Labour crunch: Shortage of skilled workers constrains expansion but may be a source of future demand

Despite experiencing double-digit growth in 2011, Papua New Guinea’s construction industry is operating with increasingly restricted supplies of both materials and skilled labour. Surveys conducted by the Bank of PNG predict a decline in employment growth amongst the building and construction sectors in 2012, but the government has cautioned that the surveys do not comprehensively cover employment from the PNG liquefied natural gas (LNG) project and its contractors, and positive growth is still expected nationwide.

The government’s assertion is supported by industry executives, who have seen no change in PNG’s labour shortage. The current labour crunch is a result of a failure to foresee the full impact of the LNG project on the country’s labour pool. While just 6600 Papua New Guineans were employed by the project as of the second quarter of 2011, this demand has been sufficient to drain talent from PNG’s limited formal labour pool, estimated to be just 400,000 workers out of a total labour force of 3.8m, according to the Agribusiness Commercial Legal and Institutional Reform Assessment. Qualified personnel have been attracted by salaries as high as $29,600, according to the “2012 Hays Salary Guide”. While this is less than what domestic workers in oil industries elsewhere earn, it is 50% higher than established rates in PNG – increasing the cost of hiring and maintaining workers for other projects.

EDUCATIONAL OPPORTUNITIES: Firms have begun turning to PNG’s higher and technical education institutes in search for qualified personnel. The PNG 2012 Budget outlines revenue and expenses for many institutions that have training partnerships as part of the LNG project, or investment agreements that have contributed over PGK2bn ($951.8m) in infrastructural expansion and training courses. However, PNG’s flagging education system has left companies to absorb many training costs. Graduates reportedly have substandard skill sets, particularly in arithmetic and literacy. However, despite these setbacks, many industry executives praise employees’ technical skills once trained.

LOCAL MANPOWER & WAGES: Landowner companies (Lancos), which organise the use of communities’ lands and divide derived wealth, raise other challenges regarding unskilled labour in the field. Lancos comprise 75% of the LNG project’s local workforce, providing transport, housing, security and other services.

Landowner and labour management companies defend their territorial claims to contractual work, and the hiring firms have to contend with obstacles such as high rates of absenteeism following bi-monthly pay days, strikes and souring relations with local communities.

According to the Wall Street Journal, the typical hourly salaries of PGK3.25 ($1.55) exceeds the official minimum wage. Considered low by residents, national workers also complain of discrimination, unfair dismissal, disregard for safety and a lack of union representation, despite the existence of the PNG Trade Union Congress. Human rights abuses by extraction firms have also been recorded by international agencies.

Due to the high labour demand, salaries and wages have been increasing. The Minimum Wages Board recently increased the nominal wage for non-skilled labour to PGK100 per week ($47.60) as an adjustment to the PGK2.29 ($1.09) hourly minimum wage. PNG is a lower-middle-income economy, according to World Bank definitions. Maintaining this status and matching the $975 GNI per capita threshold in 2007 and the current GNI benchmark of $1300 continues to depend on the performance of the country’s extraction firms.

REVERSE MIGRATION: Today, the LNG and ancillary projects represent a potential national platform for practical and international-standard training for PNG’s workforce. The completion of construction for the LNG project in 2014 will see personnel and technical expertise return to the labour pool. Industry players are reporting a gradual increase in the labour supply as projects reach completion. As the transfer of skills across the labour market lifts hourly wages for all pay grades, it is anticipated that higher disposable income and savings will drive future diversification in consumer segments.

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The Report: Papua New Guinea 2012

Construction & Real Estate chapter from The Report: Papua New Guinea 2012

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