The vocational education and training (VET) system has an important role to play in assisting with the smooth matching of the skills wanted by employers with the skills offered by workers. This report looks in detail at the meaning of supply of and demand for skills in the Australian labour market, focusing in particular on the way in which skill shortages are identified and addressed. This report is part of the larger research program, A Well-skilled Future: Tailoring VET to the Emerging Labour Market.
� While the term ‘skill shortage’ seems to be clear and unambiguous, in reality it is a slippery concept with many meanings. For a shortage to occur, it is necessary for the demand for a particular type of worker to exceed the supply of such workers, but the notions of supply and of demand are themselves quite inexact.
� Employers look for many qualities in a worker, beyond the technical capacity to complete the required tasks. When workers are abundant, employers develop a high expectation of the level and range of qualities that new workers should possess. When workers become scarce, employers are forced to accept workers with lesser qualities (such as relevant experience, personal presentation and willingness to work flexible hours). Employers experience this as a shortage of suitable workers. � The normal operation of the labour market, including variations in the wages and conditions of the job, will deal satisfactorily with many types of shortage. But it will not work well if there are few people with the required skills who are not already using them, and it takes a long time to acquire such skills.
� We suggest the following scheme for classifying skills shortages:
� Level 1 shortage There are few people who have the essential technical skills who are not already using them and there is a long training time to develop the skills.
� Level 2 shortage There are few people who have the essential technical skills who are not already using them but there is a short training time to develop the skills.
� Skills mismatch There are sufficient people who have the essential technical skills who are not already using them, but they are not willing to apply for the vacancies under current conditions.
� Quality gap There are sufficient people with the essential technical skills who are not already using them and who are willing to apply for the vacancies, but they lack some qualities that employers consider are important.
� There is no simple reliable measure of the existence of a skill shortage. It is necessary to draw on a range of indicators, as is done by the Commonwealth Department of Employment and Workplace Relations. The most important component of these indicators is the time taken to fill vacancies for the skill in question.