Deregulating TAFE is a big risk to the labour market

The leaked paper outlining the government’s plans to deregulate TAFE would have a serious impact on large sections of the labour market.

The proposed policy not only highlights an ideological commitment to fee deregulation, prioritising industry consultation and austerity, but also fails some of the basic requirements of an active labour market policy (ALMP).

High quality vocational training allows us to quickly retrain and find work in industries with skills shortages. When combined with adequate income subsidies and employment services, Vocational Education and Training (VET) can create an effective and efficient labour market.

When the formula is correct, ALMP can help to address structural unemployment. This is created when there is a mismatch in the skill demands of business and the availability of skilled workers. Effective reform also supports workers back into the labour market and allows firms to remain flexible.

However, this approach requires effective regulation and strong institutional protections.

Research shows that countries with strong regulatory frameworks and heavy costs for non-compliance typically have higher quality VET sectors.

This new policy proposal signals a step in the opposite direction. Chief areas for concern are the extension of funding arrangements to private providers, a lack of consultation outside of industry groups, and a renewed push to deregulate fees. This could in effect dilute regulatory control, increase cost to both consumer and taxpayer, and allow for predatory market practices in the VET sector.

Value for money?

There are approximately 5,000 registered training providers in Australia. While most students are recipients of government subsidies, almost 3,700 providers are private enterprises.

TAFE market share has fallen to a mere 25% as a result of deregulation and funding cuts. By allowing private providers to flood the market with a low-cost, high-volume approach to course construction, the quality of training has become diluted.

The money used by private enterprises has often been used to undercut the pay and conditions of the public providers, which can have real impact on the quality of education.

Research shows that wage increases had a direct effect on teacher quality. For every 1% increase in starting salary, there was an associated increase 0.6% in the aptitude of students entering teaching degrees. In other words, if you pay teachers more, you get better students wanting to become teachers.

Deregulation often reduces these regulatory mechanisms and strips away compliance costs for private providers, but as this does not always result in a reduction of cost to the consumer. Energy companies, despite experiencing a greatly deregulated market, have failed to substantially reduce consumer cost.

The energy deregulation story offers us another concerning and often unacknowledged risk.

Just last year, the chairman of the Australian Competition and Consumer Commission (ACCC) identified the east coast gas market as containing all the hallmarks of a cartel.

Competition, compliance and cartels

Usually when we hear the word “cartel” it conjures up images of drug trafficking, racketeering and other illicit practices. We think of real world kingpin Pablo Escobar, or his fictional equivalents like Scarface’s Tony Montana or Breaking Bad’s Walter White. While less likely to inspire award-winning television series, economic cartels are a serious concern.

At their core, cartels are an agreement made between competing firms with significant market power. This agreement can take a number of forms, but in essence, cartels agree to set prices between themselves and let competition be damned.

Under the Competition and Consumer Act cartels are explicitly illegal. However in the past ten years, the ACCC has investigated and prosecuted a number of cartels in Australia.

Unfortunately, their capacity to investigate has been limited in recent years, as funding was frozen in 2014 and the ACCC workforce has been cut by almost 13%.

The ensuing legal proceedings take years and cost millions of tax dollars. While there is a legal deterrent to cartel formation in the VET sector, it is by no means a guarantee.

This may be an extreme scenario, but there are inherent risks wherever reform is proposed. However the risks posed by deregulation have immediate and serious impacts for large sections of the labour market, and the everyday lives of Australians.