A story that writes itself: Working Holiday visas, tax incentives and illegal labour

Sometimes you wonder how an idea came about.

There is a barney brewing over the working holiday visa program. A Senate inquiry into temporary visas, 4 Corners aired a show dedicated to highlighting exploitation of backpackers and the union movement are running multiple campaigns about the impact of temporary migrants on job opportunities for Australians.

The 4 Corners show in particular raised many responses and was extensively covered, rightly so I may add.

So I was surprised to hear in the Budget that the government had decided to tax working holiday visa holders in Australia 32.5 cents in the dollar, from the first dollar earned. This is because the government has changed their tax status to ‘non-residents for tax purposes‘. The measure will reportedly raise $540m over the forward estimates. Chris Bowen today outlined that the ALP will support this change.

Apart from whether this is fair or not, the fact this proposal has failed to draw an equal amount of airplay and outrage as the 4 Corners episode shows the disconnect that eats away at the heart of certain policy areas.

This rule change will create a bunch of incentives that will drive behavioural change from migrants. I predict this simple tax change will do more than any other policy measure related to working holiday visas to create an environment where exploitation thrives while also placing downward pressure on existing wages and conditions.

This will reduce the incentive to work. This might be viewed as a positive if you are concerned about jobs going to Australian-born residents. However if you operate a tourism or agricultural business, particularly in regional Australia where there is an incentive to work under current Working Holiday regulations, then this is a negative. There are not many industries wholly reliant on migrant labour in Australia but these two are the closest.

More importantly, this will reduce the incentive to work legally. An increasing number of employers will offer working holiday visa holders the opportunity to work off the books and be paid cash. Migrants themselves will ask for this, tipping employers who previously had not undertaken this practice into the black market for labour. By moving to cash, wage expenses for employers will be reduced while, in many circumstances, increase the net wages for working holiday visa holders.

A 32.5 per cent tax rate is a steep marginal rate from the first dollar earned. For example, if the piece rate on a strawberry farm works out to about $16 per hour, taking $12 per hour cash in hand is a revenue maximising measure for the visa holder given taxes of $5.20 per hour. I know what I would do.

This is not a small change. This is a massive change. Let’s assume working holiday makers earn on average $25,000 over a 12 month period in Australia. In 2014-15 the tax paid on $25,000 is $1,347. For a non-resident, this increases to $8,125.

For citizens and permanent residents, there are long-term incentives to work within the law, even if it reduces your net income. You get the safety of legal employment and all the benefits that entails. But for working holiday visa holders, this pressure is much less tangible given you can only work for a total of 6 months with any one employer. Even more striking, you can leave Australia at nearly any point with very little consequence.

Further, all of this is compounded when you consider exactly which industries working holiday visa holders work in. The top two occupations visa holders work in are regional farm workers and waiters in urban centres. These two occupations accounted for over a third of all labour activity based on the most comprehensive survey of the program, undertaken in 2009. Unfortunately we do not know more current trends however I’d be surprised if those proportions have slipped.

Regional agriculture and urban hospitality combined with poor incentives for workers to comply with taxation laws? I wonder what could go wrong. This story almost writes itself.

Yet I have seen virtually zero discussion of the implications of these changes. A couple of articles skirted the central issue and profiled a few migrants who mused about their feelings.

The increased risk of exploitation, drastic underpayment and erosion of wages and conditions of other workers is the cost of raising an extra $540m of revenue over the budget estimates, a figure which just quietly will fail to materialise. But chances are you wouldn’t know this because there simply has not been any discussion about these issues.

When a real policy change comes along that will have these effects, in the middle of a series of campaigns on the very same topic, there is something wrong with how we evaluate and discuss about policy.

The coming increase of Temporary Graduate visas

I mentioned briefly in my previous post that the Department of Immigration and Border Protection recently published a prediction for the number of “temporary graduates” over the coming years. From a recent discussion paper (page 26):

The subclass 485 has been credited with the strong growth within the Higher Education sector with internal modelling predicting that subclass 485 visa holders could potentially exceed 200,000 by the 2017-18 programme year.

There are a few caveats in that paragraph. Despite this, it is a nugget of information with significant ramifications for Australia’s migration framework. I’m therefore unsure why this information is in the middle of a paper on deregulation and not more prominently highlighted by any of the Department of Immigration, the Department of Education or the Department of Employment.

Regardless, why is this a big deal?

The subclass 485 visa – Temporary Graduate – is not new. Designed to give international students in Australia work experience in the labour market, the visa used to have a range of complicated eligibility criteria. This kept numbers of temporary graduates low relative to the total number of international students. Here is the last five years:

Screen Shot 2015-04-07 at 10.02.33 pm

(Source: Temporary Entrants and New Zealand Citizens in Australia – Stock – September 2014)

Topping out at just over 40,000 in 2013, the visa has been in decline since then. Compared to the ~350,000 international students currently in Australia, this is not a major visa category.

However all of this is about to rapidly change. Owing to policy change introduced by the Knight Review of 2011 under the Gillard government, the complicated eligibility criteria for a temporary graduate visa have been largely abolished. If your first student visa was granted after November 2011 and you went to a university to complete a two year qualification, you are likely eligible for at least a two year work visa. No strings attached. No employer required.

Given student visa applications since 2013 have been increasing, this change is slowly flowing through the system with the Department of Immigration predicting 200,000 visas by 2017-18 (I’m unsure if this prediction is for the population of visa holders at the time or the number granted per year). As there are currently ~20,000 temporary graduates in Australia, this would be a 10-fold increase in a three year period. When combined with the concurrent increase in student visa holders, it is likely there will be between 650,000 and 750,000 international students or recently qualified international students in Australia by 2017-18. This is not a small number.

I’ll be clear. I support the intention behind this visa. Giving international students an opportunity to gain skills in the labour market is good for the students themselves, the global competitiveness of Australia’s higher education sector and, over the long-term, the Australian labour market and Australian workers. Further, this will become the norm internationally with regard to student visa policy.

However the timing couldn’t be worse. There are two factors. Unemployment is slowly increasing and the number of recent university graduates is climbing rapidly due to the expansion of the sector under the previous government. This environment means the onus is on policy makers to ensure the transition to a larger temporary graduate population is as smooth as possible. Higher education institutions have a major role to play also. The private benefit of increased global competitiveness they obtain for zero cost means they must become more adept at dealing with international students. In particular, pastoral care and a focus on English proficiency should priority areas for improvement.

Those 200,000 people are already in the system and highly likely to materialise. The future trend may be different but the short-term outlook is fixed. The question now is what to do about it.

With any large policy change like this, there needs to be institutional support in place. How will international students make the transition from university to the labour market? Are employers aware of this visa and prepared to employ temporary visa holders without future certainty? What structures are in place to prevent systematic exploitation of a somewhat vulnerable population? What happens to those who want to stay in Australia but fail to receive a visa after their temporary graduate visa expires?

These are not minor questions and the answers will go a long way to either bedding down this new policy direction or threaten a major negative disruption to Australia’s migration framework. I hope someone, somewhere is working hard on these matters. In my opinion, this is the most likely migration policy area to flare up in a deteriorating labour market.

Musings on Australian migration via Making Australia Great

“Making Australia Great” was excellent for a range of reasons. I want to focus on one.

George Megalogenis’ production had the rare ability to communicate complexity with ease. There have been numerous books, speeches and post-hoc political justifications of GFC in Australia yet this was the most cohesive. More importantly from my perspective, towards the end, he chose to bring a historic tale on Australian migration inside the economic tent. I’m not sure many could have pulled this off but I’m thrilled Megalogenis achieved what he did.

Collectively, we know migration has played a defining role in Australian history yet this has rarely extended to an economic perspective. The cultural and the social dominate Australia’s migration story. The importance of the decision to include migration in an macroeconomic narrative is the timing. Migration in the 21st century is on track to play a more central role in Australia’s economic story than ever before, for better or worse. Yet I worry public and policy understanding of the link between economic and migration policy is poor, making the future more uncertain and liable to populist backlash.

I was struck recently when someone who I think very highly of mused migration in Australia had become normalised.

Living and working in Canberra, I tend to have my head stuck in the sand. Google alerts ping in the morning, legislation whizzes by and a politician says something vacuous about migrants to the media (the far superior number of good words spoken on migration are hidden in Hansard, unreported). The cycle repeats and leaves a focus on all that is bad or requiring fixing. Normalised has not been something I associate with migration in Australia.

Yet the more I think about it, the more I think he is correct. Australia accepts migration. You only need to look at the U.S and the U.K to see two examples of wealthy, democratic societies where this acceptance has frayed and now teeters on a sharp edge.

But what if this acceptance is built on an misunderstanding? Can it come crashing down when the worm turns?

Australia’s migration framework today does not operate how most people think. Perhaps it never has. The image of a ten pound Pom settling in Australia alongside Italians, Greeks and the Vietnamese and becoming “Australians” is rooted in historical fact. But what we don’t think about is the 20-40 per cent of these ‘new Australians’ who would return home. These people lose their voice in our story because they aren’t around anymore. But this critical piece of information reflects how migrants are unnatural. 97 per cent of the global population are not a migrant. Australia is a global outlier of epic proportion when it comes to migration.

The uniting feature of previous migrants was their permanency. If people did return home, that was OK but not expected nor assumed. Today, things could not be more different.

The Australian migrant of the 21st century is temporary. There are about 900,000 long term temporary visa holders who live, study and work in Australia at any one time. There are another ~500,000 New Zealand citizens living in Australia (rather permanently I may add) who are also technically temporary migrants. A total of 1.4 million people living, working and participating. I believe this contrasts starkly with the common imagination of Australian migration: A settler, coming to live in Australia forever. The land of milk and honey.

Understanding this phenomenon is difficult due to the disparate nature of these people. Do not characterise these people in broad strokes as the differences are vast. A 6 month contract working for a global company results in a 457 visa as does someone looking to permanently migrate via a willing employer. A young person escaping economic poverty via a student visa and a life in Australia or the “genuine” student who returns home with a quality education. Revealed preferences only reveal after the fact, something policy makers struggle with.

As a country, the those who remain in Australia should be the focus. These people are temporary in name only. Making up anywhere between 6 to 8 per cent of the workforce, their economic contribution to Australian society far outweighs their cost. This is undisputed, both fiscally and macroeconomic impact. Over different time periods, most of these people will become permanent residents. A minority will remain stuck in limbo.

This is a structural change in Australia’s migration framework that was not present at the time of the last recession. Temporary migration was for all intensive purposes invented in the 1990s after the recession. This brings Megalogenis’ production back to the story.

The underlying point I took away from Megalogenis was the fact 23 years of uninterrupted economic growth did not occur by accident. Hard work happened and a direct consequence was future prosperity. Ken Henry’s point about older people who lost their job in 1991-1992 never working again should be seared into the national consciousness.

Unfortunately, I’m not aware of plans for what happens in the next recession with regard to migration, the labour market and our economy. The 1.4 million people who are temporary residents, without access to the safety net. 1.4 million people – and rising – who will become a central part – perhaps the central part – of how the labour market reacts as macroeconomic conditions deteriorate. How does this population of people gel with a rising number of people looking for work?

The theory of temporary migration hides the ugly truth. The theory goes ‘temporary’ workers, classified by their visa class, leave when the going gets tough. They return home or move onto somewhere else where the situation is relatively better off. History says this is complete garbage. There are many examples of this, best summed up by Max Frisch’s quote, “We asked for workers. We got people instead.”

While an economic slowdown will lead to forces that reduce the trend of new arrivals, the vast majority of people already living here for over a certain period of time are likely not going anywhere.

This stylised fact goes to a central understanding of migration. In technical terms, the “flow” (trend) and the “stock” (population) of migrants, are distinct, separate entities. The problem is they so often get thrown together, blurring our understanding. For example, the 1.4 million number referenced above might move slowly up and down over time periods. But the actual individual migrants that make up that number change more quickly, moving amongst visa categories and in and out of the country.

Predicting what will happen in the next recession is therefore particularly difficult. Assumptions about what decisions people will make are very hard when the terms and conditions governing their livelihood are new.

Perhaps no policy conundrum is more interesting than ‘temporary graduate’ migrants. Driven by policy change in 2011, the Department of Immigration and Border Protection recently mused there may be 200,000 temporary graduates – former international students with an unrestricted two or three year working visa – in the labour market by 2017-2018. These migrants are both temporary in an administrative sense and loaded with human capital. Whereas in the past, migrants were relatively low-skilled, today migrants are relatively high-skilled. They have paid massive sums to attend Australian education institutions and many seek a life in Australia.

Think about this complete change of migration policy in a period of economic recession and a soft labour market. Lower skilled workers get screwed in recessions. This used to mean migrants along with everyone else. But today, instead of ‘temporary’ migrants leaving in droves, it is much more likely lower skilled Australians (and first-generation permanent migrants) will be laid off first while many recent migrants keep their job. At 6.4 per cent unemployment, there is already a small (but loud) group of people and organisations coalescing around an “Aussie’s first” narrative. What happens when unemployment reaches 8 per cent? 10 per cent?

Peter Garrett said “people are not the problem” in Making Australia Great. At the time, I thought it was a bit of a throwaway line. Yet rewatching and thinking about this, Garrett neatly captured a way forward around migration and the economy. If you accept the argument that openness around migration is central to future prosperity, then a response grounded in acknowledging there are serious issues ahead while simultaneously remembering people are not the problem, resonates clearly.

While I believe a level of acceptance on migration does exist, there is little acknowledgment of the seriousness of the issues ahead. The recent Intergenerational Report is a case in point. The net overseas migration figure projected for the next 40 year period is 215,000 in the IGR. This flies in the face of current migration trends and fails to account for how migration has changed. A figure closer to 250,000 might have sparked a more informed discussion of what decisions are required over the medium- and long-term. As George Megalogenis followed up on Twitter, “The point Ken Henry made is the population surge is already upon us. Have to plan now.” This is clearly not occurring.

So what options are there? Regulation comes to mind. Macroeconomic regulation was paramount to past success. The current system of regulation is a work in progress and poorly supported by proper institutional oversight. Binary arguments over 457 visa policy have obscured a more effective focus on improving the status quo (something I have been guilty of). This will require resources for compliance and improving legislative responsiveness. One example is the recent response on 457 visas by Assistant Immigration Minister Cash. An impressive policy package with a clear focus on integrity and weeding out employers who use the program illegally. Despite rooting for the other team, this was clearly a step in the right direction.

A public discussion is also important. The Australian rate of saving went sky high post-2007. I find it hard to think this would have happened to the same extent without a detailed understanding by individual Australian’s about how interest rates and fiscal policy worked. Savers were responding to two decades of being lectured by Keating, Howard and Costello on economic fundamentals. This level of understanding would be impossible to replicate with regard to migration but even a fraction would assist. This is a daunting task for any Immigration Minister yet one so critical to our long-term prosperity and social cohesion.

Even those who do know about migration tend to view it through a prism related to their sphere of influence. Through my job, I try to get out and talk to a range of different people from universities, think tanks, employers, managers and community workers. Most typically have a good understanding of how migration works as it relates to them. Yet it is rare indeed to meet people who understand migration at a macro level and what this means for Australia like you do in other policy areas such as education and increasingly healthcare. Increasing awareness of the migration basics is just as important as advancing innovation in policy.

I understand this minimal level of awareness. Migration is niche, finicky, lacking a strong ideology or grounded in a holistic theory. There is extremely little migration taught at universities and the Minister for Immigration and Department of Immigration are clearly second-tier in terms of prestige both politically and administratively. This is understandable but problematic. Hard work is required and it should start now. Making Australia Great was a firm nod in this direction.

Thank you to the ABC and George Megalogenis. If a tiny proportion of those watching gave even a little thought to the link between the economy, future prosperity and migration, the show was a roaring success for anyone who cares about migration in Australia.


Net Migration and the Intergenerational Report

I was going to write a long post about the migration implications in the Intergenerational Report released today. But this would be largely pointless.

Instead, here is the chart from page 12 showing the projected migration rate as a proportion of population:

Screen Shot 2015-03-05 at 9.29.57 pm

The government assumes that by 2055, the net overseas migration rate will be 0.5 per cent of population, roughly equal to the average rate seen between 1973-2006.

If this strikes you as odd, it should. Migration policies have transformed radically since this time period. You can see this with reference to the period 2007-2018.

How anyone can make this assumption is beyond me.

Until you consider, in the words of the IGR:

  • “Lower levels of net overseas migration would lead to lower population growth rates over time and, therefore, lower economic growth.”
  • “Migrants, on average, are younger than the resident population. Migration reduces the average age of the population and slows the rate of population ageing.”
  • “Migrants tend to be younger, on average, than the resident population, and therefore increase overall labour force participation rates.”

Got it? Migrants = higher economic growth. Migrants = slower ageing. Migrants = higher labour participation.

I wonder why anyone would want to deliberately pick a lower rate of net migration?

A nation beyond? Reframing migration, settlement and engagement

Pessimism is the overwhelming emotion I feel when considering Australian migration in 2015.

Michael Pezzullo, the Secretary of the Department of Immigration and Border Protection, has called for his department to “reframe” how they see themselves. In a speech to staff extracted to the Mandarin, he says:

For us as a department, we should assist in this national endeavour by re-framing how we see our role. Yes settlement will be an ongoing element, but the mission of mass migration that was set for us in 1945 is long accomplished and should be declared so. More than settlement, we should look to become Australia’s gateway to the world, and the world’s gateway to Australia. On occasions, at times of heightened threat such as caused by terrorism or pandemics, we will need to act as the gatekeepers and as necessary man the ramparts and protect our borders. But the overwhelming and predominate role of the department will be to act as the open conduits of Australia’s engagement with the world around us, whether for the purposes of trade, travel, or migration — for time limited purposes or for tomorrow’s settlers. And how different will tomorrow’s settlers find tomorrow’s Australia: a unique society and culture in a unique land, a fusion of the ancient and the modern, proud of the ancient culture of our first peoples, our British legacy and our multicultural unity-in-diversity.

This is a clear break with how the Department of Immigration has seen itself for decades. A disposition of openness has quickly transformed to one of caution.

Mr Pezzullo does not attempt to gloss his message. The “gateway” paints a picture of control, a border that is both high and wide, with but a small window to pass through. The Department of Immigration as a “gatekeeper” neatly describes the new policies that will see some staff carry weapons. Usurping the traditional role of the federal police, gazing toward the United States for inspiration, Mr Pezzullo wants a department with a more overt focus on keeping people out.

“Terrorism and pandemics” should require a calm explanation of the situation, not a trumpet call to ‘man the ramparts’. Australia’s response to Ebola last year was a case in point of how not to make migration policy. Arbitrary bans on the movement of people are nothing more than knee-jerk reactions that inflict damage. A immigration framework tilted in this direction betrays a startlingly negative outlook towards anyone outside Australia.

Mr Pezzullo edges close to implying “we’re full”. Declaring mission accomplished for mass migration in Australia signals a strong message that the Department should shape migration policy based exclusively on the flow of people in and out of Australia instead of also incorporating people who want to live here and those who already do. There is a need for checks and balances in any system yet the emphasis of the border above all else combined with the lack of support for the great migration tradition of settlement is spectacular coming from the person at the very top of the migration bureaucracy. Indeed he seems to completely miss the point about settlement, saying “but we should increasingly reframe our national self-understanding and speak more of engaging with the world, and not just settling our land”.

The concept of settlement has often been poorly understood by the public yet never by a Secretary of the Department of Immigration. Settlement is not about ‘settling our land’ but the process by which new migrants settle within the existing society. This is a process not bound by geography or land but one embedded in the hearts and minds of our community.

Settlement has deep roots in the Department of Immigration. The process of welcome and assistance has been refined over time, successfully reiterated according to the demands of the time. This was relatively easier back in the day as nearly everyone who migrated to Australia did so permanently.

Today things are different. Temporary and circular migration intertwine with settlement. Should the government and department help a new migrant settle if they may head home within five years? When should a non-english speaking migrant be eligible for english lessons if they are on a temporary visa? These questions remain unresolved. Disappointingly, instead of tackling them head on, Mr Pezzullo is more interested in removing them from view. Given he sees the link to the land instead of the people who live on it as the central component of settlement, this is unsurprising. His desire for engagement with the world occurs naturally when new migrants feel they belong in Australia, not to be seen as simply a number alongside import and export quarterly reports.

Shifting the discussion away from settlement is a grave error. While Mr Pezzullo says the age of mass migration is over, I contend he is wrong. Australia remains a destination where people migrate to in large numbers. In fact, the number of new arrivals is trending up. You can see this by looking at the net migration figures.

The past decade is second only to 1945-55 in terms of how many migrants have arrived as a proportion of the population. Perhaps we are entering a new era of mass migration? Perhaps not. But for the bureaucrat charged with oversight of migration in Australia to belay such sentiment is extraordinary and anathema to a 70 year project.

The next Intergenerational Report is due out before the end of February and should project a figure between 220,000 and 240,000 migrants coming to Australia each year for the next 50 years. How these people settle – not how they are screened by gatekeepers – is the most important question for Australian society stemming from our migration policies. For Mr Pezzullo to side-step this in favour of a more muted “travel, travel and migration” agenda is baffling.

Even if Mr Pezzullo wants the age of mass migration consigned to the history books, a migration framework which he oversees is the catalyst for the higher number of new arrivals. Temporary migration has removed much of the control governments once had over the number of migrants arriving in Australia. Decisions once made by bureaucrats in his very position are now made by employers and migrants themselves. Many of these temporary migrants transition and become permanent residents and Australian citizens. Putting the genie back in the bottle would not only be difficult but a disaster on multiple policy fronts.

This means settlement is arguably more important than ever before. In Australia’s first age of mass migration, society was more homogenous. Diversity was in its infancy. English was easier to learn. Communities were stronger. Information spread slowly.

Today Australia is the most successful diverse nation in the world. This did not occur by accident. Settlement is a primary concept of this success, bringing untold political, social, cultural and economic benefits. But the maintenance and improvement of this unique environment requires hard work. People, money, thinking and commitment are all necessary to continue this rather incredible human experiment. This hard work is currently missing and the future will be poorer for it.

Remarkably, the tone of the speech is almost more striking than the theme. Mr Pezzullo appears to come from the in-your-face school of rhetoric. This bravado is best summed up by this passage:

With every passing year, we move further away from the vestiges of these colonial origins that came about as a consequence of the imperatives and decisions of an expanding Empire. But we must never forget that legacy. If you doubt this, ask yourself this question: what did these imperial, red-coated Romans ever do for us? What, other than giving us:

  • Parliamentary democracy;
  • Representative government, commencing with self-government in the 1850s;
  • The rule of the common law, an independent judiciary and the check on executive power;
  • Our public institutions, including the architecture of executive government and its agencies in which we serve today;
  • The separation of the parliament, the courts and the executive government;
  • The freedom of speech, belief, faith and ideas;
  • The English language;
  • The settlement and farming of the land, and the building of our cities; and
  • The foundation of our modes of cultural expression, which have of course evolved distinctly and independently.

Apart from these things, what indeed did the British ever do for us?

Those accustomed to how leaders of public service agencies communicate should be surprised and disappointed.

This borderline rant veers into extremely subjective areas. Mr Pezzullo appears to be egging on his detractors by venturing head first into questions traditional enmeshed in the esoteric world of Australia’s culture wars. One can easily imagine the above passage front and centre of the next Quadrant magazine. This is a poor outcome for a bureaucrat charged with impartially implementing Australia’s migration policy and unimaginable from those who have preceded him.

A final comment. This type of discourse points to the explicit link between asylum policy and migration policy.

In the past, I believed it was possible to clear disaggregate these policies into distinct entities. The Howard government walked that line with remarkable skill.

I’m less sure this is the case today. The direction migration policy is now heading is wrapped up in the words and images of the broader asylum debate unlike before. A hardline approach has begat a small but growing group of acolytes intent on “reframing” migration away from what it means for society and towards what it means for security.

This has incredible ramifications, particularly for political leadership. For progressives, Australia’s successful multicultural society is being shoved to the past and nobody appears to be that interested. For conservatives, this is simply another policy area where the nefarious words of our security discourse are crash tackling the great tradition and status quo of Australian migration and simultaneously reasserting the power of the state at the expense of the individual. I hope we are able to stumble back from the edge we are fast approaching but until those with powerful voices speak up, this will continue to go unnoticed.

A comment on Tim Colebatch’s Inside Story article

Tim Colebatch has an important piece on the labour market over at Inside Story (read it before this if you haven’t already). He notes from 2011 to 2014, Australia’s working age population grew by over 1,000,000 people yet only 385,000 jobs were created. This phenomenon is largely underexplored.

Colebatch writes well and I think his point that we don’t do very well with our public discourse on the labour market is spot on. Perhaps it’s our obsession with industrial relations?

Regardless, one part of his discussion focuses on the increasing population. This includes a higher rate of migration that is currently about one per cent of the population. He doesn’t mention this but the current rate of net migration is one of the highest periods in Australia’s history (see here), another largely underexplored policy area.

Here is an extract from Colebatch on migration:

A net migration rate of more than 1 per cent means that each year Australia is adding between 200,000 and 250,000 more migrants than it is losing. I have no problem with that, if there is enough work around to employ new and old Australians alike. But the jobs figures make it clear that there isn’t.

The problem is exacerbated because a growing proportion of migrants are being brought here, on section 457 visas and other means, by employers to do specific jobs, rather than employers training Australians to do them. This inevitably means fewer job opportunities for existing workers.

This shortfall could be made up if the temporary workers spent enough money here to employ the existing workers they displace, but that is unlikely. The Bureau does not measure remittance payments – a serious omission in its database – but it is clear that many temporary workers are here precisely because they plan to send much of their earnings home to their families.

In good times, there’s nothing wrong with that either, but these are not good times. Immigration policies need to fit society’s needs; running a high immigration program amid low job demand is bad economic policy. The Menzies government knew better; it controlled the immigration tap to keep the long boom going. We should learn from our past successes.

There are a few things I’d like to address.

First, here are the most recent four year net migration forecasts he discusses, broken down by visa category:

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(Source: DIBP, Outlook for Net Migration – September 2014)

Colebatch is right that there are between 200,000 and 250,000 new net migrants forecast to arrive in Australia each year. In fact, in June 2018 its higher than that at 256,900.

However he disappointingly singles out the 457 visa as an example of employers bringing in migrants instead of training Australians. As the table above shows, the 457 visa makes up approximately 5-8 per cent of the net migration total. The larger cohorts of new migrants are international students, working holiday makers and family migrants. New Zealand citizens outnumber 457 visa holders in these forecasts (I’m not sure I believe this but that’s a different story). You could halve the 457 visa figure and still not make a even a minor dent in the net migration total.

This reflects the relatively poor state of how immigration is discussed in economic circles. People know what a 457 visa is and typically you are either for it or against it, with little middle ground. But in reality, the visa plays a small role compared to its oversized public profile, at least when talking about population (I’m as guilty as anyone here).

Next, Colebatch says it is unlikely new migrants spend enough money to replace the workers they displace. I’m not sure I agree with the proposition. While some new migrants likely act as substitutes for local workers, other new migrants likely act as complements. This means instead of displacing Australians, they are enabling more employment. New migrants – on average – have higher education levels than Australians and act to increase low-skilled workers wages. Further, we have very little evidence on how much new migrants spend in the economy. What Colebatch calls unlikely, I say is mostly unknown. This is especially pertinent if we account for the amount of money international students spend per year, as they are the single largest cohort of new migrants. Their consumption through tuition fees, rent and other spending is substantial. My economics is not good enough for a fiscal multiplier debate but I’d like to see one before we close this case.

Finally, Colebatch calls a high immigration policy in a poor economy “bad economic policy” and invokes the Menzies government as a model to follow in controlling migration. Unfortunately returning to a Menzies-era migration policy is, I think, akin to calling for the reintroduction of fixed exchange rates. The Hawke, Keating, Howard, Rudd and Gillard governments have changed immigration policy and willingly given up control to other actors, such as employers, universities and migrants themselves.

Colebatch may not agree with this but suggesting a return to the 1950s is misplaced in my view. One only need to look at the British government’s election commitment to lower net migration “to tens of thousands” to see how difficult it is to control migration so tightly. More than ever before, migration trends are dictated by two forces that governments largely do not control – relative economic performance in a global world and existing migrant networks. Australia, even in the current economic environment, is sitting right near the top in terms of global attractiveness to potential migrants (see here for a longer explanation on control).

This is not to say the government does not policy levers to use. The largest cohorts contributing to our historically high immigration figures – international students, working holiday makers, permanent skilled, New Zealand citizens, family migrants and humanitarian migrants – can all be affected by policy decisions. Yet to significantly lower these numbers would require very difficult choices. These should be spelt out when we talk about reducing net migration. In addition, Colebatch does not speculate on the potential benefits these migrants bring. I’ll not go into detail here, suffice to say I think these benefits are substantial and should not be dismissed without consideration.

By no means do I think our immigration framework is perfect. Some migrants get abused and a minority of employers seek profit at the expense of eroding wages and conditions. But I also think most employers do the right thing and the vast majority of new migrants are a net economic positive over the short- and long-term.

Tim Colebatch’s piece is a good read. Yet I believe it also shows how far we still need to come when even our most informed economic commentators remain at least partially unwilling or unable to fully explain the role of immigration on the labour market. Improving the system is difficult when the a callback to the 1950s is offered as a possible guide.

A gender issue? Educated, recent (permanent) migrants in the labour market

We know some migrants tend to struggle in new labour markets, regardless of their previous experience or qualifications. This is because they don’t have the advantages of natives. But over time, and certainly by the second generation, migrants mostly become just like everyone else. But in the meantime, governments and employers need to make sure structural issues don’t impede first generation migrants and their settlement.

In Australia, due to a skilled migration framework, many new migrants have a set of skills and/or experience which puts them in a good position to perform well in the labour market. However a key part of Australian policy is to have the option of full inclusion of family members (spouses and children) on arrival. These new migrants have full work rights in the labour market.

Data from the last Census (and a DIBP database) shows a specific issue: educated, recently arrived migrant women struggling in the labour market.

Table: The difference between post-2000 migrant men and women (who hold permanent visas) when compared to native Australian men and women for key labour market indicators;

Postgraduate Degree Graduate Diploma and Graduate Certificate Bachelor Degree Advanced Diploma and Diploma Certificate
Full-time/Pop 9.6% 7.8% 7.1% 8.2% 14.0%
Part-time/Pop 2.5% 3.5% 4.5% 3.3% 1.5%
Employment/Pop 12.0% 11.2% 11.6% 11.6% 15.5%
Unemployment rate -3.1% -2.5% -3.2% -2.6% -3.6%
Participation rate 10.3% 9.1% 10.3% 10.9% 14.1%

(Source: Census 2011, ACMID 2011)

(Note: these permanent migrants have generally arrived in Australia since 2000 so these figures reflects current policy settings as opposed to those from the 1970s).

The unemployment rate for Bachelor Degree holders in Australia was 3.3% for men and 3.3% for women for Census 2011. For recently arrived (permanent) migrants, it was 4.9% for men and 8.1% for women (ACMID 2011).

After comparing migrant men and Australian men and migrant women with Australian women, the comparative unemployment gap between migrant men and women is -3.2% [(4.9-3.3) – (8.1-3.3)].

The table shows large advantages for educated migrant men when compared to educated migrant women. Men have comparatively better rates of full-time employment, higher participation rates and lower unemployment rates. These are all key indicators for economic prosperity and long-term settlement into Australian society.

These differences arise as migrant women have relatively similar outcomes as native Australian women (with the exception of unemployment) but migrant men have higher outcomes than native Australian men.

There are some basic explanations of this. About 65-70% of “primary” migrants are men. This means they are being selected based on their human capital and demographic characteristics. Some will already have a job in Australia while others will already have qualifications approved for work in Australia. “Secondary” migrants (spouses and children) are majority female and do not have these benefits.

However the extent of these labour market differences is surprising and important. A 10% participation rate difference in relation to Bachelor Degrees shows there are serious gains to be made by better integrating recently arrived migrant women into the labour market. These people are predominantly young, highly educated and, with an unemployment rate of over 8%, looking for work.

They won’t look forever and we know the first 5 years for a first generation migrant play a critical role for their economic and social settlement. Better figuring out how to assist new migrant women who are not the primary visa holder into successful labour market outcomes will provide substantial long-term gains.

(Note: The dataset used to analyse these outcomes only focuses on migrants who hold permanent residency visas and thus excludes International Students, 457 visa holders, Working Holiday Makers and New Zealand citizens).


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