RDP 2024-06: Examining the Macroeconomic Costs of Occupational Entry Regulations 4 Documenting the stringency of OER across jurisdictions

Joel Bowman, Jonathan Hambur and Nathan Markovski

September 2024

This section examines patterns in OER across occupations and jurisdictions to better understand the nature of OER in Australia, and in New South Wales in particular. Reform opportunities can be identified by examining whether quality/standards have been comparable in other jurisdictions that have less stringent OER. These reform opportunities require further analysis that assesses the benefits of various OER, which is beyond the scope of this paper.

4.1 Australia's OER are more stringent for select occupations than other OECD countries

OER in Australia's largest states are more restrictive compared to the least stringent OECD countries, such as Sweden and Switzerland (Figure 2).[3] This suggests that there may be scope to reduce the stringency of OER in Australia if other jurisdictions have been able to achieve comparable or even better quality/safety outcomes.

Relative to the OECD average level, OER in Australia's three largest states tend to be more stringent in personal services – those provided directly to individuals, such as a baker or electrician – and less stringent for professional services occupations – specialised services provided by professionals with specific expertise to clients or businesses, such as a lawyer or accountant.

There are also differences across states, with OER tending to be more stringent in New South Wales, compared to Queensland and Victoria.

Figure 2: Compared to OECD countries, OER in Australia are more stringent in personal services and less stringent in professional services
Figure 2: Compared to OECD countries, OER in Australia are more stringent in personal services and less stringent in professional services - a bar chart with average OER score in personal and professional services across New South Wales, Victoria, Queensland, the OECD average, and the 5 lowest OECD OER countries. It shows that OER tend to be higher in New South Wales than other Australian states. Australian states have more stringent OER for personal services than the average OECD country, but less stringent for professional services. Australian states have more stringent OER than the lowest OECD countries in both professional and personal services.

Note: Scores reflect the average aggregate scores for the ten personal service and five professional service occupations listed in Table 3.

Source: NSW Treasury and the Reserve Bank of Australia, von Rueden and Bambalaite (2020).

Focusing on occupations in New South Wales, OER are more stringent for hairdressers, electricians, driving instructors, architects, and real estate agents compared to other jurisdictions (Figure 3). This reflects more stringent qualification requirements and more onerous mobility restrictions across states and countries (Figure 4).

Ongoing efforts are underway to reduce mobility restrictions across states in Australia through the automatic mutual recognition (AMR) of licences. This means if someone is licensed to perform an activity in one state or territory, they can perform the same activity in other participating states where those activities are recognised and licensed. However, the potential benefits of AMR have not been realised as many occupations in New South Wales have been exempt from the scheme, which commenced in 2021. Exemptions have been granted due to the perceived risk to the health and safety of workers or the public.

Figure 3: OER scores across select occupations in New South Wales, Victoria, Queensland, and the OECD
Figure 3: OER scores across select occupations in New South Wales, Victoria, Queensland, and the OECD - a bar chart shows OER scores across a broad range of occupations across New South Wales, Victoria, Queensland, the OECD average, and the 5 lowest OECD OER countries. It shows a great deal of variation in outcomes. OER in Australia are above the OECD average for a number of occupations, including painters, bakers, butchers, civil engineers and lawyers.

Note: The OECD average of 5 lowest countries refers to those countries that score the lowest within each respective occupation.

Source: NSW Treasury and the Reserve Bank of Australia, data: von Rueden and Bambalaite (2020).

Figure 4: A breakdown of OER scores across different personal services in New South Wales, Canada, United Kingdom, and the United States
Figure 4: A breakdown of OER scores across different personal services in New South Wales, Canada, United Kingdom, and the United States

Source: NSW Treasury and the Reserve Bank of Australia, data: von Rueden and Bambalaite (2020).

4.2 New South Wales imposes stricter OER for several construction-related occupations compared to Queensland and Victoria

The building and construction industry is highly regulated and employs a significant number of workers in New South Wales and Australia. In recent years, licensing arrangements in the building and construction sector have become more stringent across most Australian states, typically driven by higher entry requirements (Commonwealth Productivity Commission 2023). The industry is also facing significant shortages of skilled workers that is impacting the delivery of infrastructure and housing projects. The National Skills Commission found that all construction trades occupations are in shortage across Australia (National Skills Commission 2021). While occupational regulation may aim to minimise the risks of consumer detriment, particularly building defects, it may also restrict the adaptability of the workforce.

We measure the stringency of OER across 14 select occupations in the building and construction sector in New South Wales, Queensland, and Victoria ( Figure 5). OER are notably more stringent in New South Wales compared to other states for air conditioning and refrigeration (AC&R) mechanics. Likewise, New South Wales is considerably more stringent for project builders compared to Queensland.

Figure 5: OER scores vary greatly between states for occupations in the building and construction industry
Figure 5: OER scores vary greatly between states for occupations in the building and construction industry- a bar chart showing OER across New South Wales, Victoria and Queensland for a number of building and construction occupations. These are similar for a number of occupations, but do differ. OER are higher in New South Wales for air-conditioning mechanics and builders. They are higher in Victoria for gasfitters, painters and plumbers.

Sources: NSW Treasury and the Reserve Bank of Australia.

4.3 OER are prevalent across the most common occupations in New South Wales

OER are commonplace across the NSW economy. Of the 100 most common occupations in New South Wales, 43 of them had some form of OER, with formal licences or mandatory education requirements being the most common form (Figure 6).[4] OER tended to be higher in the health sector, and the building and construction sector. Both are somewhat unsurprising, given the potential for consumer harm stemming from poor provision.

Qualification requirements were the greatest contributor to the stringency of OER for most of the top 100 occupations subject to occupational regulation. Further work could investigate whether the qualification requirements for occupations is effective and proportional in improving the quality of services provided. For example, the NSW Productivity Commission (2023) found that increasing the qualification requirements for aspiring teachings from a one-year Graduate Diploma of Education to a two-year Master of Teaching degree was not effective. The change had a negligible impact on student achievement but imposed considerable costs on aspiring teachers.

Mobility restrictions are also consistently an important contributor, adding to the OER indicator for four out of five regulated occupations. Of these 34 occupations, half of them had limited ability to recognise skills gained abroad, and more than half required local exams to be taken for qualifications gained outside of New South Wales. This highlights the large number of potential occupations that could benefit from the automatic mutual recognition of licences.

Figure 6: Top 20 OER scores in New South Wales by occupation
Figure 6: Top 20 OER scores in New South Wales by occupation - a bar chart showing OER for a number of occupations in New South Wales, broken down into administrative burden, qualification requirements, and mobility restrictions. Qualification requirements play a large role for most occupations.

Note: Scores for bus drivers and driving instructors appear unusually high due to requirements for drivers to obtain a local driving licence, in addition to further qualification and registration requirements. Scores would appear lower if it was assumed that an aspiring individual already holds a local driving licence.
*Indicates occupation is regulated by a licensing scheme.

Source: NSW Treasury and the Reserve Bank of Australia.

Footnotes

These tend to include countries such as Sweden, Finland, Switzerland, and in some cases Great Britain, the United States, and Spain. [3]

The list of occupations was based on the 2021 Census and excludes executive and managerial positions (see appendix A). Note the executive and managerial positions were excluded where their roles were too vague to identify specific occupational regulations, for example, Chief Executive Officer. [4]