The opportunity cost of policy reform: an example

Inside Story were kind enough to publish a piece of mine on 457 visas (which was also picked up by Crikey).

I want to highlight something I thought about while writing this piece. The opportunity cost of policy reform.

In 2013, the ALP government undertook various bits of reform to the 457 visa program. This was done primarily in response to the perceived notion of foreigners taking Australian’s jobs. The main reform introduced was making sure employers advertise vacancies before hiring migrants, called Labour Market Testing. Most unions supported this change and had been advocating for its introduction for sometime. The resources required to make this change ensured that others changes were minor in comparison, while other reform options were ignored.

I don’t believe labour market testing is an effective reform at all. I see the requirement as onerous for those employers who do the right thing and easy to manipulate for those employers who seek to displace Australian workers with migrants. This means it fails at its basic intention. Proponents may argue the regulation is effective, but as far as I am aware, I have never seen evidence showing this to be case. The case for change was weak and poorly prosecuted.

Instead, the government could have undertaken a different direction of policy reform. The article published in Inside Story highlights how the income gap between migrants and Australian citizens who perform the same job is likely increasing over time. Migrants receive the same wage initially, but up to 20 per cent do not receive a pay increase, including a minority who have been in Australia for longer than two years. I never considered the impacts of this until some survey data highlighted this phenomenon. This data points towards the direction of reform to strengthen the incomes of 457 visa holders. This could be done by shortening the period of nomination to make employers re-nominate migrants at market wages more regularly.

But this type of reform never saw the light of day as labour market testing was being promoted heavily. Despite the fact evidence exists on the gap between migrant and Australian wages and no evidence exists showing migrants ‘stealing’ Australian jobs (or that labour market testing would address this if it were an issue), the previous government failed to address the former, choosing to implement the latter. This is despite access to the very same data I used in the article.

You typically only get one opportunity to make substantial changes to policy in a term of government. Part of the process is identifying the need for change but equally important is identifying the solution. Gut feels and hunches shouldn’t be good enough in this day and age, particularly when data exists which highlights the problems in policy areas. The opportunity cost to the 457 visa program was substantial in 2013, as the next time the ALP have the chance to reform the visa program may not occur for some time.

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