Australia's biggest workforce provider Skilled Group has rejected a merger bid from rival Programmed, but the suitor is open to making another offer, according to todays’ report in The Australian.

Skilled says Programmed's offer to create a AUD700 million (USD572million) staffing and facilities management group is not compelling given its own position as the largest blue-collar labour hire firm.

Programmed chairman Bruce Brook said that while the two parties hadn't held talks since its offer was made on December 17, it remained open to making another offer.

"We remain open to discussions and any suggestions that Skilled might wish to make to effect a merger that would benefit both companies' shareholders," he said.

Morningstar analyst, Tim Mann, suggested that Programmed's proposal would fail to get traction with Skilled's board unless the value of the offer was increased to AUD2.20 (USD1.80) a share. That would be significantly higher than Programmed's preliminary, non-binding offer made in December, worth AUD1.38 (USD1.13) a share.

"Unless Programmed came back and increased their bid by 20, 30 per cent I think it's probably dead in the water," Mr Mann said.

Credit Suisse and Deutsche Bank, however, have endorsed Programmed's offer.

Skilled chief executive Angus McKay dismissed the need to create a bigger business to improve economies of scale, arguing AUD20 million (USD16.3million) in savings forecast by Programmed would take years to achieve.

"You don't merge two businesses purely to get after the corporate cost," he said.

But his Programmed counterpart Chris Sutherland told AAP that figure of "at least" AUD20 million included forecast savings in human resources and IT, workers' compensation and public company costs.

"We think that the AUD20 million is a minimum amount and is fairly easily attainable," he told AAP.

Skilled said it remained open to talks if Programmed made an offer which reflected its value and contribution to a merged group.

Programmed offered a 25-cents-a-share cash payment to Skilled shareholders, on top of an equal 50 per cent stake in the new combined entity.

Skilled initially branded the offer opportunistic as its shares had halved in value in a fortnight late in 2014.

In rejecting Programmed's offer, Skilled said its rival is primarily focused on offshore rig construction, while Skilled had a wider exposure across the oil sector in construction, pre-construction and production.

"Our business is not focused on a single segment of that pipeline," Mr McKay said, adding that gaining Programmed's marine business would not diversify earnings "where we'd like them to be".

But Programmed hit back, telling the market that "contrary to Skilled's assertion", Programmed's marine business was not primarily exposed to offshore construction.

The ongoing turmoil among market leaders in the Australian staffing industry comes at the same time as Japanese staffing giant, Recruit, has swooped in to pick up rivals Chandler Macleod and Peoplebank and earn itself a second place ranking in the market.

Skilled shares fell 7.5 cents, or 5% to AUD1.43 (USD1.09) while Programmed added one cent to AUD2.43 (USD1.98).