Labour market testing doesn’t work. Increase prices instead.

If you have been following the debate on the China-Australia Free Trade Agreement, you might have noticed the phrase labour market testing. This is bureaucracy-speak for advertising jobs.

Should employers have to advertise jobs before they hire foreign workers? This question has become the be all and end all in the political debate over skilled migrants.

Often overlooked, a bipartisan consensus exists that Australians should have first dibs on jobs in Australia. This should be the end of the story on whether to advertise jobs first. Yet as with much public policy, there is something amiss here. There is no evidence to suggest forcing employers to advertise jobs has any effect at at all on Australian employment.

A thought experiment can help here. Imagine all employers are either good employers or bad employers.

Good employers will comply with all the rules of hiring skilled migrants. More importantly, they will undertake due diligence before they decide to hire a skilled migrant. They will seek out employment from the local labour market if available. This does not occur because they are altruistic but because it is a good business decision. If a business complies with the law, hiring Australians is cheaper than hiring migrants. For these good employers, labour market testing is a hurdle to pass through when there is no locally available option. This points to the superfluous forcing employers to prove they have advertised jobs.

Bad employers are different. Bad employers will not comply with the rules of hiring skilled migrants. They will underpay them and force extra hours on them. They will seek out employment on the cheapest terms possible, sometimes within the law but also outside the law. They will use skilled migrants as an alternative source of labour to Australians to lower their wage bill. For these employers, mandatory job advertising is useless as they have no intention in using Australians in the first place. They can put up 10 Facebook ads and 20 Seek ads and ignore them. In fact, they are happy to do so as it provides the veneer of respectability, allowing them to go about exploiting skilled migrants.

This is the worst part of labour market testing: an utterly false sense of achievement at meeting the broader goal of getting Australians into the workforce.

Some people say you can get labour market testing to work if you enforce it more effectively. This is belies the fact public servants are not very good at figuring out what is going on inside businesses. Thankfully, there is an easier alternative.

Employers respond to prices above all else. By making skilled migrants more expensive, the government would create a better incentive to hire Australians. Instead of creating mountains of paper and internal checks, higher fees would force employers to consider a broader set of options in hiring practices.

This was the original justification to pay equal wages for skilled migrants. If wages are the same between Australians and skilled migrants, all else being equal, the added costs of participation (administration, recruitment etc) in the 457 visa program would see utility maximising firms choose local workers first. However this has broken down in recent years as more skilled migrants are already in Australia, eliminating previously high recruitment costs. Higher fees will ensure Australian’s are ‘cheaper’ without touching wage structures. Coupled with compliance activities, this is a more effective method to improve the treatment of skilled migrants while protecting existing wages and conditions.

The vast majority of businesses do not shirk their responsibilities with regard to migration. They might feel unjustly burdened by a fee increase. However the 457 visa program is too important to be left to its own devices and overtaken by crooks and shonks. There need to be regulated methods at weeding out those who seek profit at the expense of migrants and Australians. A fee increase is a price worth paying for long-term acceptance of the importance of skilled migration and insurance against knee-jerk policy reactions.

I’ve never quite understood why those opposed to the 457 visa program don’t seek to increase the cost structure and instead advocate for a mess of legislative changes. The revenue raised from higher fees would; deter bad employers from using the program, increase the funding available to compliance operations and provide support for things like English language for spouses of skilled migrants. Each of these outcomes are positive for migration policy.



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