Australia is not prepared for the fourth industrial revolution

In Australia, as elsewhere, we hear a great deal about the fourth industrial revolution and its less racy twin, industry 4.0.

Will the revolution really materialise? There is certainly an interacting mass of new technologies arriving on the scene from the information, biological and materials sciences. Coupled with a global rebalancing of power and wealth between West and East, it doesn’t take Bob Dylan’s Mr Jones to suspect that something is happening.

For evidence, we might look for shifts in the modes and social relations of production. Early signs do seem to be apparent: the emerging gig economy, underemployment, growing wealth inequality and, possibly, growing net income inequality.

Optimists say automation will create more jobs than it removes – at least in the long term. But these won’t necessarily be for the same kinds of people in the same countries. The resulting dislocation could cause social unrest.

Coming as I do from a position that the market will never solve all the issues and that planning for the future is not a hopeless task, I have been looking at the long-term wage premium from tertiary education in Australia and setting it against skills shortages and job growth.

I have drawn on the Household Income and Labour Dynamics in Australia Survey (HILDA), an annual, government-funded, longitudinal study of a representative population sample administered by the University of Melbourne. My team commissioned the National Centre for Social and Economic Modelling to help analyse cohorts from 2006, 2011 and 2016, according to highest level of qualification.

Our approach differs from those that look only at starting graduate salaries and employment rates. Rather, it tracks a representative sample of the population – both new and established participants in the job market – removes the main non-educational variables that affect life prospects (social class, age, location, ethnicity) and attempts to identify what it is that the highest education qualification is influencing.

To my surprise, we did not find evidence that the wage premium derived from a bachelor’s degree has come down over the past 10 years, even though Australia’s uncapping of its domestic undergraduate numbers in 2012 has significantly expanded the number of graduates entering the jobs market. Compared with those for whom the Year 12 Certificate (the equivalent of A levels) is the highest qualification, the premium has remained at about 20 per cent for men and about 15 per cent for women.

This is presumably the result of the fact that 46 per cent of the new jobs created in Australia in the five years leading to the last census in 2016 have been in occupations typically requiring a degree. But the gender gap – in terms of hourly wage as well as total earnings – persists despite three decades in which female students have outnumbered male students. This might be explained – but not justified – on the basis of patriarchy and the feminisation of some occupations where wages are not keeping pace, such as teaching.

But it is hard to explain the fact that the premium from an average vocational education qualification is still only marginally positive for men (compared with Year 12) and marginally negative for women given that Australia has had chronic skill shortages for more than a decade in areas typically served by training providers. Possibly the allure of universities is so great for the expanding middle class that some young people are taking a path for which they are not best suited. 

There is also growth in lower-skilled jobs, but not in the vocational levels equivalent to apprenticeships. We have a squeezed middle – or an hourglass blown by a beginner.

If the market is working, it is taking its time, and doing so in wondrous ways. We have recently issued a report, Reimagining Tertiary Education, calling for a rebalancing of the tertiary sector. Some of our ideas could also be applicable to the UK’s ongoing Augar review of post-18 education. 

Unless we dig a lot deeper into what is happening and why, both countries risk being unprepared for an industrial revolution – if that is what it turns out to be – that will require new mixes of skills and knowledge.

Stephen Parker is national sector leader for education at KPMG Australia and former vice-chancellor of the University of Canberra.