Posted: 03 Mar. 2020 10 min. read

The wage premium associated with human skills


Australia is facing a large, and growing, skills shortage. But it’s not what you think.

In the news, we tend to hear about sector-specific skills shortages. For example, how investment in public infrastructure is driving a labour shortage in the construction industry. Or how high staff turnover is spiking demand for nurses. 

And yet, underneath the surface lies a less known, more worrying, tale of skills shortages. One that doesn’t discriminate by occupation, or industry. This means it’s not just relevant for businesses looking to make a profit; it is critical to ensuring Government functions at its best, too. 

So what exactly is the problem? 

Human skills. Or, more specifically, the lack thereof. 

In a world where automation increasingly augments human effort, human skills refers to those skills that cannot be mechanised. These are innately human, non-routine, difficult to automate, but highly transferable skills. 

As such, human skills are in high demand. For example, 96% of jobs require time management skills, while 97% require customer service skills. In fact, human skills are valued so highly that workers with more human skills are estimated to receive an additional 5% in wages – equivalent to an extra $3,822 per year for the average Australian worker.

And yet, despite the financial incentives, the four largest skills gaps today are all human skills. 

This is bad news for Australia. Already, we are lagging in areas such as innovation and business collaboration. The number of Australian start-ups, as a proportion of small business, has fallen. 

So what’s the solution? 

Government’s role is two-fold: to invest in own supply of human skills, and to support skill development across Australia more broadly. 

To build its own supply of human skills, Government has two options – ‘build’ or ‘buy’. That is, they can either build these skills through training, or buy them through recruitment. Across Australia today, the focus is on the latter. For every $1 dollar spent on recruitment, businesses spend $0.64 cents on formal training. 

For the public sector, it’s the opposite. Strong worker protections, and elevated hiring costs, can make buying skills an unattractive option. This may be why, according to the National Centre for Vocational Education Research, almost 70% of public sector organisations provide training to its employees, more than any other industry in Australia. 

And with so much training already taking place, reallocating some of those resources to improving human skills could bring some quick wins.

But, this isn’t enough. In addition to improving the skills in its own workforce, there is an opportunity for Government to support skill development across the economy more broadly. 

When it comes to skills gaps, policy-makers have historically tended to focus on building up the supply of technical skills in Australia. Changing skilled visa requirements, or introducing study incentives, are some of the ways Government has attempted to remedy skill shortages.  

Boosting the supply of human skills however, is a more challenging task. By nature, human skills are difficult to define, identify and measure. This means implementing policy to improve the level of human skills across Australia is no easy feat. 

But it’s not all bad news. 

By investing in improving its own human skills, Government will have access to an increasingly diverse and skilled workforce. And with a team of creative thinkers, problem solvers and leaders at the heart of policy formation, the solution to bridging the human skills gap might be closer than we thought. 

In other words; like the problem, the solution is innately human. 

To read the full report visit https://www2.deloitte.com/au/en/pages/economics/articles/premium-skills.html.

This article was first published in IPAA NSW’s Ignite newsletter in February 2020.

More about the authors

Pip Dexter

Pip Dexter

Lead Partner, Human Capital

Pip is the national leader of Deloitte’s Human Capital practice and a member of the Consulting executive team. She is passionate about making work better for people and people better at work.  The Human Capital practice is a team of over 600 people, working with leaders across industry to improve business performance by reimagining their organisation’s work, workforces and workplaces. Pip and her team combine technology with the human experience to unlock innovation and create meaningful work. In doing so, they provide organisations with their greatest competitive advantage – a productive and engaged workforce that drives greater business outcomes. Pip’s experience spans organisational and cultural change, operating model and organisation design, workforce strategy, strategic leadership, communications, talent management and workforce transition.

Rhiannon Yetsenga

Rhiannon Yetsenga

Analyst, Deloitte Access Economics

Rhiannon joined Deloitte Access Economics in March 2019, having graduated with First Class Honours in Economics, and a Bachelor of Business/ Bachelor of Arts in International Studies from the University of Technology, Sydney. Since joining, she has worked on a diverse range of projects as a member of the Economic Analysis and Policy team. Rhiannon is passionate about providing policy advice and thought leadership to inform decision-making and drive better outcomes.