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STRUCTURAL CHANGE AND DEMAND
FOR SKILLS IN THE AUSTRALIAN
ECONOMY
A thesis submitted for the degree of Doctor of Philosophy
The University of Canberra
by
Ross Kelly
JUNE 2010
ii
ABSTRACT
This thesis examines the effect that structural change and, in particular, information and
communication technologies (ICT) have had on skill demand, with the focus being on the
structure of skills in the economy and the way skills are defined and measured. A novel
approach to skill measurement is developed and used to determine the average skill level for
four skill dimensions: cognitive, education, interactive and motor skills. Shift-share analysis
covering between-industry and within-industry changes is undertaken for the period 1991 to
2006 using Census data. This is complemented by regression analysis to examine the
determinants of within-industry skill change. The thesis examines both the causes of change
and the distribution of change. That is, how skill changes have been distributed in terms of
industry, occupation, location and gender.
The main finding supports the central hypothesis of this thesis. That is, that there have been
significant changes to the composition of skills in the economy and that these changes were
substantially, but not solely, a result of technological change. Regression analyses were
undertaken for the various skill dimensions – cognitive, education, interactive and motor –
and provided further support to a vast body of international literature that ICT have been a
critical driver of skill change.
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Certificate of Authorship of Thesis
Except where clearly acknowledged in footnotes, quotations and the bibliography, I certify that I am
the sole author of the thesis submitted today entitled –
STRUCTURAL CHANGE AND DEMAND FOR SKILLS IN THE AUSTRALIAN ECONOMY
I further certify that to the best of my knowledge the thesis contains no material previously published
or written by another person except where due reference is made in the text of the thesis.
The material in the thesis has not been the basis of an award of any other degree or diploma except
where due reference is made in the text of the thesis.
The thesis complies with University requirements for a thesis as set out in Gold Book
Part 7: Examination of Higher Degree by Research Theses Policy, Schedule Two (S2).
Signature of Candidate
..........................................................................
Signature of chair of the supervisory panel
Date: ……………………………..
iv
ACKNOWLEDGEMENTS
I would like to express my gratitude to my supervisor, Professor Phil Lewis, for his excellent
supervision, encouragement, generosity and friendship. I am also indebted to Carrie, Hannah,
Jesse, Ruby and my parents for their enduring support, understanding and patience.
This thesis has benefited from professional editorial assistance for ‘Completeness and
Consistency’ adopted from the Australian Standards for Editing Practice (ASEP) in
accordance with the University Research Committee of the University of Canberra. I would
like to thank Lulu Turner from the University of Canberra for undertaking this task.
v
LIST OF ACRONYMS AND ABBREVIATIONS
ABS Australian Bureau of Statistics
ACCC Australian Consumer and Competition Commission
ACT Australian Capital Territory
ANZSCO Australian and New Zealand Standard Classification of Occupations
ANZSIC Australian and New Zealand Standard Industrial Classification
AQF Australian Qualifications Framework
ASCO Australian Standard Classification of Occupations
ASIC Australian Standard Industrial Classification
ATM Automatic Teller Machines
ATS Australian Traineeship System
B2B Business-to-Business
BIE Bounded Influence Estimates
BLMR Bureau of Labour Market Research
CBA Commonwealth Bank of Australia
CCLO Classification and Classified List of Occupations
CGT Capital Gains Tax
CPS Current Population Surveys
CR Concentration Ratio
DBCDE Department of Broadband, Communications and the Digital Economy
DCITA Department of Communications, Information Technology and the Arts
DIST Department of Industry, Science and Technology
DIW Deutsches Institut für Wirtschaftsforschung (German Institute for
Economic Research)
DOT Dictionary of Occupational Titles
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DVD Digital Video Disk
EDI Electronic Data Interchange Devices
EFTPOS Electronic Funds Transfer Point of Sale
EU European Union
FaHCSIA Department of Families, Housing, Community Services and Indigenous
Affairs
FWA Fair Work Australia
GDP Gross Domestic Product
GNP Gross National Product
GPS Global Positioning Systems
GSOEP German Socio-Economic Panel
GST Goods and Services Tax
GVA Gross Value Added
HECS Higher Education Contribution Scheme
HILDA Household, Income and Labour Dynamics in Australia
Kbs Kilobits per second
ICT Information and Communication Technology
IT Information Technology
ILO International Labor Organisation
IP Internet Protocol
IRC Industrial Relations Commission
ISCO International Standard Classification of Occupations
LTU Long-Term Unemployment
MIAESR Melbourne Institute of Applied Economic and Social Research
MIP-S Mannheim Innovation Panel in the Service Sector (survey)
vii
Mbs Megabits per second
NCVER National Centre for Vocational Education Research
NOIE National Office of the Information Economy
NSW New South Wales
NT Northern Territory
OBEC Oxford Business & Economics Conference
OECD Organisation for Economic Co-operation and Development
PC Productivity Commission
QLD Queensland
RBA Reserve Bank of Australia
R&D Research and Development
RULC Real Unit Labour Costs
SA South Australia
SBTC Skill-Biased Technological Change
SPIRT Strategic Partnerships with Industry- Research and Training Scheme
ST Stolper-Samuelson Theorem
TAFE Technical and Further Education
TAS Tasmania
TCFL Textile, Clothing, Footwear and Leather
TFP Total Factor Productivity
UK United Kingdom
US United States (of America)
USDOL United States Department of Labor
USO Universal Service Obligation
VET Vocational Education and Training
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CONTENTS
Abstract ii
Certificate of Authorship of Thesis iii
Acknowledgements iv
List of Acronyms and Abbreviations v
List of Tables xiii
List of Figures xv
1 INTRODUCTION 1
1.1 Change in the Australian Labour Market 2
1.2 Skills in the Australian Economy 3
1.3 Influence of ICT on Skill Change in Australia 4
1.4 Overview of Thesis 4
2 INFORMATION AND COMMUNICATION TECHNOLOGIES (ICT) AND THE
ECONOMY 7
2.1 Introduction 7
2.2 Growth of the Internet 8
2.2.1 Increase in Internet speeds 9
2.3 Household Access to the Internet 10
2.3.1 Current access levels in Australia 14 2.3.2 International comparison of broadband access 21
2.4 The Economics of eCommerce 22
2.4.1 eCommerce defined 22 2.4.2 Consumer behaviour 24 2.4.3 Contestability of markets 25 2.4.4 Market segmentation and consumer surplus 26 2.4.5 Transaction costs 27 2.4.6 Business-to-business (B2B) transactions 31
2.5 Growth of eCommerce 32
2.5.1 Growth of eCommerce in Australia 34
2.6 Summary 37
3 EMPLOYERS’ EARLY EXPECTATIONS OF IMPACTS FROM ICT 39
3.1 Survey of Firms 39
3.2 Potential Changes from ICT and eCommerce 40
3.3 Changing Skills Composition and Training Needs of the Workforce 41
3.4 Information Technology Staff, Quality and Supply 43
3.5 Impact of eCommerce on the Organisation 43
3.6 Does eCommerce Pose a Threat? 46
3.6.1 eCommerce poses no threat 46 3.6.2 Poses a threat to core business 46 3.6.3 eCommerce is a threat if not adopted 47
3.7 Summary 48
4 BUSINESS USE OF TECHNOLOGY 50
4.1 Overview 50
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4.2 Computers in the Workplace, Network Access and Internet Usage 51
4.3 Application of the Internet by Businesses 53
4.4 Business Investment in ICT 57
4.5 ICT Capital Stock 58
4.6 Examples of Investment in ICT by Firms 62
4.7 Summary 65
5 THE AUSTRALIAN LABOUR MARKET 66
5.1 Overview 66
5.2 Microeconomic Reform 68
5.2.1 Impact of microeconomic reform on the labour market 70
5.3 Industrial Relations 71
5.3.1 Unions, industrial relations and wage setting 73 5.3.2 Labour market flexibility, productivity & structural adjustment 74
5.4 Productivity 76
5.4.1 Productivity growth 77 5.4.2 Real Unit Labour Cost 79
5.5 Education & Training 81
5.5.1 Human capital & the economy 81 5.5.2 High school retention 81 5.5.3 Vocational education and training (VET) 83 5.5.4 Apprentices 84 5.5.5 Higher education 87
5.6 Labour Force Participation, Employment and Unemployment 88
5.6.1 Labour force participation 88 5.6.2 Full-time and part-time employment 89 5.6.3 Disadvantaged groups 91 5.6.4 Long-term unemployment, mature-age unemployment 94
5.7 Employment Growth in the Australian Economy 95
5.7.1 Overview 95 5.7.2 Employment by industry 96 5.7.3 Employment by occupation 101
5.8 Summary 104
6 SKILL BIASED TECHNOLOGICAL CHANGE 106
6.1 Overview 106
6.2 Skill Biased Technological Change (SBTC) Hypothesis 108
6.3 Evidence of SBTC 113
6.3.1 Firm level studies 114 6.3.2 Industry cross-section approaches 121 6.3.3 Cross country studies 126 6.3.4 Australian Studies 131
6.4 Critique of SBTC 141
6.4.1 Critique of ICT linkages to skill change 141 6.4.2 Organisational and institutional change 143 6.4.3 Trade hypothesis and the structure of trade 146
6.5 Summary 150
7 MEASUREMENT OF TECHNOLOGY AND SKILLS 155
7.1 Measurement of Technology 155
7.2 Measurement of Skills 156
7.2.1 Defining skill 156
xi
7.2.2 Definitions and measures used in SBTC studies 157
7.3 US Department of Labor’s Dictionary of Occupational Titles (DOT) 162
7.4 Applying the DOT skill ratings to the ASCO 164
7.4.1 Australian Standard Classification of Occupations 164 7.4.2 Rating skills 166
7.5 Skill change equations 169
7.5.1 Interpretation of skill change measures 172
7.6 Summary 173
8 CHANGES IN SKILL DEMAND 175
8.1 Occupational Skill Rankings 175
8.1.1 Occupational skill shares 178
8.2 Industry Skill Structure 182
8.3 Skill Change 185
8.3.1 Full-time and part-time employment status 185
8.4 Shift-Share Analysis 188
8.4.1 Changes over time 188 8.4.2 Within- and between-industry effects 189 8.4.3 Industry structure of skill change 191
8.5 Distribution of skill change 195
8.5.1 Region 195 8.5.2 Gender 198
8.6 Summary of findings 201
8.6.1 Summary of industry changes 201
9 DETERMINANTS OF SKILL CHANGE IN AUSTRALIA 204
9.1 Model of Skill Change 204
9.2 Variables 205
9.2.1 Dependent variables 205 9.2.2 Independent variables 206
9.3 Results 209
9.4 Summary 216
10 CONCLUSION 219
10.1 Main findings 220
10.1.1 Diffusion of ICT 220 10.1.2 The Australian labour market 222 10.1.3 Previous research into Australian skill change 223 10.1.4 Skill definition and measurement 223 10.1.5 Shift-share analysis 224 10.1.6 Determinants of skill change 225
10.2 Implications 225
10.2.1 Further ICT development – how much left to go? 225 10.2.2 Groups at risk 226 10.2.3 Gender earnings differentials 227
10.3 Policy Response 228
10.3.1 Labour market flexibility 228 10.3.2 Training market responsiveness 229
10.4 Future Research 231
10.4.1 Investment in education and returns to skill 231 10.4.2 Gender 231 10.4.3 Jobs and regions at risk 232
xiii
LIST OF TABLES
Table 2-1 World Internet Usage and Population by Region, June 2009 ............................................................................. 8
Table 2-2 Internet Access Statistics for Australia, 1998 to 2007-08 ................................................................................ 15
Table 2-3 Computer and Internet Access by Household Equivalised Income, Australia, 2007-08 .................................. 16
Table 2-4 Impact of Income on Computer and Internet Access Rates, Australia, 2007-08 .............................................. 17
Table 2-5 Annual Equivalised Income, Australia, 2007-08, ($A, current prices) ............................................................. 20
Table 2-6 Income Elasticity of Demand for Selected Household ICT, Australia, 2007-08 .............................................. 21
Table 2-7 Information Product Versioning Enabled by the Internet ................................................................................. 27
Table 2-8 Customers Accessing Banking Services by Medium, Canada, 1999 to 2006, Per Cent ................................... 33
Table 2-9 Share of Banking Transactions by Access Medium, Canada, 1999 to 2006, Per Cent ..................................... 34
Table 2-10 Number of Banks and Credit Unions Offering On-Line Services .................................................................... 34
Table 4-1 Business Use of Selected Technologies in Australia, 1994-2001, Per Cent ..................................................... 52
Table 4-2 Business Use of PCs and the Internet, by Employment Size, 1998 .................................................................. 54
Table 4-3 Business Use of Selected Technologies, by Employment Size, 2007–08 ........................................................ 54
Table 4-4 Selected Internet Activities, by Employment Size, 2007–08, Per Cent ............................................................ 56
Table 4-5 Extent of IT Use in Business Processes, by Size, Australia, 2005-6, Per Cent of Businesses .......................... 57
Table 4-6 Change in Net Information Technology Capital Stock, Australia, 1990 to 2008, ($m) .................................... 59
Table 4-7 Growth of Information Technology Net Capital Stock, Selected Items by Industry, Per Cent ........................ 60
Table 5-1 Annual Growth of Gross Value Added (GVA) Per Hour Worked, Australia, 1996 to 2006, Per Cent ............ 79
Table 5-2 Graduate Completions in VET, 2000 to 2009, Australia, Persons, 000s .......................................................... 84
Table 5-3 Percentage of Working-Age Population with Bachelor Degree or Above, 1991 to 2006, Australia ................ 88
Table 5-4 Employment Growth by Industry, Australia, 1991-2006 ................................................................................. 97
Table 5-5 Employment Growth by Occupation, Australia, 1996-2006 .......................................................................... 101
Table 6-1 Harrod, Hicks and Solow Technological Change ........................................................................................... 109
Table 6-2 ASCO Second Edition Major Groups and Skill Level ................................................................................... 135
Table 7-1 Four-Way Skill Grouping by Occupation ...................................................................................................... 159
Table 7-2 Scale of Complexity for Skill Categories ....................................................................................................... 164
Table 7-3 ASCO 2nd Edition Structure ........................................................................................................................... 165
Table 7-4 ASCO Task Descriptor - Medical Laboratory Technician ............................................................................. 169
Table 8-1 Average Skill Rating by Skill Dimension and Occupation, 2006 ................................................................... 176
Table 8-2 Correlation Between Skill Dimensions at ASCO Major Group Level, 2006 ................................................. 177
Table 8-3 Skill Rating by Dimension and Employment Status, Australia, 1991 to 2006 ............................................... 178
Table 8-4 Change in Occupation Cognitive Skill Shares, 1991-2006, Australia, Per Cent ............................................ 180
Table 8-5 Mean Skill Levels by ANZSIC Industry Division (1 Digit level), 2006 ........................................................ 183
Table 8-6 Change in Mean Skill Levels, 1991 to 2006, Per Cent ................................................................................... 185
Table 8-7 Contributions to Mean Skill Levels by Census Sub-Period, Per Cent ............................................................ 189
Table 8-8 Between and Within-Industry Effects, 1991 to 2006, Change in Mean Skill Level ....................................... 189
Table 8-9 Between and Within-Industry Effects, 1991 to 2006, Percentage Change in Mean Skill Level ..................... 190
Table 8-10 Mean Skill Level by Region and Skill Dimension, 2006 ............................................................................... 196
Table 8-11 Mean Skill Level by State/Territory and Skill Dimension, 2006 ................................................................... 197
Table 8-12 Change in the Mean Skill Level by State/Territory and Skill Dimension, 1996 to 2006, Per Cent ................ 197
xiv
Table 8-13 Mean Skill by Dimension and Gender, Australia, 2006 ................................................................................. 198
Table 8-14 Change in Mean Skill Levels by Dimension and Gender, Australia, 1996 to 2006, Per Cent ........................ 199
Table 8-15 Occupational Growth by Gender, Australia, 1996 to 2006, Per Cent ............................................................. 200
Table 9-1 Determinants of Skill Change, Australia, 1991 – 2001 .................................................................................. 212
Table 9-2 Standardised Coefficients for Skill Change Models ....................................................................................... 213
Table A- 1 Scale of Complexity and Coding Frame for Cognitive Skills ........................................................................ 252
Table A- 2 Scale of Complexity and Coding Frame For Interactive Skills ...................................................................... 253
Table A- 3 Scale of Complexity and Coding Frame For Motor Skills ............................................................................. 254
Table B- 1 Average Skill Rating by Skill Dimension and Occupation, 1991 to 2006 ...................................................... 255
Table B- 2 Change in Occupation Education Skill Shares, 1991 -2006, Australia ........................................................... 256
Table B- 3 Change in Occupation Interactive Skill Shares, 1991 -2006, Australia .......................................................... 257
Table B- 4 Change in Occupation Motor Skill Shares, 1991 -2006, Australia ................................................................. 258
Table C- 1 Descriptive Statistics for Regression Variables .............................................................................................. 259
Table C- 2 Ramsey RESET Test ...................................................................................................................................... 260
Table C- 3 Breusch-Pagan / Cook-Weisberg Test ............................................................................................................ 261
Table C- 4 Cameron and Trivedi's decomposition of IM-Test ......................................................................................... 262
Table C- 5 DFFITS Weights Used for Bounded Influence Estimates .............................................................................. 263
Table C- 6 IT Professional Occupations for ITPROF Variable ........................................................................................ 265
xv
LIST OF FIGURES
Figure 2-1 Distribution of Equivalised Disposable Household Income, 2007-08 .............................................................. 18
Figure 2-2 Internet Income Earned by Businesses, Australia, 2000-01 to 2005-06, $Bn (Current Dollars) ..................... 36
Figure 4-1 Orders for Goods and Services via the Internet ............................................................................................... 55
Figure 4-2 Change in Net Information Technology Capital Stock, Australia, 1990 to 2008 ($m) .................................... 58
Figure 5-1 Trade Union Membership Share of Total Labour Force, 1990 to 2008, Australia, Per Cent ........................... 72
Figure 5-2 Working Days Lost Due to Industrial Disputes (Per 1000 Employees), 1970–2000 ........................................ 76
Figure 5-3 Multi-Factor Productivity Index, Australia, 1985-2009, (Jun-08=100) ............................................................ 77
Figure 5-4 Real Unit Labour Costs Index, Australia, 1985-2009, (Mar-07=100) ............................................................. 80
Figure 5-5 Apparent Retention Rates, 1990 to 1997, Australia, Per Cent .......................................................................... 82
Figure 5-6 Apparent Retention Rates, 1993 to 2008, Australia, Per Cent .......................................................................... 83
Figure 5-7 Metal and Vehicle Apprentices in Training, 1967–2006, Australia ................................................................. 85
Figure 5-8 Electrical Apprentices in Training, 1967 to 2006, Australia ............................................................................ 85
Figure 5-9 Building Apprentices in Training, 1967 to 2006, Australia.............................................................................. 86
Figure 5-10 Printing Apprentices in Training, 1967 to 2006, Australia ............................................................................... 86
Figure 5-11 Labour Force Participation Rates by Gender, Australia, 1990-2009, Per Cent ............................................... 89
Figure 5-12 Part-Time Share of Total Employment by Gender, 15-19 Year Olds, 1978-2009, Per Cent ........................... 90
Figure 5-13 Unemployment Rate, 15 to 19-Year Olds, Australia, 1990 to 2009, Per Cent ................................................ 93
Figure 5-14 LTU to Total Unemployment Ratio, Australia, 1986-2009, Per Cent ............................................................. 95
Figure 5-15 Employment by ANZSIC 1 Digit Industry, 1984-2008, Australia, 000s, Quarterly Observations ................... 99
Figure 5-16 Employment by Occupation, 1996-2006, 000s, Quarterly Observations ....................................................... 102
Figure 6-1 Technical Change in Response to Changes in Factor Prices .......................................................................... 111
Figure 6-2 Harrod Neutral Technological Change and SBTC ......................................................................................... 112
Figure 8-1 Source of Change by Industry, Cognitive Skills, 2001-2006 ......................................................................... 193
Figure 8-2 Source of Change by Industry, Education Skills, 2001-2006 ......................................................................... 193
Figure 8-3 Source of Change by Industry, Interactive Skills, 2001-2006 ........................................................................ 194
Figure 8-4 Source of Change by Industry, Motor Skills, 2001-2006 ............................................................................... 194