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AIG survey: Skilling business in tough times

18 November, 2009

Despite tough economic conditions, companies are working hard to retain and build their workforce, says AIG’s National CEO Survey.

The report presents the results of the Australian Industry Group’s survey on business skilling intentions for 2009/10. It has been prepared as part of AIG’s National CEO Survey series, undertaken in conjunction with Deloitte Touche Tohmatsu.

Almost 500 CEOs in the manufacturing, construction and services sectors participated in the survey which was conducted in July 2009. Combined these companies had a turnover of around $11.8 billion and employed over 33,300 people.

Almost half of the companies in the survey (48.0%) were small companies employing up to 25 people. Medium sized companies employing between 26 and 100 people represented 28.5% of respondents and large companies employing more than 100 people made up 12.6% of total. (10.9% did not provide an indication of size.)

The manufacturing sector provided the highest number of participants (76.1% of all respondents) followed by services (13.4%) and construction at 8.5%.

Key Findings
Impact of downturn

  • Extent of impact of downturn on companies
    - More than a quarter of companies surveyed have been severely affected by the economic downturn.
    - Large companies were hardest hit with 37.3% very affected by the downturn. The impact has been most severe in the construction and manufacturing sectors.
  • Employment trends and strategies
    - One of the key features of the current downturn has been that net reductions in employment have been quite moderate relative to previous major downturns.
    - The main strategies adopted to minimise job losses have included reducing non-labour costs (44.8%), reducing working hours (39.6%), freezing salaries and bonuses (35.4%) and bringing forward leave (32.2%).
    - Amongst companies in the survey, the average decline in employment expected in 2009/10 is 3.8%. Across the sectors, the expected reductions in employment were 3.0% in manufacturing, 2.5% in construction and 4.0% in services.
  • Expected timing for improvement in business conditions
    - Companies were asked to indentify when they expect business conditions to improve. A similar question asked in late May/early June indicated that around 40% of firms expected business conditions to improve by the end of this year.
    - In this survey undertaken in late July, the percentage of firms expecting an improvement by year’s end had risen to almost half (48.1%), pointing to stronger confidence in the business sector.

Skilling in the downturn

  • Impact of the downturn on training expenditure
    - Responses to the questionnaire suggest that concerns the economic downturn will lead firms to cut back training expenditure are well-founded.
    - On average, companies anticipate a 4.1% reduction in training expenditure in 2009/10. Small and medium-sized firms are forecasting the greatest spending cuts (an average 7.2% and 6.9% respectively). Large firms, by contrast, are forecasting a slight rise in training expenditure (0.5% on average).
    - Relatively even proportions of firms are forecasting an increase (37.0%); a decrease (33.5%) and no change (29.5%) in training expenditure in 2009/10. Amongst those firms forecasting a decline, 97.4% are forecasting a cut of more than 10%, while 87.2% anticipate a cut of more than 20% indicating that those companies that are cutting expenditure are cutting deeply.
  • Key strategies for meeting future skill needs
    - Retraining existing staff on the job is clearly the preferred strategy for meeting skill needs in 2009-10, with 65.7% of all respondents pursuing this option to secure the skills needs of their organization.
    - The recruitment of experienced employees (28.5%) and a reduction in staff turnover (21.3%) were the next most widely cited strategies.
  • How companies track workforce skills
    - A majority of Australian businesses keep some formal record of employee skills; 35.4% monitor workforce skills through the maintenance of a skills register; an equal proportion stay abreast of skills in their business through a mix of formal records and informal understanding; and 21.5% of firms rely solely on an informal understanding to keep track of employee skills, while only 7.7% keep no record of skill levels.
  • Incentives for an increase in training expenditure
    - Businesses were asked to identify the two measures that would most likely encourage them to maintain or increase their level of training expenditure.
    - Perhaps reflecting the cost pressures facing companies, an increase in incentives to train existing workers is the measure most likely to lead to a boost in training (21.5% of respondents) followed by an increase in the tax deductibility of training (18.3%). A greater government co-contribution to training also ranked highly at (17.8%).

Skills shortages: Now and in the Future

  • Occupations likely to experience skills shortages over the next year
    - Despite the economic conditions, skills shortages are anticipated across a range of occupations. The most prominent category identified was technicians and trades workers (28.1% of companies). The second largest area was engineers (15.3% of companies). Other areas reported included labourers and process workers (7.0%), managers (5.9%) and apprentices and trainees (5.9%).
  • Shortages in literacy, numeracy and information technology skills
    - A quarter of employers (25.1%) indicated a shortage of literacy skills, 22.5% of enterprises reported numeracy skills shortages and over a third of enterprises (34.7%) identified shortages in information technology skills.
    - While skills shortages were evident in each industry sector the highest levels of shortage across each of the three skill areas were experienced by the manufacturing sector.
  • Changes in apprentice levels and implications for future skills
    - Amongst companies employing apprentices, 36.8% expect to reduce apprentice numbers in 2009/10, 24.0% expect to increase and 38.8% anticipate no change.
    - Firms are forecasting a decline in both the number of total apprentices (by 5.9%) and in the number of new apprentices taken on (by 10.6%) in 2009/10 compared to the previous year.
    - This level of decline in the number of apprentices is consistent with previous recessions where in the first year of adjustment there was a 5.7% reduction (in 1983) and a 5.4% reduction (in 1992). At this stage it remains unclear whether this downturn in apprentice numbers will continue as occurred in the years following the last two recessions. The 1990s recession resulted in a fall in apprentice numbers of 25%.

Higher education

  • Important factors when recruiting graduates
    - Employers consider employability skills (33.1%) and a positive attitude (32.6%) to be the most important factors when they are recruiting graduates.
    - It is interesting to note that 19.2% prefer graduates with relevant work experience as this attribute is closely linked to the possession of employability skills reinforcing that for companies it is most important that graduates are ‘work ready’.
  • Satisfaction with skills of recent graduates
    - Companies consider only 22.6% of graduates have strong IT skills, 17.9% strong numeracy skills and 14.8% strong literacy skills. This is of particular concern as graduates represent the most highly skilled group in the workforce and more than three-quarters of them are judged as only satisfactory in these most basic of skills.
  • Priority for universities in terms of undergraduates
    - When asked to nominate what the main priority should be for universities, employers clearly favoured a focus on improving the employability skills of graduates with 39.7% nominating this priority area.
    - The closely allied area of improving work experience opportunities was also highly ranked by employers (27.4%).

Green skills

  • Confidence in current green skills of business
    - Overall companies appear to be relatively confident that they possess the green skills needed to handle climate change. 64.0% of firms indicated that they are either very confident (11.9% of firms) or moderately confident (52.1% of firms) of having the necessary skills.
  • Occupations in which green skills need improvement
    - Those occupations with closest engagement with the production process and those involved in directing operations, managers, were identified as being most in need of green skills improvement.
    - 24.9% of respondents identified labourers and process workers as needing green skills improvement along with 23.7% identifying managers and 17.9% identifying technicians and trades workers.
  • Technical areas in which green skills need to be improved
    - The key technical areas where the workforce’s green skills are perceived as in need of improvement are waste management (cited by 26.9% of firms); energy and/or water usage (20.9%); working better with current technologies (14.4%); improvement of business practices (13.4%); and new environmental technologies (10.1%).
  • Frequency of green skills training
    - 53% of firms don’t know how often they will need to train staff to deal with climate change. In part, this may reflect that, to date, the implications of climate change remain uncertain.

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Source: Australian Industry Group

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