Opinion & Commentary
Perverse incentives strip us of our skills
If you have had trouble finding a dentist recently, or been affected by construction projects that cannot employ enough engineers, or work in a company that cannot easily get all the accounting and legal advice it requires, then you are experiencing the university-related element of the skills shortages spread across the economy.
These professions, along with occupations across the health sector, appear chronically in the Department of Employment's list of skills shortages. The annual job survey of recent university graduates also shows a very tight labour market across health and engineering occupations. All but a handful of people with degrees in these fields quickly find appropriate full-time work. Frustrating as skills shortages are, policy mistakes cannot be blamed for all of them.
Industries can grow more quickly than anyone expected, and the available workforce can turn out to be smaller than anticipated, as Australians work overseas or choose jobs unrelated to their original qualification. But policy can be blamed for some shortages, particularly in the health- related industries.
We've known about population ageing for a long time, and it needed no great foresight to realise that more elderly people will need more medical professionals to look after them. Yet here we are with shortages, despite extensive international recruitment. Over that same time, universities sent into the workforce many graduates who struggled to find jobs that used their skills. By 2006, about half a million university graduates were in the workforce, but not in the professional, associate professional and managerial jobs to which graduates typically aspire.
A survey asking its respondents whether they had a chance to use their abilities and qualifications at work found that, among those holding a bachelor degree, nearly 20 per cent said that they did not. We have a considerable mismatch between the degrees employers need and the degrees graduates actually possess. How has this come about?
The basic problem is the way Australia allocates university places. Apart from occasional distributions of new places, which never amount to more than a tiny proportion of the whole, there are no mechanisms for steering places to the appropriate courses. Compounding the problem, the system builds in some perverse incentives. For HECS student places, the Government sets universities a minimum number to be provided within a fixed budget. Add in a decade of real cuts to per student funding, and universities have a strong incentive to focus on relatively cheap courses as the least costly way to achieve their overall target.
Unfortunately, courses leading to careers in areas of skills shortage tend to be expensive to provide. This is one reason why the proportion of university graduates leaving with engineering or health-related degrees dropped fractionally between 1995 and 2004. If Australia had a market-based higher education system the current labour shortages would have been less serious. We can be confident that student demand was there, because the Australian Vice-Chancellors' Committee compiles an annual survey of ''unmet demand'' for university places.
Every year, it reports thousands more applicants for health-related courses than there are places for them. These include many students showing considerable academic potential, with UAIs above 90. We can also be confident that universities would have offered more places, if they had the chance.
Even on current funding rates, which universities otherwise insist are inadequate, last year the Government successfully allocated some better-late-than-never places in disciplines with skills shortages. And universities have also found places for 12,000 international students in engineering courses and 9000 in health- related courses. The historical evidence shows that we had universities willing to offer more places, students willing to take the places, and employers willing to employ those students when they finished.
What we didn't have was government policy that let the three parties connect. Australia needs a higher education system that is more responsive to student and employer demands, so that hundreds of thousands of over-qualified sales and office workers do not co-exist with under-staffed hospitals and stalled engineering projects.
Andrew Norton's paper Mismatch: Australia's Graduates and the Job Market is published by The Centre for Independent Studies, www.cis.org.au.
