Australia's Labor Shortage: Wage Impact & Sector Growth Analysis

This report examines the economic impact of labor shortages in Australia, particularly focusing on the construction, health, and telecommunication industries. It highlights the shortage of skilled laborers, its effect on wage increases, and the subsequent impact on sectorial growth. The report analyzes how the Vocational Education and Training (VET) sector's inefficiencies contribute to the problem, leading to a decline in apprenticeships and a mismatch between industry needs and available skills. Using demand-supply frameworks, the report illustrates how labor shortages drive up wages and reduce the supply of final goods, affecting overall industry output. Recommendations include improving the VET sector's efficiency, incentivizing trainers, and resolving funding issues to encourage more students to pursue professional training programs, ultimately addressing the skilled labor gap.

Running Head: ECONOMIC ASSIGNMENT
Economic Assignment
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction......................................................................................................................................2
Brief Summary.................................................................................................................................2
Article analysis............................................................................................................................3
Labor shortage and impact on wage............................................................................................3
Labor shortage and effect on sectorial growth............................................................................4
Recommendation.............................................................................................................................5
Conclusion.......................................................................................................................................6
Reference list...................................................................................................................................7

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Introduction
In a technologically advanced world, the demand for skilled labor has increased
significantly. The importance of human resource availability has thus become an important
aspect to be considered in determining growth of industry. In recent years, some of the major
industries of Australia which include construction, health and telecommunication suffer from a
lack of properly trained workers (Sharma, Oczkowski & Hicks, 2016). The direct consequence of
skilled shortage is on the wage of workers group. The concerned industries have to bear burden
of additional wage cost interrupting production and output. In this report, the skill shortage and
associated problem is discussed with a brief economic analysis of a published article.
Brief Summary
The construction industries in Australia has facing a tough time following a lack of
trained laborers. This pulls back the building industry behind other sectors of the economy. The
industry is in need of people with proper skills rather than old fashioned workers. The problem
of a shortage of trained workers has extended to all level. The building industry has suffered
from a shortage of architect, surveyors as well as plasterers. Along with construction sector the
problem of nationwide skilled shortage has been realized in automotive, telecommunication and
hospitality sectors.
The Vocational Education and Training Sector has been blamed for this perpetuated
problem of skilled shortage. The VET sector has responsibility to offer workers sufficient
training align with need of the industry. The Australian VET sector however is moving off the
track. Instead of joining VET sector students after crossing the high school boundary have
revealed their preferences to go for technical and further training education (TAFE) program.

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The students are aspired to attain a high university degree rather than being a carpenter or
plasterer (theadvocate.com.au, 2018). The lack of professional training thus results in a structural
problem in the economy. A considerable number of job vacancies have been created for machine
operators, drivers, traded workers, technicians and IT professionals.
The labor shortage has resulted in an increase in wage for the existing workers. Labor
market with a balance state of labor supply and demand secures a reasonable payment for the
workers (hunterlabourhire.com.au, 2018). One factor responsible for inefficiency of the VET
sector is the complex funding process. This makes training program complicated and less
effective. The decline in apprenticeship and training includes an unstable relation between state
and federal government, mismanagement of students fees, growth of apprentices’ wage and
withdrawal of incentives to the employers. In 2011, the employer incentives were fist ruled out
for low level TAFE program. In the next year, the education limit was increased to high level
diploma and part time apprenticeships. In recent years, the incentive to employers belonging to a
broader range of employer group have been withdrawn. There is a lack of incentive for trainers
involved in VET sector. Trainers with a relatively low level of education fails to secure a quality
training to the workers and lacks necessary incentives to improve training quality.
Article analysis
Labor shortage and impact on wage
In an industry demand of laborers depends on willingness and need of employers to hire
them. Supply on the other hand indicates availability of workers at the existing wage. The
equilibrium wage in the market in determined from the demand and supply balance in the labor
market (Cowen & Tabarrock, 2013). Now, a decline in labor supply creates a labor shortage at

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the existing wage. The employers have to pay a higher wage to hire labor with required skills.
The impact of a labor shortage in the equilibrium wage is shown below.
Figure 1: Labor shortage and impact on wages
(Source: as crated by Author)
The demand and supply curve of labor is shown as DD and SS respectively. With the existing
demand and supply equilibrium is at E. At equilibrium, L* number of workers are employed
with an equilibrium wage of W*. The decline in supply causes a shift in the supply curve (Taylor
et al., 2014). This shifts the equilibrium to E1. At the existing wage there is a shortage of labor
amounts to AE. Consequently, wage increases to W1 with decline in equilibrium employment to
L1.
Labor shortage and effect on sectorial growth
Among the four necessary inputs of production labor is the most variable input. Any
imbalances in factor market is directly reflected in the market for final good. The shortage of

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skills in automotive, telecommunication, hospitality and construction industry thus affects output
of the industries (afr.com, 2018). A decline in supply of factor input and associated rising cost
reduces supply of the final goods as well. The demand supply framework of a lack of factor input
is explained in the figure given below.
Figure 2: Impact of labor shortage on goods market
(Source: as crated by Author)
The disruption in supply of factor inputs causes an inward shift of the supply curve. This
is shown from the shift of the supply curve from S1S1 to S11S11 (Mankiw,2014). The new
equilibrium is established at a higher price and lower output in the industry.
Recommendation
The existing skill shortage in different industries affects the sectoral output and restricts
future growth prospects of the important sector. The Vocational Education and Training Sector
should work on improving its efficiency (theaustralian.com.au, 2018). The students should be

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informed regarding future career opportunities from joining professional training program.
Moreover, the system of incentive should be revised to encourage trainers to come with
innovative ideas. Teachers with a sufficient qualification should be hired rather than presently
employed teacher having only a mere industrial experience and career certificates. Finally, the
centre-state equation should be resolved with assurance of proper funding and greater
responsibility.
Conclusion
Shortage of skilled laborers has become a primary concern for some important industries.
Lack of well-trained workers affects the industry output by reducing effecting supply of labor
input. The labor market is Australia is experiencing a rapid wage growth followed from the labor
shortage. The VET sector is unable to fulfill its responsibility of supplying skilled workers for
different industries. The existing shortcomings of the sector should be eliminated and more and
more students should be encouraged to join VET to increase the supply of labors with necessary
skills.

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Reference list
Bolton, R. (2018). Shortage in skilled tradespeople a long time in the making. The Advocate.
Retrieved 25 April 2018, from https://www.theadvocate.com.au/story/5304283/shortage-
in-skilled-tradespeople-a-long-time-in-the-making/
Cowen, T., & Tabarrock, A. (2013). Modern principles. Gordonsville, Pa.: Worth Publishers.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Sharma, K., Oczkowski, E., & Hicks, J. (2016). Skill shortages in regional Australia: A local
perspective from the Riverina. Economic Analysis and Policy, 52, 34-44.
Skills shortages climbing following record jobs growth. (2018). Financial Review. Retrieved 25
April 2018, from http://www.afr.com/news/economy/employment/skills-shortages-
climbing-following-record-jobs-growth-20180117-h0jlcr
Sydney, 1., & Hire, H. (2018). Skilled Construction Workers Shortage in Sydney | Labour
Hire. Hunter Labour Hire. Retrieved 25 April 2018, from
https://www.hunterlabourhire.com.au/skilled-construction-workers-shortage-sydney/
Taylor, T., Greenlaw, S. A., Dodge, E. R., Gamez, C., Jauregui, A., Keenan, D., ... &
Sonenshine, R. (2014). Principles of microeconomics. OpenStax College, Rice
University.
Vocational training open market schemes a disaster. (2018). Theaustralian.com.au. Retrieved 25
April 2018, from https://www.theaustralian.com.au/higher-education/vocation-training-
open-market-schemes-a-disaster/news-story/1162a8806d99c8a9ea53629f04adf16d