Structural Change, the Demand for Skilled Labour and Lifelong Learning

In a recent report, the Organisation for Economic Cooperation and Development has argued that certain key developments, including globalisation, population ageing and the diffusion of information technologies, are causing a shift in the demand for labour in modern advanced economies. Demand is thought to be moving away from relatively low-skilled agricultural and production occupations in favour of highly-skilled professional, technical, administrative and managerial occupations. Moreover, rising turnover in the labour market is tending to increase the rate at which existing skills are rendered obsolete. Hence workers in OECD countries are coming under mounting pressure to adapt and enhance their skills on an ongoing basis; that is, today's workers must participate in lifelong learning. This paper investigates the quantitative evidence for the proposition using, as a case study, the distribution of employment across occupations in Australia. Three changes in this distribution are considered: the change that actually occurred between 1986-87 and 1994-95, a forecast of the change that is likely to occur between 1994-95 and 2002-03, and an estimate of the change that will result from trade liberalisation proposals advanced by the Asia Pacific Economic Cooperation forum. In each case the change in the occupational distribution is used to infer the effect on the demand for labour differentiated by qualification level, qualification field and age group. Unlike much of the structural analysis that accompanies discussions of lifelong learning, the approach here is comprehensive. The analysis is not restricted to occupations thought on a priori grounds to have a particular affinity to lifelong learning, but considers changes in employment across all occupations. Hence the role of particular occupations, such as those associated with information technology, for example, are able to be placed in a an economy-wide perspective. The analysis reveals that the factors driving the demand for labour are numerous and diverse, and suggests that generalisations and "stylised facts" are likely to be of only limited usefulness in determining training priorities.

Coordinating Policies for Human Resources Development

In its recent White Paper on Employment and Growth, the Australian Government announced a comprehensive new agenda to supplement its existing employment policies. It includes the following major elements * reforms to labour market assistance; * training and education reforms; * a reconstructed social security system; * a regional strategy; * workplace agreements; and * microeconomic reforms. An important consideration in the implementation of such a multi-faceted policy program is that its various elements are not independent of each other. While the Government has been at pains to ensure that the program is coherent in a qualitative sense, its quantitative assessment of the interdependencies between the program's elements has been limited. In this paper, we consider some of the issues associated with coordinating policies for human resources development, using the White Paper and the National Vocational Education and Training (VET) Strategy to provide a context for the discussion. In particular, we review the role of the MONASH forecasting system as a vehicle for coordinating the training plans of decentralised advisory bodies within the National VET Strategy. We also describe how the system can be used to delineate interdependencies in the Government's program, and include a quantitative assessment of effects of proposed microeconomic reforms on the demand for labour in particular occupations.

The International Comparison Project as a Source of Private Consumption Data for a Global Input-Output Model

In 1989 a major project entitled "Strategies for Environmentally Sound Economic Decelopment" was inaugurated under the sponsorship of the United Nations. This project is designed to identify ways of alleviating pressures on the global environment and, at the same time, raise the standard of living of the poorest countries. The central component of its analytical framework is a dynamic global input-output model (GIOM) that describes trade between 15 regions in about 50 commodities, taking as its starting point the well known 1977 World Input-Output Model of Leontief, Carter and Petri. The purpose of the present paper is twofold. Firstly, it describes a contribution to the compilation of a database for the GIOM. In particular, it draws on data collected by the United Nations' International Comparison Project (ICP) to provide estimates of private consumption expenditure for 1980, the base period for the model. Secondly, it uses these estimates as a case study to examine the implications of using different price systems for each country, rather than a common set of prices, to determine expenditures on composite commodities. In preparing data for multisectoral global models, it is common practice to collect expenditure data evaluated in local (national) prices and convert to world prices using published exchange rates. The analysis of this paper suggests that, when commodities produced in different countries are treated as perfect substitutes in the model, the practice may seriously compromise the model's results.

The Medium Term Outlook for Labour Demand: An Economy Wide Assessment

This paper presents a detailed assessment of the medium term outlook for the demand for labour in Australia. Forecasts are reported for employment by industry, by occupation, by State and Territory, by hours worked and by skill level. The forecasts are driven, in the first instance, by a fully articulated view about the outlook for the macroeconomy. This macro view is then combined with projections for various industry specific variables prepared by relevant expert organisations. Coherence between the different sources is ensured by incorporating them in a single simulation using the MONASH model, a large applied general equilibrium model of the Australian economy. In deriving the forecasts, attention has been paid to the effect of technological and social change on the structure of the economy in recent years, and to the implications of that change for future labour demand. The paper deals particularly with technical change which affects the distribution of employment across occupations within industries, and the distribution across different categories of hours worked within occupations. Tables are included to illustrate how the forecasting system can be interrogated to reveal * the contributions of various industries to employment growth for a selected occupation, and * the relative importance of output growth, capital growth and labour saving technical change to industry employment growth. The paper concludes with a review of some issues associated with making a proper assessment of the forecasts.

Economic Modelling and the National Strategy for Vocational Education and Training

In 1994, the Australian National Training Authority (ANTA) was established by agreement between the Commonwealth, State and Territory governments. Central to the agreement is the National Strategy for Vocational Education and Training (VET) which is organized around the four main themes of responsiveness, quality, accessibility and efficiency. To promote efficiency in the allocation of training resources, ANTA and a number of State government agencies responsible for VET planning take into account employment forecasts generated using the MONASH model of the Australian economy. To promote responsiveness to the needs of industry, a network of industry training and advisory bodies (ITABs) has been set up. The ITABs' responsibilities include the development of "industry-credible, high-quality industry training plans as frameworks for identifying training needs in each industry, and for considering resource requirements". In this paper we review some of the issues that arise in reconciling the information produced at these diverse levels of planning. In particular, we consider the role of the MONASH forecasting system as a planning framework for vocational education and training, and the caveats that must be borne in assessing the performance of the system in this role.

Future Workforce Skills: Projections with the MONASH Model

Since 1993 the Centre of Policy Studies has been using the MONASH model to produce year-by-year forecasts for the Australian economy, typically with forecast horizons of about ten years. MONASH is a large dynamic applied general equilibrium model. The MONASH forecasting system takes as inputs macro-economic forecasts from Syntec Economic Services, forecasts for the agricultural and mining sectors from the Australian Bureau of Agricultural and Resource Economics, forecasts for international tourism from the Bureau of Tourism Research, and scenarios on technical change from extrapolations of recent historical experience. The MONASH model then produces consistent forecasts for 112 industries, 56 regions and 282 occupations. The occupational forecasts give projections of the demand for the ASCO unit groups in each of the six Australian States. These forecasts provide a background for assessing the skills likely to be required in the Australian workforce in the next decade. In this paper we report a selection of our most recent (as at February 1995) forecasts for occupations, and explain how they relate to the macroeconomic and industrial dimensions of the overall forecasts.

Modelling the Economic Effects of Population Ageing

In March 2005, the Productivity Commission released a report on the Economic Implications of an Ageing Australia. The report describes projections for a number of economic variables including population, labour force participation rates, labour supply, employment and hours worked per week. The present paper describes a number of simulations with the MONASH model designed to extend the range of the Commission's earlier analysis. The first is a base case forecast for the Australian economy for the twenty-year period 2004-05 to 2024-25. As far as possible, it is specified so as to maintain consistency with the Commission's projections. The others are alternative forecasts for the same period in which various effects of population ageing have been removed. The alternative forecasts separately identify a taste effect due to the removal of age-related shifts in the commodity composition of household consumption, a public effect due to the removal of age-related shifts in public consumption, a skill effect due to the removal of age-related shifts in hours of employment distinguished by skill (with total hours of employment unchanged), a scale effect due to the removal of age-related shifts in total hours of employment (with the skill composition of employment unchanged), and a total effect due to the simultaneous removal of all the above age-related shifts. To accommodate the simulations, the MONASH model itself is reconfigured such that labour by qualification group can be converted into labour by occupation according to Constant Elasticity Transformation (CET) functions. Labour by occupation in its turn can be converted into effective units of industry-specific labour according to Constant Elasticity Substitution (CES) functions. Labour of a partcular skill is then distributed between occupations and industries according to relative wage rates. The scheme incorporates 67 qualification groups, 81 occupations (the ASCO minor groups) and 107 industries (the input-output classification).computable general equilibrium modelling, population ageing, labour market forecasting

Population Ageing and Structural Adjustment

The future effects of population ageing on the Australian economy have been widely canvassed in recent years, most notably in the two Intergenerational Reports produced by the Australian Treasury and in the Economic Implications of an Ageing Australia report produced by the Productivity Commission. These reports are mainly concerned with the effect of ageing on the government's budgetary position. On the income side, they focus on how ageing affects labour supply and gross domestic product. On the expenditure side, they focus on how ageing affects various spending categories including education, health and aged care. This paper provides a complementary analysis in that it considers how the structure of the economy is likely to be affected by these influences. In particular, it analyses the effects on 64 skill groups, 81 occupations and 106 industries: a scale effect due to age-related shifts in total hours of employment (with the skill composition of employment unchanged). a skill effect due to age-related shifts in hours of employment distinguished by skill (with total hours of employment unchanged), a taste effect due to age-related shifts in the commodity composition of household final consumption, and a public effect due to age-related shifts in government final consumption. The simulations are conducted using the MONASH applied general equilibrium model of the Australian economy. They generate results for each year from 2004-05 to 2024-25, but the analysis concentrates on explaining the deviations in the levels of selected variables in the basecase (ageing) simulation from their values in the counterfactual (no ageing) simulation in the final year, i.e., 2024-25. Results are reported separately for each of the four effects and for all four taken together (the total effect). The paper pays particular attention to the implications of the analysis for economic policy.computable general equilibrium modelling, population ageing, economic policy

Some Short-Run Implications of Fightback: A General Equilibrium Analysis

We report ORANI projections of the short-run effects on the macroeconomy and the industrial structure of the main elements of the Fightback proposals, namely the proposed abolition of the wholesale sales tax, petroleum excise and the payroll tax, proposed cuts in income taxes and government outlays, and the proposed introduction of the goods and services tax. In making the projections, we assume (with Fightback) that nominal wage rates are unaffected. We also assume that private domestic aggregate demand moves in line with changes in disposable income. These fiscal changes fall into two main groups changes in indirect taxes which affect relative prices directly, and changes to income tax rates and government outlays which have their direct impacts on the level and commodity composition of domestic demand. Analysis of the second group is relatively straightforward. Cuts in income taxes increase private-sector demand, crowding out exports but generating a net increase in output and employment. Cuts in government outlays reduce public and private demand, allowing exports to expand but generating a net contraction of output and employment. Because public demand is concentrated on labour-intensive commodities, the contractionary employment effect of cuts in outlays is greater, per dollar of change, than is the expansionary effect of the income tax cuts. Differences in the macroeconomic effects of the indirect-tax components of the package depend on: (a) differences between the taxes in the effects of imposing a dollar's worth of tax on any given industry; (b) differences in the industrial incidences of the taxes; and (c) differences in the sizes of the tax changes. The payroll tax affects the cost of employing labour directly. It therefore has a greater effect in any given industry on employment per dollar of tax change than does the wholesale sales tax, the petroleum excise or the goods and services tax. The GST does not discriminate between imports and domestic commodities and affects exports in only a minor indirect way. Hence, its impact on cost-sensitive industries exposed to international competition is smaller than the impacts of the other taxes, especially the payroll tax. Hence, the implications of the GST for output and employment are relatively small. Our translation of proposals from the Fightback document into shocks for our model is not without some difficulties. The appropriate size of the income tax cuts is one especially controversial issue. We present sufficient information in the paper to allow the reader to perform some sensitivity analysis. For example, to see the effects of assuming that income tax cuts are worth $10billion rather than the$13billion which we impose, the income tax columns in our tables should be scaled down by a factor of 10/13. Substitution of the goods and services tax for the wholesale sales tax, petroleum excise and the payroll tax is a major feature of the Fightback package. Because employment is less sensitive to the cost effects of the goods and services tax than it is to those of the taxes which are replaced, our major conclusion is that the package would generate increases in employment and GDP in the short run. However, our projections also imply that, without adjustments to nominal wage rates, the package would lead to a reduction in the real value of the take-home wage rate. When nominal wage rates are adjusted to maintain the real value of disposable income per unit of employment, the expansionary effects of the package on employment and the GDP are substantially reduced, but not entirely eliminated.

Applied General Equilibrium Modelling and Labour Market Forecasting

This paper describes the application of the MONASH CGE model to labour market forecasting in Australia. The method consists of solving a top-down sequence of models that proceeds from a macro scenario to the CGE model to various labour market extensions. The extensions involve ex post processing of the MONASH results based on employment data from the census and a number of large sample surveys. Their purpose is to greatly increase the amount of information furnished by the simulations at modest additional cost, and hence to support the use of the system for analysing the efficient allocation of training resources.