An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy

Transcription

1 SOUTH AUSTRALIAN C E N T R E F O R E C O N O M I C S T U D I E S ADELAIDE & FLINDERS UNIVERSITIES An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Final Report Report commissioned by The Department of Further Education, Employment, Science and Technology Report prepared by The SA Centre for Economic Studies and Australian Institute for Social Research (AISR) May 2009 PO BOX 125, RUNDLE MALL, SOUTH AUSTRALIA 5000 PHONE (+61-8) FAX (+61-8) LEVEL 2, 230 NORTH TERRACE, ADELAIDE

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3 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Contents Glossary of Terms Executive Summary Contents i ii 1. Introduction Aims of the project Addressing the aims 1 2. Background - setting the scene The South Australian economy Defining skill shortages and gaps Workforce planning Classification of the ICT workforce by occupation versus skills sets 8 Part A: Quantitative Analysis The ICT sector Definition of the ICT industry Profile of the ICT sector The ICT workforce in SA ICT workforce by industry and occupation ICT workers in the public sector Potential Demand for New ICT employees 2009 and Supply of labour to the ICT sector Education data future supply indicator Outcomes for TAFE and university graduates Migration data Imbalances in the ICT workforce Job vacancies for SA Forecast imbalances 49 Part B: Supply-side and demand-side perceptions of the characteristics required for the ICT workforce Factors perceived to influence future demand for ICT skills Demographic change and ageing The impact of technological change Changing business imperatives Environmental Imperatives Supply of ICT skills Perceived barriers to the supply of labour to the ICT sector The role of education and promotion in ICT skills development Responding to blockages in education and training supply the role of Government in ICT skills 63 development 8. Key findings from stakeholder consultation Propositions from consultations Conclusions 67 References 69 Annex 1: Census data by ICT occupational group 72 Annex 2: Stakeholders Consulted 83 This report was prepared by the following researchers: Michael O Neil, Executive Director, SACES Dr Nicola Chandler, Senior Research Economist, SACES Steve Whetton, Senior Research Economist, SACES Eric Parnis, Senior Research Associate, AISR Simon Molloy, Director, SKC Disclaimer: This study, while embodying the best efforts of the investigators is but an expression of the issues considered most relevant, and neither the Centre, the investigators, nor the Universities can be held responsible for any consequences that ensue from the use of the information in this report. Neither the Centre, the investigators, nor the Universities make any warranty or guarantee regarding the contents of the report, and any warranty or guarantee is disavowed except to the extent that statute makes it unavoidable. The SA Centre for Economic Studies Final Report: May 2009

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5 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page i Glossary of Terms AISR APS DEEWR DEST DFEEST ICT IEAB NCVER OECD SACES TAFE VET Australian Institute for Social Research Australian Public Service Department of Education, Employment and Workplace Relations Department of Education, Science and Training Department of Further Education, Employment, Science and Technology Information and Communications Technology Information Economy Advisory Board National Centre for Vocational Education Research Organisation for Economic Cooperation and Development South Australian Centre for Economic Studies Technical and Further Education Vocational Education and Training The SA Centre for Economic Studies Final Report: May 2009

6 Page ii An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Executive Summary Impact of the Global Financial Crisis This discussion on the potential additional demand for ICT employees was prepared prior to the global financial crisis. Although the impacts on the Australian economy are unclear, it is likely that this discussion overstates the level of demand for 2009 and This would impact not only on expansion demand, as firms do not increase their overall employment at the expected rate (or, indeed, decrease it), but also on replacement demand as declining investment returns cause people to defer their retirement, and poor economic conditions interstate and overseas reduce the incentive to migrate out of South Australia. The South Australian Department of Further Education, Employment, Science and Technology (DFEEST) commissioned the South Australian Centre for Economic Studies (SACES) and the Australian Institute for Social Research (AISR) to undertake research into the supply and demand for ICT skills in the South Australian economy in the period out to 2010 for the Information Economy Advisory Board (IEAB). The two components of this research are as follows: 1. Analysis, evaluation and interpretation of likely supply of, and demand for, ICT skills in the immediate future SA economy (to end 2010). 2. Examination of the difference between supply- and demand-side perceptions of the characteristics required for work in the ICT industry workforce. This analysis has been undertaken at a time when the South Australian labour market is tight by recent standards; demand for labour is expected to increase strongly over the next decade. The Economic Development Board s recent Economic Statement estimates that the combined impacts of economic growth and the need to replace those exiting the labour market will create 187,000 job openings over the period up to 2014/15. One of the key findings of the qualitative research is that employers of ICT staff in South Australia, nationally and internationally report that they are finding it increasingly difficult to attract and retain workers. This is related to both quantity issues (e.g. not enough ICT graduates coming through to replace those workers retiring, or to fill vacant positions among growing firms); and quality issues (e.g. prospective ICT job seekers not possessing the range and depth of skills employers are looking for). ICT employers consulted as part of this project told a consistent story about the fact that the pool of ICT graduates has shrunk in recent years, at the same time as the existing workforce is ageing and at the same time as there is significant mobility amongst the workforce. In many cases, the best South Australian ICT graduates move interstate to pursue job opportunities, the next band of graduates gain employment in large established software development companies, and (according to some of the employers surveyed) the remaining pool lack some of the soft skills that are becoming increasingly important within ICT workplaces. At the same time, some ICT firms are reluctant to take on new graduates straight from study because of the fear that after investing significant resources in training them, the graduates will leave to pursue perceived better job opportunities. Compounding this has been a sustained period of economic expansion resulting in many time-critical projects. Final Report: May 2009 The SA Centre for Economic Studies

7 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page iii These qualitative findings of skill gaps in the ICT sector are, interestingly, in contrast to the lack of evidence of general skill gaps (as opposed to shortages for specific skills) in the quantitative analysis detailed in Part A of this report. South Australia s ICT workforce The core ICT industries (including electronics) employ roughly 18,000 South Australians. Not all of these employees have ICT skills, and many ICT employees work in other industries, so the number of persons in ICT occupations is a better guide. This also suggests that South Australian ICT employment is roughly 18,000. The occupation with the largest employment is ICT Customer Support Officers (1,800 employees in 2006), followed by Electronic Equipment Trades Workers; Software Engineer; and Developer Programmer. SACES projects that total demand annual for new ICT employees (expansion plus replacement demand) in 2009 and 2010 is likely to be of the order of 160 each for Electrical/Electronic Engineers and Computer Support Technicians ; and 100 each for Computer Professionals and IT Mangers. Supply of New Employees to the ICT workforce Chapter 4 examines the potential supply of new ICT employees from the education and training systems, and from migration. This is clearly not an exact predictor since people studying for qualifications in Information Technology and in Engineering and Related Technologies may not necessarily then end up working in the ICT industry. On the other hand, there will be people studying for qualifications in unrelated or marginally related subjects who then do choose to enter the ICT workforce. The largest inflow of workers into ICT occupations is from students completing courses in ICT-related higher education courses, both vocational and at university. However, not all IT professionals have ICT qualifications; a survey of IT recruiters found that: 9 per cent of IT professionals have no ICT qualifications; 13 per cent have TAFE qualifications; 13 per cent have an industry or vendor certificate; and 52 per cent have an ICT-related degree. Those completing university courses in Information Technology in SA are expected to total 247 in 2008 and 224 in Numbers completing Engineering and Related Technologies courses (many of which are not ICT related) are expected to be 502 in 2008, and slightly lower at 444 in Graduate outcomes for university engineering students are strong, with 80 per cent employed in an occupation related to their qualification, and the fourth highest graduate starting salary out of the 23 fields of education. Graduate outcomes for Information technology students were not as strong, with only 50 per cent working in a field related to their qualification. IT graduates ranked tenth of the 23 fields of education based on starting salaries. The other main source of supply for ICT employment is migration. We find that around 120 new migrants join the SA ICT workforce each year. The SA Centre for Economic Studies Final Report: May 2009

8 Page iv An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Imbalances in Supply and Demand Chapter 5 draws together the supply and demand data for ICT employees and assesses the imbalances evident in the ICT workforce for South Australia over the next few years. In contrast to feedback from employers, there is no evidence of a systematic shortage of ICT employees in South Australia, although there is likely to be undersupply of some occupations. DFEEST s modelling suggests that over the next five years there will be a need to increase training effort aligned to some ICT related occupations in South Australia, in particular Information Technology Managers and Electrical & Electronic Engineers. SACES projections for employment demand and training output similarly suggest unmet demand for Information Technology Managers and Electrical & Electronic Engineers. SACES analysis also indicates that there is likely to be an oversupply of Computer Professionals in the near term, with total additional demand projected to be 200 over 2009 and 2010, with a supply of over 600 for the same period. This suggests (using Richardson s distinction (2007)) that, to the extent that there are any claimed shortages of Computer Professions, it appears to not be the case that there really are no people who have the skills for the job, but rather a situation where such people do exist but for some reason are not applying for those jobs. Wages data provides no evidence of systematic skills shortages in the ICT occupations, with wages for Computer Professionals growing at an annual rate of 4.7 per cent between 2004 and 2006, compared to 7.1 per cent for all Business and Information Professionals. Perceptions of the Characteristics Required for the ICT Workforce Review of Literature Chapter 6 discusses the factors identified in the literature as likely to influence current and future demand for ICT skills under four broad heading: demographic change; technological change; changing business imperatives; and environmental imperatives. The future demand for ICT skills is influenced by intergenerational social and demographic factors like workforce ageing and economic trends and cycles. Skill development is facilitated through upskilling of the existing workforce. There is evidence that workforce retraining and upskilling is a problem within the ICT sector. Technological change itself is a major driver in the demand for ICT skills. Changes in the demand for particular technical skills can be a major cause of ICT skills shortages and gaps. Changing business imperatives are leading employers to place increased emphasis on soft skills like communication, ability to work in teams, ability to manage etc. The ICT workforce is also being influenced by a number of environmental and societal changes. Chapter 7 presents findings from the literature of perceived barriers to the supply of labour to the ICT sector, citing findings from various recent state government-commissioned reports. Perceptual barriers to the supply of labour to the ICT sector identified in the literature are: Negative associations with ICT work, for example, nerdy, socially isolated. Limited understanding of all dimensions of ICT work. Final Report: May 2009 The SA Centre for Economic Studies

9 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page v A male dominated profession that deters women from participating. Perceived low status, pay and transferability of ICT skills. Confusing language and culture associated with ICT work. Perceived cyclic nature of demand for ICT skills, and therefore, lack of security. Strategies that bring together the supply and demand perceptions would address commonly held misconceptions about ICT skills and careers, and would improve the understanding of education stakeholders about ICT careers and opportunities. Perceptions of the Characteristics Required for the ICT Workforce Stakeholder Consultations Chapter 8 presents the finding of the targeted stakeholder consultation that was undertaken with demand and supply participants to ascertain their views about the characteristics required for work in the ICT workforce. There is significant agreement in the perceptions of the supply and demand for ICT skills, particularly in the need for soft skills and on-the-job skills, but there is a lack of specificity regarding the nature of these skills. Information mismatches affect perceptions of early career choices graduates may not appreciate that some employers will induct them into the workforce and help them in their career paths. However, such employers may be rare. Many ICT graduates become employed in non-ict jobs. Also, the number of annual ICT graduates is large relative to the ICT employment pool. Work experience for current ICT students is an important opportunity to acquire onthe-job and soft skills, and to focus career paths. It may be viewed as an investment strategy by employers, providing real and relevant training and building relationships for the future. Employers want the top 5%. Is it possible for more of the people perceived to be in the middle to be more like the people perceived to be at the top? There should be a clear distinction between the government s role in addressing its own ICT employee needs and its role in addressing the functioning of the ICT market. Policy intervention specifically in the ICT sector should be evaluated against similar demands for employees and skills in other sectors of the economy. The SA Centre for Economic Studies Final Report: May 2009

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11 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page 1 1. Introduction 1.1 Aims of the project The South Australian Department of Further Education, Employment, Science and Technology (DFEEST) commissioned the South Australian Centre for Economic Studies (SACES) and the Australian Institute for Social Research (AISR) to undertake this research project for the Information Economy Advisory Board (IEAB), into the supply and demand for ICT skills in the South Australian economy in the period out to The resulting report will be used to assist in the development of appropriate recommendations for government policy and strategy. 1.2 Addressing the aims The two components of this research are as follows: 1. Analysis, evaluation and interpretation of likely supply of, and demand for, ICT skills in the immediate future SA economy (to end 2010). 2. Examination of the difference between supply- and demand-side perceptions of the characteristics required for work in the ICT industry workforce. Chapter 2 presents background information to the discussion, looking first at the South Australian economy and the implied forecasts for labour demand out to 2014/15. The estimated level of job openings is taken from the Economic Development Board s Economic Statement South Australia s Prospects for Growth. There follows a discussion of what constitutes a skills gap and how employers and employees perceptions might affect the true nature and extent of any gap. The concept of workforce planning is central to addressing skills gaps, with government and employers putting plans in place to address such labour supply issues as numbers of ICT graduates, and the mobility of labour between states and internationally. Finally, this chapter presents a discussion of the classification of the ICT workforce, with reference to the availability of data sets, as well as the feasibility and appropriateness of possible classifications. The approach adopted for this report is to classify the ICT workforce by occupation, rather than by the type of company they work for or by skill sets. Chapter 3 presents the definition of the ICT industry which has been adopted for the purposes of this report. As well as the core ICT industries such as electronics and IT companies, there are a number of companies that employ ICT workers but would not be classed as ICT companies. The data analysis therefore focuses on ICT employees rather than ICT companies since they are more clearly defined and the data are more consistent. A profile of the SA ICT industry is summarised in Chapter 3 from the SACES 2005 ICT Industry Measurement Project, looking at the numbers of ICT firms in SA, classified by revenue and employee numbers. The current ICT workforce in South Australia is presented in Chapter 3 by occupation, using ABS 2006 Census data organised by the ANZSCO occupation classification at the six-digit level. The data are then presented in groupings which provide a sensible proxy to the various industries that ICT workers are employed in. A closer look is also taken with regard to the public service ICT workforce, and the issues facing the SA public sector in particular. The SA Centre for Economic Studies Final Report: May 2009

12 Page 2 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy In Chapter 4, in order to assist in estimating the supply of ICT workers out to 2010, we consider the numbers of people commencing, and expected to complete, relevant TAFE and university courses by this date. This is clearly not an exact predictor since people studying for qualifications in Information Technology and in Engineering and Related Technologies may not necessarily then end up working in the ICT industry. On the other hand, there will be people studying for qualifications in unrelated or marginally related subjects who then do choose to enter the ICT workforce. These choices are unknowns so we have had to make assumptions about the proportions of current students who will enter the ICT workforce. Also examined are the wages of ICT workers relative to other occupations. The second part of Chapter 4 presents migration data for South Australia, looking at the occupations of migrants, and how many have stated that their occupation is in ICT. Chapter 5 draws together the supply and demand data for ICT employees and assesses the imbalances evident in the ICT workforce for South Australia. This includes referencing skilled vacancy data and State Government workforce modelling, as well as SACES calculations. Chapter 6 presents a literature review. This literature review has focused on state, national and international information on the ICT workforce and in particular the perceptions of the current and potential labour force participants. The factors influencing current and future demand for ICT skills are discussed in four groupings: demographic change; technological change; changing business imperatives; and environmental imperatives. Chapter 7 presents findings from the literature of perceived barriers to the supply of labour to the ICT sector, citing findings from various recent state government-commissioned reports. The issues raised here relate to negativities and stereotypes around the image of ICT as a career choice, both among the general public and among school students who are thinking about their career path. This chapter presents some suggestions made in the South Australian Government s Position Paper for about the role that government can take in addressing ICT skills development, which is one of the perception issues found to be pervasive. Chapter 8 presents the finding of the targeted stakeholder consultation that was undertaken with demand and supply participants to ascertain their views about the characteristics required for work in the ICT workforce. The perceptions contained in the stakeholder consultation are also compared with the findings from the literature review. Final Report: May 2009 The SA Centre for Economic Studies

13 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page 3 2. Background setting the scene Summary: The South Australian labour market is tight by recent standards; demand for labour is expected to increase strongly over the next decade. The Economic Development Board estimates that the combined impacts of economic growth and the need to replace those exiting the labour market will create 187,000 job openings over the period up to 2014/15. Skills shortages may result from hard-to-fill vacancies, existing employees lacking the required qualifications and skills or recruitment difficulties. There may be a quantity and/or quality issue in filling skills gaps. One of the key findings of the qualitative research is that employers of ICT staff in South Australia, nationally and internationally report that they are finding it increasingly difficult to attract and retain workers. This is related to both quantity issues (e.g. not enough ICT graduates coming through to replace those workers retiring, or to fill vacant positions among growing firms); and quality issues (e.g. prospective ICT job seekers not possessing the range and depth of skills employers are looking for). ICT employers consulted as part of this project told a consistent story about the fact that the pool of ICT graduates has shrunk in recent years, at the same time as the existing workforce is ageing and at the same time as there is significant mobility amongst the workforce. In many cases, the best South Australian ICT graduates move interstate to pursue job opportunities, the next band of graduates gain employment in large established software development companies, and (according to some of the employers surveyed) the remaining pool lack some of the soft skills that are becoming increasingly important within ICT workplaces. At the same time, some ICT firms are reluctant to take on new graduates straight from study because of the fear that after investing significant resources in training them, the graduates will leave to pursue perceived better job opportunities. Compounding this has been a sustained period of economic expansion resulting in many timecritical projects. These qualitative findings of skill gaps in the ICT sector are, interestingly, in contrast to the lack of evidence of general skill gaps (as opposed to shortages for specific skills) in the quantitative analysis detailed in Part A of this report. Potential reasons for these disparities will be explored in the concluding sections of this report. 2.1 The South Australian economy This project is being undertaken against the backdrop of a South Australian labour market that is tight by recent standards, and where demand for labour is expected to increase strongly over the next decade. In March 2009, the Economic Development Board released its Economic Statement South Australia s Prospects for Growth, which included an analysis of economic growth and the workplace. 1 The Economic Development Board draws on the most recent projections being used by the State Government in forecasting the demand for labour, including analysis of the impact of major projects being planned in South Australia over the next decade. The 2007 Major 1 The workforce analysis in the Economic Statement draws on the recently completed Review of Skills and Workforce Development in South Australia (Keating, 2008), which also included a set of policy proposals to address potential skills imbalances which were adopted by the government. This is the most recent in a series of reports commissioned by or undertaken by the State Government to address current and emerging skill and workforce development issues facing South Australia, see for example, the South Australian Workforce Development Strategy Better Skills, Better Work, Better State, and Schofield, K. (2003), Skills South Australia Final Report of the Ministerial Inquiry, Skills for the Future. The SA Centre for Economic Studies Final Report: May 2009

14 Page 4 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Developments Directory (DTED, 2007) estimates around $45 billion worth of major projects being undertaken or considered in South Australia across a wide range of industry sectors. 2 In quantifying workforce demand and supply, the Economic Development Board has taken into account the following variables: expansion demand arising from economic growth (the impact on employment of GSP growing at its trend rate, plus the impact of major projects); and replacement demand from population ageing and replacement of workers who retire, who move between occupations, or leave the workforce to undertake unpaid activities (like care giving), or because of poor health. The Review findings estimate that over the next seven years (between 2007/08 and 2014/15): a) Expansion demand due to growth in the South Australian economy is expected to create 75,000 new jobs. b) The number of net job openings from replacement demand is likely to be in the order of 112,000 significantly more than estimated through growth in the economy. Due to the ageing of the workforce, the annual level of replacement demand in South Australia is increasing over time. c) Therefore the Economic Development Board estimates that the combined impact of economic growth, major projects and the need to replace workers who exit the labour market or move between occupations results in total job openings over the next seven years in South Australia of some 187,000 (Economic Development Board, 2008, p. 73). The projected level of new job openings does not, however, represent the projected demand for training. Job openings can be filled from sources of supply other than the training system, such as migrants or those re-entering the workforce, reducing the required supply. However, on the other hand there is likely to considerable demand for training of the existing workforce (re-training or up-skilling). Based on assumptions about the level of these factors, the Economic Development Board has estimated that to meet demand in the labour market 337,000 persons would need to receive new qualifications over the next seven years. Current trends in training commencements (plus announced funding increases, such as the Australian Government s Productivity Places Program) suggest that there will be a supply of 326,000 new qualifications out to 2014/15; a shortfall of 11,000 (Ibid, pp. 73-4) In addition to the overall shortfall in training supply, the Economic Development Board is also projecting an imbalance in training provision relative to projected demand. Forecasts of the share of training demand and supply by qualification level are set out in Table 2.1. This suggests that there is likely to be a substantial undersupply of higher education and VET qualifications at Certificate III, with the projected share of supply for each being below the share of projected demand. The combined impact of this imbalance and of the overall shortfall in supply suggests a project undersupply of training completions of at least 17,000 each for higher education and VET qualifications at level III and above. 2 Including sectors with significant ICT intensity Final Report: May 2009 The SA Centre for Economic Studies

15 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page 5 Qualification level Table 2.1 Projected Demand and Supply of Qualifications by Level Projected demand (per cent) Projected supply (per cent) Bachelor's Degree and higher Diploma and Advanced Diploma Certificate IV Level Certificate III Level Certificate I and II Level 6 17 Total (numbers) 337, ,000 Source: Reproduced from Ibid, p Defining skill shortages and gaps What constitutes a skill shortage and how best it is measured is the subject of considerable debate. In many cases skill shortages are not shortages in aggregate labour supply, but rather a shortage of the right mix of skills and knowledge (2010 Human Resources Planning Committee, 2003). Shah and Burke (2005) highlight some of the conceptual and definitional difficulties that come to the fore when estimating skill shortages. For example: Employers, employees and policy analysts have varying perspectives on what skill shortages mean. The lack of a common understanding of the concept often obscures analyses of problems, their causes and possible solutions (p.44). From an economist s or market perspective, a skill shortage occurs when there is insufficient supply of appropriately qualified workers willing to work under existing market conditions, particularly the prevailing wages. In other words, the reference is to the external labour market, the aggregation of all firms demand and all individuals supply of the specific skill. Sometimes the shortage is evident only in particular specialisations of an occupation or in a particular geographical location. Unfilled or hard-to-fill vacancies are indicators of a shortage (p.46). Employers perspective on skills shortages are important because often they are the main, if not the only, source of data allowing judgements to be made about the existence of a skills shortage. The employer perspective is, however, usually in terms of recruitment difficulties experienced by individual employers. These do not necessarily lead to unfilled vacancies in the short run but can result in other labour market difficulties or rising labour costs that the employer may regard as a shortage (p.47). Although many employers equate skills shortages with hard-to-fill vacancies, a substantial number do not. For example, some employers view internal skills deficiencies, or gaps, in the same light as skills shortages. Others declare the existence of skills shortages when in fact they are unwilling to offer competitive wages (p.47). Shah and Burke (2005) also highlight the different meanings attached to the term skills shortage. Three meanings are distinguished: The SA Centre for Economic Studies Final Report: May 2009

16 Page 6 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Hard-to-fill vacancies Skills gap Hard-to-fill vacancies exist when employers are unable to fill or have considerable difficulty filling vacancies for an occupation (or specialised skill needs) at current levels of remuneration and conditions of employment, and reasonable location. Hard-to-fill vacancies are those that are still unfilled after a reasonable period. Hard-to-fill vacancies are typically for specialised and experienced workers, and can coexist with relatively high overall unemployment in the occupation (p.49). Skills gaps occur where existing employees lack the required qualifications, experience and/or specialised skills to meet the firms skill needs for an occupation. Skills gaps may apply to new employees, where employers are unable to find suitable applicants for an occupation and recruit workers who need further training and/or experience to meet the firm's skill needs for the occupation. Skills gaps do not necessarily relate to formal vocational qualifications relevant to an occupation, as sometimes the complaint is about generic skills or attitudes. In some instances skills gap may be latent. This can occur when employers do not perceive that there is a problem because they are not fully aware of skills needed for optimal production (p.49). Recruitment difficulties Recruitment difficulties occur when employers have some difficulty filling vacancies for an occupation. There may be an adequate supply of skilled workers, but employers are still unable to attract and recruit sufficient numbers of suitable employees. These difficulties may be due to characteristics of the industry, occupation or employer, such as: relatively low remuneration; poor working conditions or image of the industry; unsatisfactory working hours; location hard to commute to; ineffective recruitment; or firm-specific and highly specialised skills needs. Recruitment problems are not widespread enough for them to be declared a marketwide shortage. With appropriate offers of wage compensation workers could be enticed to work in many of these situations described above (p.50). More broadly, Richardson (2007, p.15) suggests that: The absolute level of vacancies on their own tells us very little about skill shortages. A large number of vacancies may simply indicate high turnover rates within an occupation. Definitions of shortages need to be able to differentiate between the situations in which there really are no people who have the skills for the job from the situation where such people do exist but for some reason are not applying for those jobs. Finally, even if there is agreement about the existence of skill gaps or shortages, it is important to recognise that there are a number of diverse factors that influence the demand for particular skills (e.g. firm size, industry sector, technological environment, immigration and regional location) (DCITA, 2006). Final Report: May 2009 The SA Centre for Economic Studies

17 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page 7 The literature review and stakeholder consultation undertaken for this project has identified that the ICT sector in Australia is experiencing all the different measures of skill shortages for many of the reasons in the above analysis. However, these skill pressures in ICT are not unique to South Australia or even Australia and have become the subject of a number of reviews and analyses. One of the key findings of the qualitative research is that employers of ICT staff in South Australia, nationally and internationally report that they are finding it increasingly difficult to attract and retain workers. This is related to both quantity issues (e.g. not enough ICT graduates coming through to replace those workers retiring, or to fill vacant positions among growing firms); and quality issues (e.g. prospective ICT job seekers not possessing the range and depth of skills employers are looking for). These qualitative findings of skill gaps in the ICT sector are, interestingly, in contrast to the lack of evidence of general skill gaps (as opposed to shortages for specific skills) in the quantitative analysis detailed in Part A of this report. Potential reasons for these disparities will be explored in the concluding sections of this report. 2.3 Workforce planning Workforce planning is a means for implementing the objectives of workforce development. The concept of workforce development can be viewed as comprising a number of interrelated elements: planning the size and composition of the workforce; educating and skilling the workforce; and retaining and managing the workforce. Furthermore, workforce planning and development must engage with a wide range of concerns including education, training, pay, skill mix, industrial relations, work-life balance policies, retirement incomes policies, occupational health and safety policy, succession management, leadership development and career management. All of these need to be considered in an integrated way to support successful workforce development and workforce planning (AISR, 2007). Innovative workforce development and workforce planning initiatives are not solely the domain of government policy and it is imperative that industries and individual firms also put initiatives in place to meet these emerging challenges. Workforce planning should be undertaken in the context of wider workforce development and business planning challenges and objectives. It should be part of an integrated process of strategic planning in an organisation. It should address issues of quality employment, management capability and staff development. Despite the urgent imperative of workforce planning, the here and now skill needs of organisations mean that the combination of sustained economic growth, an ageing workforce, and major projects result in an intense competition (and in some cases a bidding war) for qualified staff within and between industries, occupations and regions. In some ways, the ICT sector is just one of many sectors experiencing difficulties due to this phenomenon. The SA Centre for Economic Studies Final Report: May 2009

18 Page 8 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy This is reinforced by the findings of the stakeholder consultation. ICT employers consulted as part of this project told a consistent story about the fact that the pool of ICT graduates has shrunk in recent years, at the same time as the existing workforce is ageing and at the same time as there is significant mobility amongst the workforce. Compounding this has been a sustained period of economic expansion resulting in many time-critical projects. For example, South Australia s ICT sector is forecast to achieve high growth rates on the back of the state s resources and defence industry expansion over the next five years. 3 In many cases, the best South Australian ICT graduates move interstate to pursue job opportunities, the next band of graduates gain employment in large established software development companies, and (according to some of the employers surveyed) the remaining pool lack some of the soft skills that are becoming increasingly important within ICT workplaces. At the same time, some ICT firms are reluctant to take on new graduates straight from study because of the fear that after investing significant resources in training them, the graduates will leave to pursue perceived better job opportunities. For example, in a Queensland Government study, feedback from industry indicated that new graduates only start making a positive contribution to employers 6-12 months after commencing work. Therefore, this represents a significant cost factor to businesses. Costs of this nature are not limited to the overheads and wages of the graduate but also include the salaries and lost productivity of the staff who are required to supervise the training. As a result, the feedback indicated that graduate recruitment is an investment many small firms in the ICT sector simply cannot afford (Queensland Government, 2006). The paradox of this skill shortage is highlighted in a report on Employment in Europe 2002 which found the rate of unemployment of ICT professionals to be increasing, whilst the demand from user industries was also increasing. This displacement suggested a growing skills gap between the needs of user businesses and the available labour pool (quoted in Mahroum et al., 2004). 2.4 Classification of the ICT workforce by occupation versus skills sets In order to address the workforce issues facing the ICT sector, it is important to be able to quantify these issues in order to then devise appropriate strategies and policies. This section looks at how the workforce may be classified and why we have chosen to concentrate on classification by occupation rather than skill set. There are two main ways that the workforce may be classified by skills or by occupation. For example, the occupation of a systems analyst (ANZSCO code ) is defined by the ABS as follows: Evaluates processes and methods used in existing ICT systems, proposes modifications, additional system components or new systems to meet user needs as expressed in specifications and other documentation. Skill Level: 1 In order to fulfil the role of a systems analyst, the employee must have a set of skills at Skill Level 1 which is the highest skill level in the ANZSCO classification (with level 5 the lowest). Skills required for a systems analyst might include having detailed knowledge and understanding of specific ICT systems and being able to understand the requirements of users 3 Taken from August Final Report: May 2009 The SA Centre for Economic Studies

19 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page 9 of the systems. With this will come the requirements for skills such as a certain level of numeracy, as well as analytical and written skills. These are the skills that the employer will want their systems analysts to have. They may also wish them to have additional skills, such as good communication abilities, organisational skills and the ability to manage projects and work well in a team. These requirements will vary between employers and industry sectors, while the occupation classification is consistent. The demand for ICT employees can be assessed in both ways for example, a company may decide it wants to employ 20 computer programmers, or it may choose to advertise for 20 people with ability to operate certain software packages. In general, employers tend to state in job advertisements that they want employees to have a certain list of skills, such as knowing how to programme in C++ or Java Script, and having proven ability in project management. This issue is addressed in the SACES report entitled Education and skill formation: Unmet demand for Information Technology and Telecommunications courses, The report provides analysis of surveys of industry and of graduates of TAFE and university courses in ICT and looks at the reasons for gaps in demand versus supply. It finds that employers are more concerned about the skills of potential employees rather than purely qualifications. It appears that there will not be a general shortage of IT&T professionals in the next five years. However, there may well be shortages of specific skills or of skill levels (such as business skills or experience which derives from time in the workforce). The SACES report refers to the Skills Shortage List produced by DEEWR which lists at the ASCO 4 digit level where shortages exist and the skill sets required for each. As the report states, competency in a number of skills is often required for a role. However, it also points out that: The problem with reports that contain long lists of skills or programmable languages that are claimed to be in short supply, is that there is usually no analysis. SACES (2001) finds that for Australia as a whole, there was a particularly high demand for: Computer Professionals with the following specialisations: COBOL; C++; Visual Basic; SAP; Oracle; and Internet - Java. For South Australia in particular, the highest demand was found to be for: Electrical/Electronics Engineer (All), especially RF engineers; Computer Professionals (All). Key considerations in the analysis of the ICT workforce There are four key reasons for carrying out the analysis of the ICT workforce according to occupations versus skills sets, and these are discussed in turn below. (i) Data availability In a study of this kind, the availability, consistency, comparability and richness of data are all major considerations in the choice of definitions used in the data analysis. Some data will be better for skills sets and some will be better for occupations. As will be described in the following sections, the ABS provides data on occupations and lists the skills required to go with that occupation, using the ANZSCO occupation classification system. DEEWR provides data for both skills sets and occupations, looking at the numbers of people required, and providing unmet demand figures for each classification. Migration data are collected by the Department of Immigration by asking people coming into the country what their normal The SA Centre for Economic Studies Final Report: May 2009

20 Page 10 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy occupation is. Therefore, it can be seen that the majority of the data that are available for the Australian workforce tend to be primarily collated by occupation rather than skills. (ii) Definitions of roles through job titles versus skills sets It is far less straightforward to measure the skill sets that people have than to assess occupational requirements, because people within an occupation can have varying levels of skills, and over time employees will be adding to, and in some cases losing, skills, so they may not be consistent over time. However, occupation titles are relatively consistent, so looking at a set of people in a given occupation over time is far more consistent than trying to ascertain the exact skill set of employees. Occupations are associated with job titles, and under each job title is a list of skills and attributes that the employer would deem desirable. This will include certain skills as well as qualifications and capabilities, and will focus more on what the employee does in the role rather than on skills per se. With the kind of analysis that we are employing in this report, the focus on occupations has its advantages in terms of data availability, consistency and comparability, but there are also disadvantages arising from this choice of data. For example, if a firm requires 20 computer programmers, these roles may also require skills sets that computer programming graduates do not possess, so it is not a straightforward matching of job titles in demand to the supply of people who would at first sight fit those vacancies. This issue is acknowledged and the analysis in the later chapters dealing with employer and employee perceptions sheds further light on the impact that this issue may have on the market for ICT employees. Using the example of the systems analyst again, an employer wants to know that they are employing someone with the general skill set associated with that of a systems analyst. If it turns out that the employee requires additional skills, then this is relatively easily rectified by upskilling that employee. The lack of one or two skills that would be desirable may not necessarily prevent the employee from undertaking the job. Therefore, classification of the workforce by occupation seems appropriate from the employer s point of view. While someone may lack a key skill, or need upskilling, they are correctly identified as a systems analyst, and this is meaningful for any analysis of the workforce. (iii) Education and training courses Another reason for using the occupation classification relates to the courses offered by educational institutions. The higher education providers and universities would offer, for example, places to acquire a Batchelor s degree in computer science, which would be the kind of qualification that a systems analyst might be expected to have, taking them to Skill Level 1 in the ANZSCO classification, and providing relevant knowledge and training for the role. An employer wanting to employ a systems analyst would be safe in the knowledge that someone attaining this qualification would be able to learn further software skills far more easily than someone with an unrelated qualification. The qualifications are reflective of skill type and level, but it is the qualification and occupation that are the constants. (iv) The role of the public sector If the skill shortage an employer faces relates to a particular technical skill, such as a programming language, it should not be excessively costly nor time consuming to address it through up-skilling one or more of their existing staff. And there is a reasonable prospect that the employer who provides the training will benefit from the skill set. Thus there is only a Final Report: May 2009 The SA Centre for Economic Studies

21 An Analysis of the Supply and Demand for ICT Skills in the South Australian Economy Page 11 weak case for government intervention as those paying for the training also reap (at least most of) the benefits. In contrast, if the skill shortage faced relates to the number of persons capable of working in a particular occupation then there is no clear mechanism for an employer to address that shortage through their own actions. They do not have the infrastructure to identify potential IT students; university courses are expensive; and there is no straightforward mechanism to ensure that the employer funding the training receives the benefits of the students skills once they are qualified, they could easily work for someone else. Consequently there is a market failure and government intervention can be justified. As there is a much clearer rationale for government involvement in the type of training that links to occupations that for skills it makes sense to focus analysis of supply and demand around occupations. The SA Centre for Economic Studies Final Report: May 2009