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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

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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

i

This thesis is the copyright © of Ross Kelly 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.

iii

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

vi

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

viii

VoIP Voice over Internet Protocol

WA Western Australia

WRA Workplace Relations Act (1996)

ix

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

x

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

xii

10.5 Conclusion 232

11 REFERENCES 233

12 APPENDIX A 252

13 APPENDIX B 255

14 APPENDIX C 259

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