Where have all the workers gone? Why are we still experiencing a skills shortage? When will this all be over?
Let’s travel back in time to the beginning of the COVID pandemic. Early on, the federal government made it clear no financial assistance would be extended to international students and skilled migrants on temporary visas. These workers then returned to their home countries.
By now our migration intake is again very close to pre-pandemic levels, so why is it still so hard to find workers? Demographics go a long way to answering this question.
At first glance, the population profile of Australia looks promising. After all, there are a whopping 16 million people of working age (18-64). Over the last decade Australia grew by 3.5 million people. Looking at the change in population since 2012 in more detail, we see how generational dynamics ensured that we would always see a skills squeeze by the 2020s. The pandemic turned the skills squeeze into a real skills shortage, but it wasn’t the sole culprit.
Since 2012, Australia has added 524,000 people under the age of 18. These kids go to school, eat Weet-Bix, and play sports, and through their existence they drive demand for workers (teachers, farmers, coaches) without adding to the workforce.
Over the last decade we also grew our population aged 85+ by 157,000 people. I previously wrote about how labour-intensive it is for a nation to grow old. Half of these 157,000 new people aged over 85 require assistance with daily activities (a nice way of saying they need care of some form). An ageing population demands health and care jobs.
As Australia happily aged, the Baby Boomer generation (born 1946-63) started to exit the workforce. That shouldn’t be a big problem, right? People always retired, and a new generation entered the workforce in their place. This time around, a huge generation retires as a small generation enters the workforce.
To make things worse in the short-term, Gen Z (born 2000-17) is not only a small generation but also a hyper-educated one, meaning they don’t enter the workforce in a full-time capacity until their mid-20s. Only half of the additional population in the last decade was of working age.
The biggest population growth was recorded amongst Millennials (born 1982-99) – ages 33 to 35 grew the most. It just happened that Millennials procrastinated until their mid-30s to have kids. This means just as we experience a skills shortage anyways, Millennial parents (especially women) temporarily leave the workforce. High childcare costs might delay the return to work for some parents. Parents focussing on childrearing rather than on paid employment is the most natural thing in the world, but it puts additional pressure on a pressurised workforce.
What will the next few years look like?
There is another decade ahead of Millennials having kids and of Baby Boomers retiring. Skills shortages are programmed into the demographic profile until then. From the 2030s onwards, things ease significantly since it will be the small Gen X (born 1964-81) cohort that retires.
It looks like interest rates will remain relatively high throughout 2023. To keep living costs down, people spend less on products and services. Businesses react by slowing hiring and might even resort to firing. Jobs will be lost, and the unemployment rate will rise slightly. Not too much though, since Baby Boomers continue to retire, and Millennials continue to take parental leave. The skills shortage will ultimately only be solved by importing more workers through the skilled migration scheme.
That said, since our national housing and migration policies aren’t linked, an increase in migration can have negative cost of living effects which slows economic activity and leads to job losses. As with everything in life, finding the right balance is key.
Demographer Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. Follow Simon on Twitter or LinkedIn for daily data insights in short format.
