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Better harnessing Australia’s talent: Five facts for the jobs and skills summit

The e61 Institute has published new research to help guide policymakers and stakeholders at the upcoming jobs and skills summit being held in Canberra on 1-2 September 2022. The research identifies five key facts using detailed analysis of firm-level and worker-level data.


Key conclusions:

  • Summit discussions should focus not only on growing our stock of workforce talent, but on allocating our existing talent more efficiently. Our future prosperity depends as much on getting the right workers to the right firms, as it does on our country’s total supply of skills.

  • Achieving this requires a policy environment that fosters the emergence of productive firms to create economic value, and then supports and incentivises workers to effectively match with the right jobs, so that this value can be harvested. This means a focus on policies that can:

Reduce frictions in product markets, such as impediments to firm entry and competition, to allow productive firms to thrive and create quality job opportunities.

Reduce frictions in labour markets so that workers can better capitalise on job opportunities, poorly matched workers can find the right jobs, and the unemployed have the necessary support to find high-quality job matches.

Fact 1: Household income growth and firm productivity growth have slowed

  • The past decade has seen the slowest growth in both real household income and labour productivity for at least half a century.

  • Any decline in the aggregate labour share is almost entirely accounted for by the more pronounced slowdown in real wage growth for young workers.

Fact 2: Market dynamism has declined and remains low

  • There are a series of indicators that together suggest the slowdown in household income growth and firm productivity growth is partly due to rising barriers to the emergence of productive firms and the efficient matching of workers to these firms.

  • Firms are entering and exiting less frequently. Firms are older than in the past. Labour and product markets are more concentrated. Market leaders are more likely to remain leaders. Fewer workers are switching jobs.

  • Declining dynamism can lead to a greater share of economic opportunities and wealth being concentrated among market leaders, with adverse consequences for productivity growth.

Fact 3: Wages are becoming more decoupled from firm performance

  • Australian workers’ wages are decoupling from the performance of the firms they work for.

  • The share of productivity gains passed through to workers has declined by 25 per cent over the past 15 years. The largest declines were in retail trade, accommodation, and food services.

Fact 4: Dynamic markets benefit most workers

  • Workers benefit when labour and product markets are dynamic. Productivity and wages have decoupled the most in sectors where firms have aged the most and job churning has declined.

  • With fewer new firms and new jobs around, incumbent employers can make less attractive wage offers to retain their staff. And when workers switch to jobs that are a better match for their skills, they experience large earnings gains and a boost to mental health.

Fact 5: With dynamic markets comes costs of job displacement

  • Although market dynamism is in the interests of workers, taking advantage of dynamic markets often entails periods of job displacement and uncertainty. This can involve significant costs for households – in terms of forgone earnings, consumption, and mental health.

  • For workers that are most at risk of job displacement, the most important outside option is unemployment benefits, whose value has fallen relative to wages over the last three decades.

  • Low unemployment benefits can discourage these vulnerable workers – typically the young and those in casual or part-time jobs in hospitality and retail trade – from initiating transitions to jobs that better match their talents.




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