Dris proposal for national licensing of the plumbing and gasfitting occupations

1.10Direct costs and benefits of national licensing

The costs and benefits in this section are the ongoing impacts that would be incurred each year throughout the operation of national licensing, beginning in the first year of operation: 2013–14. A 10-year NPV is presented in this analysis; however, these impacts are ongoing and could theoretically be considered over a longer time horizon as they will be enjoyed for many years.

While the transition costs outlined in 4.1.1 are quite discrete, many of the ongoing impacts affect several different sectors of the economy (that is, licensees, business and consumers and government). For that reason, this section is presented by type of impact rather than by sector.

Labour mobility

Labour mobility is defined as the extent to which labour is free to move around the economy in response to opportunities in the marketplace. This movement may be the relocation of labour from one region to another, or it may be the extent to which labour is accessible on a short-term or an itinerant basis, as required by firms across the economy (for instance, on short-term contracts, or on a ‘fly-in, fly-out’ basis, which do not require a permanent relocation). In addition, labour mobility should also be considered in the context of movement of workers across state and territory borders, in border towns or regions.

In the long term, people will move to where there are economic opportunities. How quickly this occurs is uncertain as there is a complex set of factors which can influence the mobility of labour in an economy. Even when there are employment opportunities for workers across the economy, the extent to which these will be filled in the short term is influenced by:

the accessibility of information on work opportunities across regions

the costs associated with moving to a new job, or of working remotely, away from home for particular periods

the availability of infrastructure in a region, including housing, schools, child care, transport, etc. (which is particularly important for workers looking to relocate to a region)

regulatory settings that may impede the mobility of labour, either directly by prohibiting movement or indirectly by imposing cost barriers that are sufficiently high to deter movement by individuals and businesses.

In making employment decisions, each individual will have a threshold cost of taking up a new employment opportunity (be it relocation or a short-term ‘fly-in, fly-out’ opportunity). This move need not be a permanent move and could involve temporary relocation to take advantage of a market opportunity. For short relocations or temporary moves, fixed costs – such as licensing – become all the more relevant. This is the cost above which the move will not be cost-effective and will not proceed. This threshold will be related to the potential future benefit for employment in a new jurisdiction (with benefits including both financial and lifestyle factors). It is reasonable to assume that this threshold cost will vary for individuals. Therefore, as costs are lowered, a greater proportion of individuals in an industry would consider moving to a new jurisdiction for employment (an additional factor in this equation is the relative wages across jurisdictions) or taking up opportunities where they arise in other jurisdictions. On this basis, there are potential benefits in seeking to drive down costs from current levels.

Understanding the linkages between labour mobility and costs suggests that reducing costs has the potential to increase this proportion. There are likely flow-on benefits of higher labour mobility across the economy, in the form of economic efficiency improvements occurring through workers finding jobs, opportunities for the underemployed, businesses finding workers, and consumers getting better services.

Quantifying the potential impact of labour mobility

The benefit from improved labour mobility is difficult to quantify. To provide an indication of the potential benefit, this RIS draws on the work undertaken in this area by the Productivity Commission. In their 2009 review, they found that in the face of a terms of trade change, that moving from no mobility of labour (that is, licensees are prohibited from moving interstate) to full labour mobility with no restrictions could lead to a 0.3 per cent increase in real GDP. Based on real GDP in 2011, this would represent about $4 billion per annum. While the work undertaken by the Productivity Commission is not specific to the impacts of national licensing, it does provide one possible scenario to indicate the potential impacts from an increase in the mobility of labour.

The benefit estimated by the Productivity Commission would not be the same under national licensing because mutual recognition already allows for mobility between jurisdictions. There are also a number of other factors which influence a decision to move locations for work, including personal and family circumstances, permanent or temporary relocation costs and differences in conduct requirements between jurisdictions that will remain in place even after national licensing is implemented. Given these factors and the current mutual recognition arrangements, it is assumed that national licensing would only result in a small proportion of the full labour mobility benefit estimated by the Productivity Commission. For the purposes of this analysis, this proportion is assumed to be 10 per cent. This proportion represents only one possible scenario. Different assumptions around the proportion that could result from national licensing are explored in the sensitivity analysis (at the end of this chapter).

The share of labour mobility benefits would also differ between occupation groups. In the Productivity Commission’s report, they note that the labour mobility effect is not uniform across industries. Industries that received a greater than proportionate increase included finance and insurance, property and business services, and electricity, gas and water services. While these occupation groups could be given a higher weighting, no specific detail is available about the specific distribution that would be appropriate for attributing the labour mobility benefit across occupations. In the absence of any other information, licence numbers have been used as a proxy to estimate the proportion of the benefit attributable to each occupation. Based on the number of plumbing and gasfitting licensees (as a proportion of registered workers), in this analysis about 8 per cent of the benefit is assumed to be attributable to plumbing and gasfitting occupations.

The benefit estimated by the Productivity Commission would only be realised if there was the same terms-of-trade shock to the economy assumed by the Productivity Commission. Given current economic circumstances, some have argued that it is unclear whether this form of shock is likely to eventuate in the near future because the relative price propagation mechanism that was relevant in 2009 may not be as important for Australia in the future. Commodity prices have now eased from their recent peaks and increasing production volumes may be more significant for drawing skilled tradespersons to the resources sector. While change in any economy is reasonably expected, predicting that change, its cause and impact, is often hard (e.g. there were few predictions for the global financial crisis in 2007/08). At the same time though, a flexible labour market is far better placed to adjust to any such change when it occurs. This estimate of labour mobility is designed to highlight the potential gains from extending flexibility even if it is difficult to predict what the flexibility is responding to.

The labour mobility benefit from national licensing may also be greater for temporary movements of skilled labour (e.g. for short-term fly-in, fly-out workers) due to the greater impact of fixed licensing costs (as discussed above). This would include the opportunities that arise to assist in the response to regional emergency situations. If short-term movements are what is critical for these reforms, the terms of trade induced shock used in the Productivity Commission’s analysis may less accurately reflect the impact under national licensing.

It is important to recognise that the estimated benefit from labour mobility shown in this impact analysis is only one possible scenario. Given that the benefits from labour mobility are expected to be positive, the work undertaken by the productivity Commission has been used as a proxy for the impact under national licensing to demonstrate the potential benefit that may result.

Revised national labour mobility analysis

The Consultation RIS provided an assessment of the benefits caused by increased labour mobility that may be gained from the harmonisation of licences that are being targeted as a part of national licensing. These costings were undertaken by PwC and used results from a methodology developed by the Productivity Commission in its 2009 report regarding mutual recognition (as outlined in the section above).

Following the release of the CRIS, Treasury, the Productivity Commission, the Office of Best Practice Regulation, and PwC reviewed the calculation methodology to ensure it was consistent with methodologies used in the past by the Productivity Commission. In these discussions, it was agreed that the calculations should involve pro-rating the labour mobility benefit for each occupation on the basis of registered employment, rather than total employment as was done in the Consultation RIS.

The change relates to the assumption used to work out the proportion of the labour mobility benefit that can be attributed to reforms of a specific occupation. In the Consultation RIS, the proportion was calculated by taking the number of licence holders and dividing by the total number of workers in the economy. In light of further information from the Productivity Commission, this proportion has now been calculated using total registered workers instead of the total number of workers in the economy. This results in an increase in the benefit of labour mobility as outlined in the table below. This change is included in this Decision RIS.

Table 4.7: Benefits from improved labour mobility under national licensing – all options

$ million	NSW	VIC	QLD	WA	SA	TAS	ACT	NT	National
Annualised ongoing benefit	13.08	4.64	6.79	4.98	1.38	0.42	0.59	0.24	32.12
10-year NPV as at 1 July 2012	85.85	30.46	44.57	32.69	9.05	2.76	3.84	1.59	210.81

For full details on all of the assumptions used to estimate the labour mobility benefit, see Attachment G.

A sensitivity analysis of the labour mobility impacts has been provided later in this chapter (See section 4.1.7). The benefits from labour mobility represent a significant share of the total benefits attributed to national licensing. Given the exact impact of labour mobility is also uncertain (as it is only one possible scenario), it is appropriate to conduct sensitivity analysis of this impact.