people moving into tertiary education. That reduces the pool of suitable applicants for apprentices. The other driving force is the relentless growth of the service sector, creating job opportunities for young people. These white collar job opportunities are competing with traditional apprenticeships.
These shortages have been building up for many years but it’s only now as Australia reaches crisis point that the Federal Government has finally moved on the problem.
In the last Federal Budget, Treasurer Wayne Swan announced the government had allocated more than $660 million over the next four years for investment in skills and job creation, including 39,000 new training places for industries suffering skills shortages, funded out of a $200 million Critical Skills Investment fund. Another $80 million will fund 22,500 extra apprenticeships.
Swan however identified infrastructure projects, the resources sector and renewable energy as the skills hot spots, not manufacturing.
The question is whether $660 million will be enough to pay after years of neglect and with so many demographic and economic forces creating the crisis. It will take more than a one off budget allocation in an election year to ensure there are enough skilled workers here.
