Andrew Davies’ recent post on workforce skills and program continuity is a breath of fresh air. Andrew cuts through the rhetoric on this issue and rightly concludes that any proposals to bring forward production simply so as to ensure workforce continuity need to be subjected to careful cost-benefit appraisal.
But I don’t think he quite covered the full set of alternatives. It’s important that the range of options considered not be limited to ‘doing nothing’ versus ‘bringing forward additional procurement’. Rather, there are also other options worthy of being analysed. For example, if the goal is to ensure skills remain available, experienced personnel could be offered payments to keep their skills intact—a capacity payment, similar to those made for physical production capacity. Equally, experienced personnel could be given certification, with those retaining that certification over time being offered higher wages on subsequent programs.
The precise design of these options, and the cost-benefit appraisal more generally, requires a better understanding than we now have of the skills/experience relationship. For instance, do higher levels of productivity depend on cumulative experience, or on continuity of experience (or both)? At what rate do experience-related skills depreciate? How costly is to maintain those skills out of the direct shipyard situation?
It’s also important to understand the relationship between work experience, skills and remuneration. While productivity may rise with experience, so too will remuneration, at least for transferable skills in a competitive labour market. That means that some (possibly all) of the returns on higher productivity are captured by employees, not taxpayers, making it somewhat less valuable to ensure workforce continuity. In practice, in the labour markets at issue, not all of the benefits of experience will be transferable between industries, and not all of the productivity benefits from those skills accrue to individual employees in the form of higher earnings. However, knowing the extent to which that is the case is important to properly analysing the costs and benefits of alternative interventions (including the ‘do nothing’ option).
In short, Andrew is absolutely right—the mere fact of a relationship between work experience and productivity is far from meaning we should ensure workforce continuity at all costs. This is an issue crying out for serious analysis and Andrew is to be congratulated for making a start in that direction.
Henry Ergas is a senior economic adviser, Deloitte Access Economics, and professor of Infrastructure Economics, University of Wollongong.