The Centre of Policy Studies at Monash University warns that the problems facing employers will be compounded by the effects of an ageing population, coming at a time when the nation is already facing excess demand in many skilled occupations.

This means many businesses must adapt their recruitment, training and retention strategies, according to a report released by the centre.

The report, Why No Action on Engineering Training?, argued the Federal Government's approach of increasing professional engineer immigration levels was unlikely to be a long-term solution.

While university-level training for engineers had increased since the Coalition came to office, the new places were mainly being given to overseas students who were likely to take their skills home with them after graduating.

"Part of the solution must be an expansion in government-subsidised university places for domestic students," said the report's author, Dr Bob Birrell.

The report found there was a limited stock of skilled engineers ready to come to Australia and foreign workers were unlikely to take on the four-year undergraduate degrees that provided the skills which Australian employers were most interested in.

It found there was also a strong moral claim for local students having the opportunity to obtain well-paid and prestigious positions in their own country.

The report was strongly welcomed by Engineers Australia, which said the findings supported its claim that the federal focus on skilled trades had overshadowed significant shortfalls in the engineering skills base at the professional level.

Engineers Australia said the Federal Government must support the training of professional engineers at Australian universities by increasing the number of federally supported places for engineering under the Higher Education Contribution Scheme.

"In comparison with other countries, Australia has a low rate of entry into, and graduation from, engineering with the number of engineering graduates remaining static over the past decade," said EA national president Peter Cockbain.

Increases in skilled migration were at best a short-term, stop-gap measure, he argued.

"Long educational lead times for engineers mean that the problems with the Australian education system must be addressed as a matter of urgency," Cockbain said.

"The creation of a critical skills base, to position Australia as a long-term competitor in the international knowledge-based economy, must include improved opportunities for students to take up engineeringid.

"Skill shortages in engineering exist because the Commonwealth has failed to fund an adequate number of student places. This funding should not be seen as a cost, but as a major investment in Australia's technological future."