Low unemployment and record job vacancies are masking a deeper problem in the Hunter's workforce, according to new analysis from the University of Newcastle's Institute for Regional Futures.
The Institute argues the region is losing workforce capacity at almost every stage of people's working lives, a problem as the region undergoes a transformation under the energy transition.
"We have got patchy participation amongst young people, higher levels of part-time work amongst women in prime ages compared to Sydney, and then we are seeing men of 45 years plus dropping in their participation, leaving the workforce earlier than in Sydney," IRF executive director Laura Eadie said.
Ms Eadie said plugging these gaps was "quite a challenge" as the Hunter goes through its workforce transition into the future.
"We need a bit more flexibility in both skills and training approaches so that it meets people where they are," she said.
"People are working full-time so to give that up to go study and gain new skills is difficult or they are employed but really time poor as they struggling to get the study in around that."
She said flexibility on the employers' side can go a long way.
"What the research is indicating is employers want the person that ticks all the boxes, but the reality is if somebody ticks 80 per cent, they can be an excellent employee with the right kind of support."
"It's a bit of a change in mindset.
"Obviously skills can be learned through formal training, but they are better if supported with on-job coaching and mentoring."
The latest research examines how the NSW budget's investment in skills and training, including continued funding for TAFE NSW and new Manufacturing Centres of Excellence for the Hunter and Illawarra, will fail to ease chronic labour shortages unless the state also tackles the points where workers disengage from the job market altogether.
The Institute found unemployment across the wider Hunter has converged with Sydney, averaging 4.5 per cent so far this year, while job vacancies remain persistently higher than in the capital.
The IRF said this combination points to a workforce problem that goes beyond training more people.
"The Hunter's workforce challenge is no longer simply about producing more jobs or more skilled workers," the IRF states in its briefing paper.
"It is about ensuring people can successfully move through the workforce pipeline, from education to employment, through their working lives, and into the opportunities being created by regional transition."
Ms Eadie said the research showed a lot of headhunting, which "is not really helping anyone".
"There is a risk that gets worse with the renewable energy zones kicking in, construction of housing and some of those more industrial jobs," she said.
The research highlights uneven recovery in youth workforce participation since COVID-19, with 15 to 24-year-olds in the Hunter Valley outside Newcastle continuing to lag behind Newcastle and Lake Macquarie.
The IRF warns that apprenticeship and TAFE investment will not translate into real workforce capacity unless young people are engaged with the labour market early enough to make use of those pathways.
Ms Eadie said there is some uncertainty surrounding the future of careers with the introduction of more AI.
"We are not really seeing this impact employers that much at the moment," she said.
"There is a bit of wait and see but it is spooking employees, they are unsure about what opportunities will be there after studying or training.
"That can create a sort of logjam.
"Those traditional career paths in the upper hunter into agriculture and mining, they are just not sure, they probably need a bit more support to navigate that uncertain job future."
The most significant untapped source of labour, the report finds, is the working hours of women aged 25 to 44.
Across the Hunter, Central Coast and Newcastle/Lake Macquarie, roughly half of employed women in that age group work fewer than 35 hours a week, compared with about a third of women in Sydney.
"The argument isn't, 'let's just force them into full-time work,' but given there is such a difference compared to Sydney there are probably barriers there," Ms Eadie said.
The IRF attributes the gap largely to childcare availability, transport and workplace flexibility.
The IRF said lifting women's workforce attachment and hours could be as important to regional workforce growth as training investment itself.
Male participation also drops away sharply after age 45 across the Hunter compared with Sydney, and the decline is most pronounced in the Hunter Valley outside Newcastle.
The IRF says this amounts to a loss of experienced workers that training pipelines cannot replace quickly enough to support industries going through transition, such as energy and resources.
The Institute also points to disability workforce participation as a major missed opportunity.
Fewer than one in ten people who need help with core daily activities are in the workforce, and this cohort makes up a smaller share of the region's workforce (1.2 per cent) than the NSW average (1.8 per cent).
This is despite the Hunter having an above-average NDIS participant base.
"We are sitting at just under 10 per cent of people who need assistance who are in the workforce," Ms Eadie said.
"But the question is how can we provide more opportunities? Can we become a leader in this space?
"These people can provide value to business in their skills and lived experience, they can be a great asset.
"There is a very good business argument for it and it provides better outcomes for both the employee and employer."
The IRF says the NSW government's budget commitments strengthen the supply side of the workforce equation, but argues policy now needs to focus equally on the pipeline itself.
"Making sure people can move into, through and within the workforce, not just be trained for it," the report states.
"The future workforce is already here.
"The challenge is enabling greater participation."
On Wednesday the institute will present its analysis in a forum event titled The Transition Blind Spot: Who is Missing from the Workforce Pipeline?.
