On “Designated Area Migration Agreements”: Wages and low-skilled migrants

(Disclosure: I worked on this program in 2011 and 2012 when I was at the Department of Immigration and Citizenship. I also exchanged emails with David Crowe yesterday about his article.)

David Crowe writes the Government is set to introduce a “Designated Area Migration Agreement” for Darwin which will lower the barriers for employers to hire 457 visa holders. The three main concessions will likely be; more lower-skilled occupations available to employers, a reduction in the level of English proficiency of migrants and the lowered salary threshold at which workers can be hired. The ALP, via Shadow Employment minister Brendan O’Connor, appear to oppose any potential concessions on lowering the salary threshold.

Some background: The ALP proposed these agreements back in the 2011 Budget. The agreement for Darwin commenced negotiation over two years ago. This media release from February 2012 shows then-Immigration Minister Chris Bowen and then-Deputy Chief Minister Delia Lawrie. In hindsight, the media release looks overly optimistic:

“This RMA will act as a pressure valve for the local economy, helping businesses experiencing a shortage of staff to find workers when none can be sourced locally.”

The RMA program, which is expected to be in place in the first half of this year, aims to assist small businesses which may find it difficult to use standard migration programs while ensuring Australians remain the first choice for employers.”

Perhaps the most important context is that two years ago, an ALP Immigration Minister and ALP Territory government sought to introduce a reduction in barriers for employers to hire 457 visa holders. Two years later, a Liberal Immigration Minister and Coalition Territory government are introducing something similar. Of course, Mr Bowen and Mr O’Connor have slightly different views on the 457 visa program, demonstrated by their tenures as Immigration minister.

Back to today’s story. Occupational concessions are probably required for Darwin and the NT. Many Australian residents will likely move within the local labour market to higher paying positions, created by the oil and gas industry. This means lower-skilled jobs – not currently eligible for the 457 visa program – will be more difficult to fill. This agreement will seek to mitigate some of this pressure.

There is also a case to be made that current English language concessions place an unfair burden on employers and migrants. English requirements are an important skill in the Australian labour market, regardless of your occupation. One needs to be able to understand basic transactions and engage with others. Legal rights are much harder to understand if you do not have the requisite language skills. However the current English language requirements are arbitrary and do not allow any flexibility. If someone can demonstrate they can speak, listen and read English but struggle to write, this should be acceptable for particular positions.

Wages are always the sticking point. Industry see them as too high while workers and unions consider them too low. I wrote to David Crowe yesterday about this proposal:

“The most controversial (concession) would be TSMIT. 10 per cent isn’t massive ($53,900 means a reduced level of $48,510). I wouldn’t live in Darwin for that salary, but lots of migrants would (particularly Irish tradies and Filipino service industry workers). The unions will make a song and dance, but you ask anyone in the NT labour market and they will tell you that is a competitive entry level salary for low-skilled jobs (full-time cafe managers, aged care facilities, transit operators etc).”

(TSMIT is the Temporary Skilled Migration Income Threshold, a figure below which employers cannot sponsor 457 visa holders)

Let me expand. A 10 per cent reduction in the salary threshold is not “massive” when compared to proposals from the hospitality industry seeking award wages for migrants. A reduction of the wage threshold still has implications for the labour market or it would not be worth implementing.

I wouldn’t live in Darwin for that salary because of the associated housing costs. Cheap, accessible housing is a rarity. Food and entertainment is not cheap. This is due to a range of factors including the mining and defence industries.

However, many people would live in Darwin for that salary. The movement of young Irish people to Australia is a recent trend, as the Irish labour market remains in poor. Those under 35 can visit and work in Australia on the Working Holiday Maker visa and if they find a skilled job and an employer willing to sponsor them, remain on a 457 visa. The Philippines has long been a country where emigration is encouraged by government policy. New policies such as this one for Darwin will be quickly noticed and employment brokers established to facilitate the movement of Filipino citizens into Darwin. Other citizens from a range of countries will undoubtedly be interested also.

Personally, I’m unsure about the need to lower the wage threshold.

First, to clarify the role of the salary threshold. Reducing the threshold does not mean employers can pay migrants less than Australian workers. This principle is enshrined in legislation. A threshold reduction simply allows employers to hire 457 visa holders if their ‘market salary’ is less than $53,900 (The Assistant Minister for Immigration has confirmed this in a subsequent story in the Oz).

Example: An employer owns a large cafe. One (of two) cafe manager position is vacant. The existing cafe manager is paid $50,000. Under the current rules, the employer cannot hire a 457 visa holder to fill the vacant position. With a lower salary threshold, the employer could hire a 457 visa holder to fill the vacant position but they are still required to pay them $50,000, not whatever the reduced threshold is.

Second, employer claims about lower-skilled salaries in the NT labour market are likely in the ballpark. Using the ABS Earnings and Hours survey, the average hourly wage for hospitality workers was $25.70 in the NT in 2012 (ANZSCO Code 4310–, basically below managerial level). For a standard 38 hour week, this is about $50,800 per year. This will have risen over the past two years and in addition, some hospitality workers will receive more income as shift penalties.

This shows the average full-time hospitality salary is probably pretty close to the threshold level for 457 visas. Some positions will be below the average wage and others will be above. This in itself isn’t a dominant argument for lowering the threshold for 457 visa holders. However, combined with other evidence and labour market trends, I can see how the case could be made for a 10 per cent reduction based on employment conditions.

But government must incorporate much more than simple employment conditions when considering policy.

There are risks to lowering the threshold wage for 457 visa holders.

457 visa holders do not receive any welfare from the government. To help understand how significant this is, here is the assistance an Australian single income ($53,750) couple with two kids aged six and eight is eligible for:

  • Family Tax Benefit A: $10,135
  • Family Tax Benefit B: $3,142
  • School Kids Bonus: $844
  • (if eligible) Rent Assistance (@ $400 rent/week): $7,644

(Source: David Plunkett and DHS. Thanks to David for his time in providing these numbers as well as graphs – to be blogged about soon)

This assistance is substantial. Of course, not every 457 visa holder has this family structure but they exist. We don’t know how many but with about 0.9 secondary visa holders (spouses and children) for every primary visa holder, it is not an insubstantial number. They receive $0 of family tax benefits, school kids bonus or rent assistance.

Why is this assistance being provided? Successive governments have deemed the support necessary to help a modern family at that income level. Therefore, how are we to square up the fact two identical families at identical income levels have such a massive disparity in disposable income?

For me, a level of disparity is acceptable. Australian welfare is not designed to support every person in Australia. The question then becomes what level of disparity is acceptable. Every time the threshold level is lowered, this becomes harder to answer. For some, the situation is already unacceptable. Combine a reduction in English language requirements, high living costs and reduced salaries and the risk of migrant exploitation increases. The risk employers seek to illegally undercut established employment conditions also increases.

These risks cannot be ignored. I think I could be persuaded the wage threshold should be reduced for some extremely tight labour markets in Australia but I haven’t been convinced. The government needs to make its case instead of just dropping selective leaks to the Australian. What are the underlying factors behind a wage threshold decrease? What are the numbers? Where is the evidence?

At least we are talking about this. There was no public debate earlier this year when the Government did not index the wage threshold for the 457 visa program as a whole. This acted as a de facto cut in the threshold given wage inflation over the preceding 12 months. The threshold had always been indexed under the ALP, starting at about $45,300 in 2009 and rising to the current level of $53,900.

This public discussion bodes better than no discussion at all.


2 thoughts on “On “Designated Area Migration Agreements”: Wages and low-skilled migrants

  1. HI Henry

    What are your thoughts on how this concept works against the current policy position of ‘earn and learn’ and the provision of relocation assistance to unemployed people to move to where jobs are available?


    1. Hi Lisa. Thanks for your comment.

      I think the provision of relocation assistance is a poor policy. These schemes have been tried before and often have only a handful of people take up the offer. While $6000 sounds like a lot of money, moving from the Sydney suburbs to Darwin is actually very difficult and expensive. Maybe if the monetary incentive was higher, they could be more effective but I probably still wouldn’t be sold.

      I’m unsure about the impact of the proposed changes to the dole for younger people. From past research across different labour markets, this type of policy can have some intended results but can also struggle as loopholes are inevitable and there is the real possibility of potential social disadvantage outweighing any benefits.

      However, this doesn’t have to be either/or. Any migration agreement for Darwin is not going to solve the labour market issues the region has. It might help but it’ll take more than that. I have no issues with lower skilled occupations being made available for employers to sponsor in a very tight labour market. My issue is how we best apply different programs in different labour markets within Australia. Devonport and Darwin are radically different yet subject to mostly the same employment and immigration policies.

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