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Future-proofing industry training

Future-proofing industry training

By BCITO chief executive Warwick Quinn


Current state

The current number of trainees across all sub-sectors is not sufficient to meet existing labour force demand, leading to a reliance on immigration and creating a strategic need to increase the number of people engaging in skills training.

A key feature of the New Zealand construction industry over the past 25 years has been its increasing specialisation. Particularly in new construction, “supply and install” subcontracting practices dominate many business models.

This is partly driven by firms de-risking their business to mitigate the impact of extreme market volatility, and partly by competitive pressures.

This “lowest price subcontracting” model has further perpetuated the growth of small specialist firms. Some 65% of all construction firms have no employed staff, and 91% have five staff or less.

Competition for work is fierce, and these firms are not incentivised to train by either the contracting signals they receive or the training options available to them.

The construction industry is also highly dynamic. A recent analysis by PWC shows that the industry has experienced significantly more extreme “boom and bust” cycles over the past 20 years than any other sector, and that the “birth and death” rates of firms in the industry are high.

These features have a significant impact on the ability of firms to engage in training activity even when clear demand exists. In turn, this creates challenges for meeting skill needs.

So what can we do?

 

Review the industry training framework

We believe that the current industry training framework no longer reflects how the construction industry and many other sectors operate. 

This affects employers’ willingness to train, and restricts the industry training sector’s ability to attract and maintain adequate numbers of trainees.

We recommend that the Government reviews the current industry training framework to ensure it is sufficiently flexible and responsive to meet today’s needs and future requirements.

 

Raise the profile of vocational learning

As with other trades, there is a level of inter-generational prejudice in New Zealand against pursuing construction careers. School leavers are commonly encouraged to pursue degrees if possible, with trades-based pathways seen as an inferior second choice.

Much of this parity of esteem issue is cultural and, therefore, difficult to shift. However, the Government can assist by explicitly signalling that it sees all pathways as valid, and providing equitable support for all career paths.

We believe there is also scope for considering the implicit signals sent by current policy settings.

For example, in the New Zealand Qualifications Framework a basic trade qualification sits at Level 4 and advanced trade qualifications at Level 5 and 6, while a Bachelor’s degree sits at Level 7.

In other words, entry-level academic qualifications are given greater formal status than even highly advanced technical education.

This sends signals that a “vocational” career is inferior to an academic-based one, affecting the decisions of potential learners and those who influence them, such as parents and teachers.

 

Cut constraints on ITO training

The most significant constraint is that, under the Industry Training Act (the Act), while ITOs can facilitate workplace training, arrange workplace-based assessment, and award standards and qualifications, we are prohibited from directly providing training.

The division between “arranging” or facilitating training in the workplace and “providing” it will become increasingly blurred in the future.

Greater use of digital learning and assessment technologies, and the growing use of work-integrated learning approaches by providers, will increasingly challenge what counts as “provision”.

This will make the Act’s restriction less and less relevant, and more of a compliance hoop for ITOs that provides little benefit for learners, individual firms, or industries.

At the same time, preserving this restriction prevents us from developing training models that better suit the industry and firms within it.

Specifically, permitting ITOs to train would allow us to develop flexible models that recognise and reduce the burden and costs faced by SMEs in taking on apprentices.

Given that the construction industry is largely composed of SMEs, this could significantly improve firms’ participation in training from the current 10% rate.

It could also provide a basis for strategies to retain trainees and apprentices during industry downturns (when employees would otherwise be laid off).

 

Alternative funding streams

The industry training system requires all ITOs to be co-funded by their industries as well as the Government. This is an important principle as it ensures our industries have “skin in the game” and, consequently, that our standards and qualifications reflect genuine industry demand.

However, this cost can also dampen the willingness and ability of individual employers to take on trainees.

As well as the direct financial cost involved in training, employers effectively provide a significant “in-kind” contribution when they take on a trainee in the form of lower staff productivity, the cost of materials required for rework, and the like.

There are a variety of ways in which the need for an industry contribution can be reconciled with making training more financially sustainable for employers.

Within our industry, some support exists for the introduction of a training levy on employers from which a training subsidy might be paid. The UK Government recently introduced an Apprenticeship Levy on the payroll of large employers, and Western Australia and Queensland operate similar schemes.

Not only does this system make training more accessible for smaller businesses, but it encourages firms to train in order to gain benefits from the levy funds that they contribute.

 

Government policy incentives

In addition to its funding levers, the Government can play a significant role in encouraging firms to train through its other policy levers.

The Licensed Building Practitioner (LBP) regime, for example, is not simply a method of ensuring high-quality construction work in critical areas, but also provides a material incentive for construction workers to engage in training and professional development.

One straightforward, low-cost and low-compliance method of encouraging training is through the Government’s own procurement policies, and we are pleased that after years of lobbying this has finally occurred.

While residential and private commercial clients might form the majority of construction activity in New Zealand, the Government is also a significant source of demand.

While private sector demand tends to be highly cyclical, government demand is far more stable.

Indeed, counter-cyclical government investment has been identified as an important potential method for smoothing out fluctuations in demand, and giving firms a more certain and stable industry environment.

This should help maintain apprentice numbers, particularly during downturns in private sector demand, and should be undertaken in conjunction with workforce planning forecasts.

 

Better workforce planning

Numerous reports are being, and have been, undertaken on the future of the construction industry and the number of workers required.

However, while these reports discuss the “demand” side of the skills equation, they do not address the “supply” side — whether we are training enough future employees to meet forecast demand.

This lack of co-ordination is a particular issue, given the previously mentioned nature of the construction industry.

As noted, the sector operates in a boom and bust cycle, and most firms are SMEs with little capacity to carry employees or invest in training when demand falls.

The industry therefore regularly suffers from skill shortages when demand rises, due to low training levels and skilled employees leaving the industry during the down-cycle.

Given the importance of the construction sector to the New Zealand economy, we believe there is a case for the Government to establish its own dedicated labour force unit for this industry.

This would continuously monitor, in partnership with industry, how the flow of enrolments and completions in construction-based formal apprenticeships, workplace training, and provider-based programmes reflect current and future need.

This would include considering the number of learners/apprentices that need to be in the system at any one time, with the ultimate goal of avoiding significant over- and under-delivery of skills.

 

Building a more diverse workforce

The construction workforce is largely older, white and male. As New Zealand’s demographics change and our labour force becomes more diverse, we will need to ensure that, likewise, our industry becomes more diverse.

This will give employers a greater talent pool from which workers can be drawn, and make the workforce more reflective of the communities and customers we serve.

Although we believe that initiatives such as Maori and Pacific Trades Training could be reviewed and refined, we see these moves as fundamentally positive.

We are also aware that there is significant scope to make careers in our industry more attractive to people from Asian ethnic groups.

This will become especially important, given that Asian New Zealanders constitute a growing proportion of our country’s young people — ie, the people that we rely on to form our industry’s future workforce.

A particular concern for the BCITO is the low proportion of women in the industry. Only 2.6% of our apprentices are women — one of the lowest participation rates in all New Zealand industries.

We believe the industry needs to “widen the talent pond in which it fishes”, and attracting more women into the sector is a key priority for us.

 

Training/Immigration alignment

Sector-based training regimes such as industry training are intended to be self-regulated by market demand — firms will invest in training when they need additional skills, and not invest when they have sufficient supply.

In theory, this means that industry does not significantly over- or under-train and, in the long term, experiences a skills equilibrium.

However, this equilibrium can be disrupted, when firms have easy alternative ways of securing skills, such as poaching trained staff.

In theory, firms and industries rely on skilled migration as a “safety valve” in the skills pipeline. Pre-trained migrants fill unanticipated spikes in skill needs until sufficient numbers are graduating from training programmes to meet those needs sustainably.

This is an example of how immigration and training complement each other well.

Volatility in the industry makes the training and migration relationship especially important. The rapid industry cycle results in firms shedding significant staff during downturns, and a lag in training investment post-recovery.

As the recovery period is commonly very sharp, the training system often cannot respond quickly enough to satisfy rapidly increasing skill needs during the upturn.

This leads to the industry often looking to immigration as a key source of skills.

We understand and accept this pattern of behaviour — skilled migration will always be necessary at points in the demand cycle.

However, we also believe there is a delicate balance to be struck between migration-based and training-based solutions to skills shortages.

If firms become over-reliant on immigration to satisfy skills needs, then we risk immigration being viewed as the primary pathway for meeting demand.

Avoiding this over-reliance on migration can be addressed partly by ensuring that government training policies and regulations better reflect the way in which the industry operates.

We believe there needs to be more explicit and strategic consideration of how immigration and training-based approaches to workforce supply and development relate to each other.

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