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:

Screen Shot 2015-01-22 at 9.29.40 pm

(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.

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One thought on “A comment on Tim Colebatch’s Inside Story article

  1. Dear friends,OZ is a slave labour gulag.Average wage at $700 per week(if you are lucky).One bedroom apartment $500,000.Do the maths.It is unattainable.It is a trap.

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