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Ch 3: EL 1-2 supply and demand

This chapter evaluates the EL 1 and EL 2 cohorts supply and demand issues including the extent to which vacancies created by staff turnover can be met by the internal labour market. EL employees are a critical element of the APS. Not only do they provide strategic direction for APS 1–6 employees, but they also provide a pool of talent from which SES employees are drawn and developed. Maintaining this group is essential to high-order policymaking, and service delivery to citizens and other stakeholders. It is also vital in capability building at the senior levels of the APS.

Further challenges are presented in Ahead of the Game: Blueprint for the Reform of Australian Government Administration[7], which clearly articulates the need for an effective EL workforce. EL employees must align their day-to-day tasks with the strategic aims of their agency and reshape its identity as part of a unified and effective public service. This role of fostering cultural change in the APS must be driven by EL employees as they are the conduit between the highly strategic SES and the APS 1–6 cohort. One of the challenges to maintaining a productive EL workforce is dealing effectively with staff turnover either by cultivating talented APS 6 employees or through timely external recruitment.

While recruitment from the external labour market is an important factor in refreshing the EL workforce, the ageing demographic may make this more difficult in the long-term. As the number of suitable replacements decrease, the APS will be required to compete more fiercely with other employers for talented and experienced individuals. Understanding the current recruitment requirements for the EL cohort will not only provide a snapshot of the current cohort, but also allow for more accurate estimation of future needs.

This paper examines the EL 1 and EL 2 cohorts in the context of the employment cycle by focusing on:

  • the nature of the current and previous EL workforce;
  • reasons for separation from the APS and the career intentions of EL employees; and
  • demand for and supply of replacement employees.

The current workforce

The APS 6, EL 1 and EL 2 classifications have all experienced considerable growth since approximately 2000 (See Figure 3.1). However, the rate of growth for EL 1s has been higher than for other classifications, although it has slowed recently[8]. Since peaking in 2007 with an increase of 2,133 individuals, growth slowed to an increase of only 1,112 in 2010. The number of new EL 2 positions created has also declined from a peak of 894 in 2007 to 526 in 2010.

Figure 3.1 Growth rates for APS 6 and EL categories

The higher growth rate for the EL 1 category means that these employees now account for a higher proportion of the APS. By contrast, the APS 6 and EL 2 classifications have remained more stable. As of July 2010, EL 1s accounted for 17.24% of the APS, while APS 6s and EL 2s accounted for 20.43% and 8.22% respectively (See Figure 3.2). As APS 6 employees are the most common source of internal recruitment for EL 1 positions, if the increase in EL 1 numbers continues, the demands on the APS 6 workforce to replenish the EL 1 pool may start to exceed the supply of EL 1s. This will create a heavier reliance on the external labour market to fill these positions. At the same time, the slower growth rate of the EL 2 category may mean experienced and effective EL 1s start to find their opportunities for progression within the APS limited. This may translate into higher turnover from this cohort as they leave the APS to pursue options elsewhere, adding to the pressure on the overall APS 6 workforce

Figure 3.2: Percentage of APS accounted for by APS 6 to EL categories

Although the representation of females has steadily increased in both the EL 1 and EL 2 cohorts since 1997, this has only approached parity for EL 1s. In 2010, 48.5% of EL 1s were female, while the EL 2 cohort lagged behind at 39.3%.

Figure 3.3 shows the EL cohorts broken down by age as of July 2010. The EL 2 cohort is older, with a comparatively high proportion of Baby Boomers who are approaching retirement age. By contrast, the EL 1 cohort is more evenly split between Baby Boomers and Generation X[10]and also features a higher proportion from Generation Y.

Figure 3.3: Percentages of EL 1 and EL 2 employees broken down by age

Historically, the EL 1 cohort has had a much higher proportion of employees aged under 40—approximately 37% compared to some 22% for the EL 2 cohort (See Figures 3.4 and 3.5). Both cohorts show a steady increase in the proportion of employees aged over 55, averaging approximately 0.6% per year. Both also show a commensurate decline in the proportion of employees aged between 40–and 54 years. This suggests a stable, ageing workforce. The EL 1 cohort shows a slight increase in the percentage of employees aged between 20 and 40 years, which probably reflects the growth of the cohort through the recruitment of, typically, younger employees.

Figure 3.4: Age breakdowns of EL 1 employees

Figure 3.5: Age breakdowns of EL 2 employees

Staff turnover—Rates, reasons, and intentions

Figure 3.6 shows the separation rate as a three year moving average for ongoing EL employees since 1998. Since peaking in the late 1990s, separation rates have declined and become relatively stable. Since 2003, EL 2 separation rates have averaged 5.41%. Separation rates for EL 1s have averaged 6.46%, remaining stable despite the period of growth.

Figure 3.6: Separation rates for EL employees

Since 1996, the three most frequent causes of separation from the APS for EL employees have been resignation, retirement or retrenchment (See Figures 3.7 and 3.8). Since around 2000–2001, resignation has been the primary cause of turnover, although the rate has been declining for both cohorts since a peak in 2008. Retirement has also dipped slightly since 2009 for EL 1s and since 2008 for EL 2s. For both cohorts, retrenchments overtook retirements as a cause of separation in 2007.

While there can be many reasons for retrenchment, as a management-initiated action they are ultimately controllable and provide the APS with an obvious means of managing employee turnover, if necessary.

Figure 3.7: Separation types for EL 1 employees

Figure 3.8: Separation types for EL 2 employees

The ageing workforce

Despite an increase in the proportion of employees of retirement age, the number of retirements has declined since peaking in 2008 for EL 2s and 2009 for EL 1s. When compared with data from the State of the Service Report 2010–11 (SOSR 2010–11), only 25.5% of surveyed EL 1 and 22.5% of EL 2 employees of retirement age (55 and over) intend to retire within the next two years. When combined, this means that 15% of the EL cohorts are eligible to retire, but only 5–6% plan to do so within the next two years.

One possible explanation for this is that it might reflect the beginning of a larger trend away from early retirement arising from the GFC’s impact on superannuation funds. There is currently not enough data to examine this fully, however, but a more detailed survey of APS employee’s career intentions as part of the SOSR process may also provide useful information. This may include details of the age at which APS employees intend to retire, although such findings may be affected by future changes to the preservation age for superannuation funds. However, it is clear from the data that eligibility for retirement does not automatically indicate an intention to do so immediately.

The mobile workforce

Based on the SOSR 2010–11 survey findings, while 5–6% of EL employees intend to retire within the next two years, approximately 7.5% plan to leave the APS altogether. While the former group tend to be older, the latter tend to be younger and represent another source of APS employees turnover. EL 1 employees were nearly three times[12] more likely to report intending to seek work in a different agency within the next two years. Career intentions were heavily affected by age, as shown in Figures 3.9 and 3.10, with a markedly lower percentage of Baby Boomers intending to leave either their agency or the APS.

Figure 3.9: Career intentions for EL 1 employees by generation

Figure 3.10: Career intentions for EL 2 employees by generation

Recruitment requirements

Separation of employees coupled with APS growth contributes to demand for replacement employees to fill vacancies; addressing this demand requires APS managers to draw on both the external labour market and internal candidates. In order to estimate the annual APS recruitment need or Demand, the number of engagements at both the EL 1 and EL 2 classifications was added to the total number of promotions to that level[13]; the former is the proportion of the Demand that has been met by the external labour market.

Demand is met from the internal labour market by promotions from the classification below the vacancy; for the APS as an organisation, however, this simply creates demand at the lower level. Put another way, promoting an APS 6 employee meets the Demand at the EL 1 level , but increases the Demand at the APS 6 level.

Table 1 contains the annual demand for the EL workforce.

Table 3.1: Demand and sources of replacements for EL employees
    2005 2006 2007 2008 2009 2010
EL1 Total Demand 3436 4078 4725 4986 3939 3604
Number of promotions, transfers or demotions 2501 2679 3326 3795 2731 2468
Number of Engagements 935 1399 1399 1191 1208 1136
% filled by internal applicants 72.79 65.69 70.39 76.11 69.33 68.48
EL2 Total Demand 1337 1770 1903 1794 1565 1519
Number of promotions, transfers or demotions 949 1172 1316 1336 1092 1034
Number of Engagements 388 598 587 458 473 485
% filled by internal applicants 70.98 66.21 69.15 74.47 69.78 68.07

Demand peaked in 2008 for EL 1s and in 2007 for EL 2s. Both years were marked by higher growth, rather than higher separation rates. Despite annual fluctuations in numbers, approximately 70% of the demand for EL employees has been filled by internal applicants. This suggests that EL growth rates can return to peak levels without increasing the APS’s reliance on the external labour market. It is impossible to determine the level at which rising growth rates will require the APS to pursue external recruitment strategies.

Although the APS 6 cohort has been growing at a slower rate, to date this has not affected its capacity to meet the demand for EL 1s. The impact of this on APS 6 effectiveness is beyond the scope of this paper, but it is possible that he APS 6 cohort’s effectiveness may have declined due to a disproportionate loss of experienced employees to feed EL 1 growth.

Similarly, the higher numbers of EL 1 employees has not decreased the EL 2 cohort’s dependence on external recruitment. If current trends continue, however, a large pool of EL 1 talent may build up with limited opportunity to advance in the APS. This will create a bottleneck that may produce an increase in resignations as younger EL 1s pursue career options outside the APS. This would reduce the capacity of the EL 1 cohort by removing capable employees, and while in the short-term its effect on the APS’s ability to replace EL 2s will probably be minimal, as the supply of EL 1s exceeds demand, the long-term effects are more difficult to predict.

Workforce modelling

Growth peaks in 2007 and 2008 and the subsequent decline in demand make forecasting difficult as it is unclear whether demand will return to previous levels or continue to decline. The increase in EL 1 employee recruitment over the next decade will be modelled in two scenarios.

Scenario 1: Supply stabilising at pre-peak levels.

Peaks in 2007 and 2008 form discrete periods of exceptionally high growth.

The drop in Demand in 2008 actually represents a return to previous stable levels, and not the beginning of a longer decline. A 10 Year non-Peak average APS growth rate can be used.

Scenario 2: Declining growth

APS growth will continue to decline since its peak by 0.5% annually until it reaches a minimum of 0.5%.

Although the GFC and an increase in the superannuation preservation age to 60 may lead to a decrease in retirement rates, this currently appears to be being offset by an increase in retrenchments. However, modelling the range of possible interactions between separation types is beyond the scope of this paper. Projected annual Liability for EL 1 and EL 2 employees is shown in Figures 3.11 and 3.12 respectively. Full results of the modelling can be found in Annex B.

Figure 3.11: EL 1 workforce modelling results

Figure 3.12: EL 2 workforce modelling results

Limitations

This work is limited in a number of important ways. As with all modelling, it is based on historical data. Estimates are only accurate to the degree that the future is the same as the past. Pronounced changes to policy or the economic situation will affect the validity of the modelling.

Specifically, this modelling assumes that separation rates will remain stable. Although this has been the case for the past five years, factors may change this in the future thereby altering the demand for ELs. Retrenchment rates may be increased or decreased by policy decisions. Retirement rates may increase sharply due to an ageing workforce, or decline due to the GFC or rises in the superannuation preservation age. Resignation rates for younger EL 1s may increase if the number of EL 2 opportunities does not match the growth in this segment. Compounding this is the uncertainty surrounding the growth rate of the APS and whether it is declining or returning to an historically stable level.

Secondly, this report has also not been able to examine the impact of a possibly changing external labour market on APS recruitment. A decrease in the number of suitable external applicants may increase reliance on promotion and transfer as a means of filling vacancies. The effects of this will trickle down through the workforce as the vacancy transfers between levels.

Thirdly, this paper has been unable to examine any changes which may have occurred since the GFC of 2008. While resignations, retirements and APS growth have all decreased, there is insufficient data to determine whether this is a general decline beginning with the GFC, or a return to normal after years of exceptional growth in 2007 and 2008. Data from 2011 and 2012 may help to answer this question.

A key limitation to this paper is that it is based on a head count of the APS, not a Full Time Equivalent (FTE) employee approach. While the actual number of EL 1 and EL 2 employees has been increasing, the capacity of the APS may not have increased commensurately if there has been a change in the proportion of part-time employees. In the event that resort to part-time and job-sharing arrangements in the APS has grown, the use of a simple head count approach will over-estimate the capacity of the APS.

Conclusions

The EL 1 and EL 2 cohorts have seen considerable growth both in numbers and as a proportion of the total APS workforce. Growth peaked in 2007 and 2008, and has since declined although numbers are still increasing.

The growth shown by the EL 1 cohort has not been matched by the APS 6 or EL 2 cohorts. As demand to replenish the EL 1 workforce increases, the demand for talented APS 6s may begin to exceed the supply, and dependence on the external labour market may increase. Furthermore, as the supply of experienced EL 1s increases beyond the demand of the EL2 cohort, a bottleneck will be created that may lead to an increase in turnover of EL 1s as they pursue career advancement outside the APS.

There is evidence of an ageing EL 2 cohort. As of 2010, approximately 17% were of retirement age. Due to its higher growth in younger members, the EL1 cohort is less affected, but still had approximately 14% of members aged over 55. Examination of the SOSR 2010–11 clearly shows that this does not inevitably lead to an intention to retire within the next two years. As an added complication, the number of members intending to pursue work outside the APS within the next two years outnumbered those intending to retire; a younger, more mobile workforce needs to be considered as being at least as great a source of future turnover as the ageing workforce.

There have been drops in resignations and retirements since the GFC of 2008. However, there is not yet sufficient data to establish whether this is the beginning of a larger trend, or an isolated dip. Sufficient data should be available at the end of financial year 2011–12 to do so.

To fully appreciate the systemic impacts of transfers and promotions as a source of applicants it is necessary to examine the trends at work in other APS groups.

Footnotes

7 Advisory Group on Reform of Australian Government Administration, Ahead of the Game: Blueprint for the Reform of Australian Government Administration, Commonwealth of Australia, Canberra, 2010. (Back to content)

8 Between 2000 and 2005, a relatively high proportion of APS employees were reported by agencies in broadband classifications, for example EL 1–2. APSED reported on these members at the highest possible level until their correct level was reported. Increased compliance means that a small amount of growth in EL 1 numbers is actually EL 2 employees being reallocated to their correct level. This may have slightly lowered the growth in EL 2 numbers. (Back to content)

9 Employees aged over 45 in 2010. (Back to content)

10 Employees aged between 30 and 44 in 2010. (Back to content)

11 Employees aged younger than 29 in 2010. (Back to content)

12 Relative risk (R=2.89 CI: 2.10 – 3.89) (Back to content)

13 This figure approximates the Supply of new employees. An alternative is to use the increase in the workforce at each level combined with the number of separations to estimate the Demand for new staff. While Supply should approximate Demand there appears to be some discrepancy in relation to APSED historical data. This is because the demand figure is affected by a number of sources of untracked movement in the APS, including reallocations caused by the increasingly accurate capture of member level information. The Supply estimate is not as affected by these issues and is likely to be a more reliable estimate, as the APS only draws on the labour market to fill these requirements. (Back to content)