Generating skilled migration? The Australian Pacific Technical College and labour mobility

Michael Clemens, Stephen Howes and Colum Graham have a new paper out, titled “Skill development and regional mobility: Lessons from the Australia-Pacific Technical College”.

The Australia-Pacific Technical College (APTC) was thought up by the Howard government as an alternative to an immigration pathway for Pacific labour. The authors do an admirable job of highlighting how the dual purpose of the APTC was both skill development and regional mobility yet only the first objective has been met. Does this mean the $300m spent over the past eight years has been wasted? Probably not. But this does speak to how we should judge success in development policy.

The scale of failure on fostering labour mobility under the APTC is alarming. Just 1.2 per cent of graduates from the APTC have migrated to Australia or New Zealand. Between July 2012 and March 2013, “the APTC recorded 988 new graduations but only 4 newly migrating graduates (all to Australia)—that is, 0.4% of new graduates” (p.7).

There are many parts of this excellent article but I’ll limit myself to those touching on immigration.

The paper does a public service by highlighting the cost of migration. It’s not cheap. Complying with regulatory requirements and transaction costs such as flights and visa fees runs into the thousands of dollars.

When discussing immigration policy in Australia, we often underestimate this cost as a factor in shaping migration flows.

When working at the Department of Immigration, I remember sitting in on a working group about a new fee structure for visas. A consulting firm had drawn up a framework which would raise visa fees across the board, purportedly to bring Australia into line with other similar countries (actually, it was a cash grab which raised ~$250m for a government searching for a fiscal surplus). At one point, the only trained economist in the room asked if the consultants had factored any demand elasticity into their modelling. They hadn’t. We were talking about increasing visa fees, in some cases, by 300-400 per cent and the possible impact on the movement of people was ignored. Needless to say, the economist was rather unimpressed and this highlights how the cost of migration is largely ignored, even in the Department of Immigration.

Another useful contribution in the paper is outlining how the lack of labour mobility is no mystery. The authors clearly establish there is demand to emigrate. Previous surveys and other immigration programs, such as the Pacific Access Category to New Zealand which are currently over subscribed by 900 per cent (p.9) means the lack of labour mobility is mostly falls under the headline of “supply of migration opportunities”.

When the discussion turns to the supply of migration opportunities, I think the authors get a bit off track. For instance, I’m not sure why so many words were devoted to discussing the points-tested visa. Pacific migrants with APTC certificates III and IV are highly unlikely to qualify for a points-test visa. I’ll go out on a limb and say not a single person would qualify, from over 4000 graduates. In addition, none of the graduates would meet the obligations for the Skilled Occupation List (SOL), which is not mentioned in the article. This visa pathway was never intended to facilitate labour mobility. It is for long-term, highly specialised skill shortages.

The authors discussion of sponsored visas, primarily the 457 visa, is a more appropriate avenue for APTC graduates to immigrate to Australia. That said, they get caught up almost exclusively on recognising skills. Under the 457 visa program, citizens from some countries in some occupations have to pass in-person tests, assessing their technical skills.* This is an expensive and resource intensive process. However the authors state all APTC graduates would have to undertake this test. Under policy, the only graduates of the APTC required to take the test would be citizens of Fiji and PNG. As these two countries produce about two thirds of all APTC graduates, this isn’t something to dismiss lightly but the authors should note other citizens are exempt from a formal skills recognition.

The 457 visa is the right pathway for APTC graduates. Instead of focusing exclusively on recognising skills, another factor that could have been analysed in detail include the lack of employer linkages in the Pacific. This could have been shown via existing 457 visa statistics. Despite citizens of Fiji and PNG being forced to sit technical assessments, these two countries are the only Pacific nations with a substantial presence in the 457 visa program. In March 2014, out of the 1389 visa holders in Australia from eligible APTC countries, 1289 were from Fiji and PNG, a full 92 per cent. Vanuatu, the Solomons, Tonga and Samoa each have a very small footprint of 457 visas, at less about 100 in march 2014. Exploring this seeming inconsistency might have helped draw out how to better integrate the 457 visa and APTC to foster more labour mobility. Perhaps the recognition of skills isn’t the major issue? I’m unsure but an analysis of the occupations of these visa holders might have shed more light on where exactly the barriers to labour mobility are.

Lastly, I was struck by a couple of remarks in the paper.

When talking about Global Skill Partnerships (immigrant countries subsidising emigration countries training costs), the authors state, “In such a setting, migration has the potential to become an engine of human capital creation rather than depletion.” (p.3)

By framing the argument in this way, one immediately thinks about ‘brain-drain’. “Human capital depletion” is a strong charge to level at immigration programs, even in the abstract. This seemingly undermines the argument that the movement of people is a positive, regardless of the contextual environment. The reason I raise this is that Michael Clemens is the foremost critic of the ‘brain-drain’ concept, arguing persuasively that any potential negative effects of skilled migration from developing countries are heavily outweighed by other positive factors.

Finally, the authors say, “The gains to migrants from Pacific Island states to Australia are in the hundreds of percent (McKenzie, Stillman, and Gibson 2010; Gibson and McKenzie 2012), but low-skill immigration is a political battlezone in Australia, and many Pacific Island states fear that skilled migration drains away skilled workers they need.” (p.1).

Low-skill immigration is not a political battle zone in Australia, its a political dead zone with few major supporters or prominent advocates. Some might argue the Foreign Minister, the Hon. Julie Bishop is an advocate or the ALP is an advocate as they introduced the SWP. I would argue both of these would be flawed arguments. Bishop has only said platitudes about low-skilled migration to date and any policy evidence is to be determined. The ALP introduced the SWP seemingly against its own wishes, which is why the program has ended up such as a regulatory mess.

This isn’t semantics. Without strong advocates, it is very difficult to progress unique and promising policy ideas. It’s hard to even reform existing policies, such as the APTC. The APTC was created by a dying government, bequeathed to a new government who moved towards a Seasonal Worker Program to ‘solve’ the issue of labour mobility. The authors note this in the paper but I think its a major issue of first-order of concern. A battle zone would be infinitely better than a dead zone.

Despite this, I’m optimistic. The APTC is established and producing graduates. This is the hardest part of the journey. Linking employers, in comparison, is substantially easier. There is a visa pathway which can facilitate labour mobility. While there are a few other barriers also, such as the cost to migrate and language ability, the foundations of increasing Pacific labour mobility are stronger because the APTC exists. The authors are to be congratulated to this helpful analysis and history.

* If you were thinking, that sounds odd, you’re right. The list of countries required to take a test; Brazil, China (including Hong Kong and Macau), Fiji, India, Papua New Guinea, Philippines, South Africa, Thailand, Vietnam, Zimbabwe. Note the lack of white people on this list. But that discussion is for another day.

Australian immigration in the 21st century (Part 2)

This is the second in a two part series about Australian immigration in the 21st century. See Part 1 here

Unlike some European and American cities, Australian migrants have not historically lived in tight clusters. It is true many areas are known for their immigrant flavour but intergenerational locational and social mobility has been strong. Indeed, second generation kids do better at school than the average student. This is also reflected in strong English language skills. However there are signs this is slowly changing as diversity increases from recent levels of high immigration.

The Scanlon Foundation ‘Mapping Social Cohesion’ surveys, Australia’s pre-eminent research into immigration and diversity, aims to show emerging social cohesion trends. Over the last seven years, Australian’s have had a high and stable sense of belonging. This means we are proud of the Australian way of life and culture.

Table 4 Scanlon

(Source: Scanlon Foundation Mapping Social Cohesion surveys)

But there has been a sustained negative trend in the sense of rejection.  There is an increasing pessimism about the future and the experience of discrimination is rising. Author Andrew Markus says this is a real challenge for the future but one that is not uniformly bad news:

“If you look at non-English speaking background migrants, the large majority share the Australian dream – work hard and you get on. This makes Australia very different from a number of countries. When you get many people agreeing that you can work hard but you don’t get on, that’s a bad result for a society.”

What is of concern is the increasing attitudinal difference between new migrants and third generation Australians. In 2012, the survey picked up a heightened disenchantment from third generation Australians on whether the impact of immigration was positive or negative. Markus says increasing cultural diversity is partly driving these social trends:

“We are finding increasing segmentation of major cities; the Census provides evidence of a movement away from areas of immigrant concentration by third generation Australians. If you measure diversity by language use, which encapsulates second generation migrants, you find some areas of Sydney and Melbourne which are 90 per cent non-English speaking background. Each Census shows us more of this.”

It is no coincidence that these local areas – such as the outer west in Sydney and south-east in Melbourne – are also areas of high population growth. As Australia’s population has grown, the rate of diversity has increased from 21 per cent in 1996 to 27 per cent in 2011. The majority of new migrants don’t live in the CBD (except for the unique geography of international students) but in the suburbs.

Laurie Ferguson says this change contributes to a ‘nuanced difference’ of social attitudes to immigration between the inner city and the suburbs because “when your space is affected, you have a different attitude to when its not”. Ferguson, a parliamentarian since 1990 for two electorates in suburban Sydney, is most worried about the perceptions around safety and trust. He says he has a number of associates in the ALP who have moved to suburban Sydney from the inner city and now hold dramatically different views on these issues.

“The question of ‘my space’, ‘my neighbour’ doing certain things that give people the shits, is something which contributes. People raise the issue of not being able to buy pork in their butcher shop any more. I hear this pretty regularly. This isn’t a big issue but a small example of space in people’s lives.”

While some might cringe at these comments, sentiment such as this is critical to understand how social change is difficult. These factors play a strong role in how society understands immigration and diversity. Where we live will have a large and permanent impact on how one understands immigration in Australia. In a period of rising diversity and rising population, disparate social and economic groups of people are likely to think very differently about the impacts of immigration.

This understanding is also reinforced by where you work. Shadow Assistant Treasurer Andrew Leigh:

“If you are a worker in an industry which is seeing a big influx of migrants, we should expect you to have a different attitudes to migration than if you’re a worker in an industry that is seeing no influx.”

This is a difficult message to intuit.

There is an ongoing meme that says when different people come together, see and live amongst difference, bias is erased and compassion bred. Unfortunately the evidence for this appears to be mixed at best. Robert Putnam, the leading sociologist on the link between diversity and community, has found “immigration and ethnic diversity challenge social solidarity and inhibit social capital”. If you feel a migrant is replacing your job, how you feel about Australian society and a ‘fair go’ will inevitably change.

This is prevalent in the short term. Helpfully, and more encouraging, new identities for communities are forged over the long-term which encompass immigrants. Australia has ample evidence of this. “It’s not incomprehensible to me that Anglo-Australian’s in the 1950s got nervous when they saw Greeks and Italians”, says Leigh. Sometimes we forget these important historical lessons. Australia has a history of excellent integration over generations.

This explains, but does not excuse, political rhetoric in search of a short-term gain. Why were Prime Minister Gillard’s comments conflating foreigners and unemployment in 2013 so damaging? Instead of seeking to explain the complex, Gillard tapped into the discontent. A Prime Minister’s role should be to rise above it and help shape the long-term success that we know immigration can become. How we ensure this generation of migrants settle well into Australian society – something far from inevitable – is critical.

Unlike some European cities, race riots are a foreign concept in Australia, with Cronulla the major exception. Riots have come to represent to very worst of European society where migrant communities are increasingly geographically, socially and economically separated from their hosts. This is a mark of societies divided by skin colour and religion, occurring in places as unlikely as prosperous, social-democratic Sweden.

In Australia last year, a brief instance of street violence between indigenous and Pacific Islander communities in Logan, south-east Brisbane grabbed the attention of news headlines, only to be forgotten a week later. Perhaps it was the lack of Molotov cocktails or riot police but this small instance of social division points to a more uncertain future as two decades of economic growth slows and encapsulates Markus’ concerns about segmentation.

At the time, Andrew Laming found himself in the middle of this short national discussion after conflating indigenous disadvantage, migrant dependency and welfare in fewer than 140 characters. Twitter is many things, but the appropriate medium to discuss social divisions in suburban Australia it is not.

Away from the immediacy of those events, Laming says this is a serious issue:

“There is concern about islander migration through New Zealand, increasing social problems. In reality this represents a sub-population completely disengaged from society. No mutual obligation, excluded from welfare. This is a real problem and I think it will be looked at by this government.”

Laming’s concerns about the prevalence of Pacific islander’s entering Australia through our open door migration policy with New Zealand are shared by others in Canberra. Since 2001, New Zealand citizens can only become permanent residents and gain eligibility for welfare and social support through the standard visas. This is despite having the right to live and work in Australian permanently on temporary visas. This disconnet from the government safety net is dangerous. Living and working in Australia but technically set apart from everyone else. For some of these people, English may be a distant language and unemployment means a complete lack of basic income, as they are ineligible for NewStart.

Andrew Markus’ latest work shows these concerns are not baseless. In Logan, the Brisbane suburb where the violence occurred, 15 per cent of the population were born in New Zealand or the Pacific. A full 43.7 per cent of the population are born overseas, compared to 27 per cent of Australia as a whole. Social cohesion in Logan is gravely ill. Compared to the national average, every indicator for the Scanlon index is below average. For social justice and equity, there is a massive disparity of 38 percentage points between the national average of 97 and the Logan figure of 59. The sense of rejection is 16 percentage points lower than the national average. People living in Logan feel excluded, rejected and disenchanted compared to people who live elsewhere.

Markus says this is largely responsible for the lack of identification with Australia many New Zealanders have when living in here:

“The New Zealander’s are a huge issue. This is an issue that the government knows is becoming more concerning but who is working seriously on a fix?”

There are only a limited number of ways to improve this situation. The simple, cheap method would see the government limit the arrival of New Zealand citizens or radically alter the existing agreement between Australia and New Zealand on people movement. This would run counter to Australia’s recent history of immigration, an act of exclusion based largely on ethnicity, given the issue has been defined as one concerning Pacific islanders. The precedent would be extreme, unfortunate and retrograde.

Another option is to fundamentally revisit the need to support of those in the community who require it to participate in Australia, both economically and socially. Extending English classes to those who cannot speak English would be a start. Allowing New Zealand citizens to access university funding akin to Australians would be another welcome policy change. These people are Australian in everything but passport. Having lived here for years, the sense of exclusion they demonstrate is perhaps the most worrying ongoing concern for Australia’s sense of social cohesion.

Regardless of the migration and welfare policies, the figures also show the critical role of socio-economic factors play. With an unemployment rate of 13.2 per cent, Logan ranks in the top three percentile of all postcodes for soci0-economic disadvantage in 2011. These are the reasons why 58 per cent of those living in Logan believe immigration is too high, compared to 42 per cent nationally, despite 16.7 per cent of the Logan population arriving between 2000-11. Creating economic opportunity would see social cohesion improve on the back of higher incomes and reduced disadvantage. Feeding the beast with messages about foreigners should be a long way from the politician’s mind.

Fostering a sense of community for those who feel excluded is critical. Of course, this is only one example of a highly frustrated sub-set of people. There are many other, more positive examples of communities. Markus highlights those who most closely identify with Australia are those of Indian ethnicity. Yet by ignoring that which is difficult, we are risking a permanent division between those who have opportunity in Australia and those who do not.

Laming isn’t content simply to comment on the issue of New Zealand citizens however.  He parlays his concerns about social integration into much broader questions about the labour market and labour mobility and what this means in the 21st century:

“There is a real welfare question around mobility of labour. Certainly workers 16 to 21 should be expected to move for suitable work with appropriate relocation assistance and if they refuse two offers, I don’t see why they should continue receiving Newstart.”

He goes so far as to caveat support for further increases in skilled immigration on this type of welfare reform. This would be a radical rethinking of immigration and welfare, policy areas not typically fused together.

On the surface, these policy discussions may appear a long way from arguing about the amount of people who should come to Australia. Yet as the labour market drives immigration, population considerations weave in and out of various domestic policy agendas. Laming’s ideas are well outside the mainstream yet over time these thoughts may come to play a more dominant role.

While I disagree with Laming’s policy solutions, there is an undeniable link between labour mobility and immigration. Jeff Borland, an economist at Melbourne University, has explored the decline of people movement between states. In the decade to 2013, inter-state migration dropped by the equivalent of 130,000 people.

Immigration is one of the reasons for this decrease. Borland finds a closer match between the number of migrants arriving in a state and job creation. This reflects the demand-driven nature of immigration in the 21st century yet few would have expected effects as substantial as reducing inter-state migration.

Labour mobility is critical in a workforce that ebbs and flows amongst its constituent parts. Retail might be slack in Brisbane but booming in Perth. As manufacturing declines, an increasing share of job opportunities might be found in more dense urban areas. Mobility of a workforce allows these opportunities to be explored, softening an otherwise hard landing for those without work.

Unnoticed, away from the front pages, these are the policy impacts stemming from the immigration policy revolution outlined in Part 1. Our space is the common denominator to this social context. Ethnic segmentation, divergent social attitudes and labour mobility are all being directly or indirectly influenced by Australia’s new immigration framework. Yet, on these topics of policy importance, the silence from government, the bureaucracy and those who benefit from immigration is deafening. Just as we are largely unaware about how immigration policy has transformed, we are yet to explore how these policy changes are shaping critical social constructs.

This clash between the economic fundamentals of immigration and the social impact on how people live and work is real. It is also unrelenting. The next question is how to mitigate the worst impacts and harness the most positive aspects of immigration and population. As Australia has shown successfully, and as Europe has failed at historically, the role for government is central in this task.

(See Part One here)

Immigration in the news: Chinese workers and the Free Trade Agreement

“Free Trade Agreement: China wants to import workers into Australia”

What is it?

Australia is negotiating a Free Trade Agreement with China. The Abbott government has pushed hard on this, in combination with the recently signed Japan agreement. A Free Trade Agreement liberalises restrictions, typically trade-related, between two countries. Most common are reductions in tariffs or abolitions of quotas. While Free Trade Agreements are normally bipartisan in Australia, there is disagreement outside of politics as to whether they make a strong economic impact. Bernard Keane at Crikey recently reflected on the impact of the Australian-United States Free Trade Agreement:

Still, the AUSFTA is a splendid example of the howling gulf between political journalists, who see FTAs, particularly those announced with elaborate theatre and plenty of colour and movement in foreign capitals, as significant events, and economists, who see little of interest in what at best are trade diversion agreements.

Why does it mention immigration if its about trade?

The article says the Chinese government want to import Chinese workers into Australia to work on projects funded by Chinese investment. Regulations of investment are often included in Free Trade Agreements. However the ability to tie labour to investment decisions has not previously been included in a Free Trade Agreement which Australia is party to. This would set a new negotiating precedent.

Why can’t Chinese workers come through standard immigration programs?

Current immigration regulations require any foreign residents, including Chinese citizens, to hold an appropriate work visa (most likely a 457 visa) if they are working on an Australian-based project for more than three months. It is likely two parts of the 457 visa program – English language proficiency and Australian market salary rates – present issues for Chinese investors wanting to bring their own workers into Australia. These regulations mean workers must have a base level of English (and pass a test to prove it) and they must be paid what Australian’s would be paid to do the same work. The argument from the Chinese government is likely that these regulations add significant cost to Chinese investment in Australia.

Should Chinese workers have a labour exemption due to their massive foreign investment in Australia?

This is the key question. The Chinese government would say yes. The movement of Chinese labour will make investment easier, creating more of it. However the Australian government is resisting such calls. While investment will increase under such a move, its primarily because it will be cheaper and the benefits will mostly accrue to China. One of the reasons the mining boom was welcomed by governments of both sides in Australia was the spike in jobs in mining and construction. This helped keep unemployment low and raise real Australian incomes in a time of global uncertainty. Allowing foreign investors to import their entire labour force would undermine one of the key arguments for the investment in the first place.

So this is a bad idea?

From an immigration perspective, yes I think so. Exemptions and exclusions are tricky business in immigration. Once you start favouring one country, you create significant disincentives for others. If Chinese investors were able to build projects quicker and cheaper than other investors, this would create an uneven playing field. Granted, this is one of the purposes of the Free Trade Agreement in the first place. However this particular inclusion has the ability to undermine Australian labour market norms, not a standard outcome of a Free Trade Agreement.

Any adjustment to the regulations governing international labour mobility should apply to all citizens, instead of those privileged by their country of birth. It is one thing to debate changes to the 457 visa program, it is another completely to create a new type of visa specifically for one country.

What about changes to the 457 visa program?

This is the second article in the last month that has been deliberately leaked by the government about this issue. This shows the Abbott government wants the public to know this agreement is under negotiation. More importantly, the stories say the Abbott government is resisting such moves to include a labour movement clause in the agreement. This demonstrates the Abbott government as strong negotiators but willing to find a compromise, perhaps via the 457 visa program.

The problem with this type of reporting is that the generally interested reader has no idea what is under consideration for the 457 visa program. It gets tacked on as an afterthought. Policy making as speculation and innuendo.

Potential changes may include lowering the English language barrier, watering down the market salary rates proposal or carving out exemptions within the 457 visa program for specific occupations related to specific Chinese investment. Each of these changes has its own set of issues. These changes may apply to everyone or perhaps just to Chinese workers.

What’s going to happen?

We’ll have to wait and see. I can’t see the Abbott government allowing a general labour movement clause in the Free Trade Agreement although who knows? There are undoubtedly changes coming to the 457 visa program – there is a current enquiry underway at the moment – and perhaps this issue will tie in. This would be unfortunate.

In my view, changes to labour mobility should be discussed discretely from trade and investment. Further, proposals that favour one country over another should generally be frowned upon, with the exception of fostering development and regionally-based agreements.

Linking development and migration: Michael Clemens, Hein de Haas and the Migration Hump

Michael Clemens recently wrote about the nexus between development and migration. He finds:

The unmistakable pattern is that, for countries below something like $6,000–8,000 GDP per capita (at US prices), countries that get richer have more emigration. The threshold arrives at roughly the income per capita of Albania, Algeria, or El Salvador. But roughly half the countries on earth, and all the poorest ones, are below the threshold.

This is known as the ‘mobility transition’, or migration hump. Writing in 2008, Hein de Haas outlined previous literature in this working paper on migration and development and included this instructive graph:

Screen Shot 2014-03-31 at 3.18.17 pm

While immigration for a country has a steady rate of increase, emigration is shaped differently. Emigration increases, peaks, and then descends as economic growth proceeds. Clemens is right to identify this as counter-intuitive. It’s baffling at first, but makes sense when we think about barriers of labour supply and labour demand. These barriers are eroded via wealth, creating resources to facilitate movements. At a certain point, the economic benefits of moving slow down and then decrease, driving lower emigration rates.

Clemens empirical work finds the same pattern as de Haas’ theoretical overview (noting de Haas also includes an empirical test):

Screen Shot 2014-03-31 at 3.41.56 pm

This is important. And, the shape is becoming more pronounced, as shown by the right hand side above. When we think about which countries are poor in the world today, this likely means migration in the 21st century will be very different to previous migrant trends, based on country of origin flows. How people move has a strong impact on their wellbeing and financial situation. In Australia we see established ethnic populations from the Philippines and Malaysia yet relatively few people from Cambodia, Myanmar and Thailand. Closer to home, this literature has implications for our relationship with our largest aid recipient, Papua New Guinea, which has never seen high levels of emigration. The evidence says this should not be surprising but also to be aware of the possibilities in the future.

In my view, Clemens most helpful part of his paper is putting some additional empirical grunt into this historically theoretical discussion. Further, the following five questions drawn from his paper about future questions to answer, summarise what a long way there is to go:

  • Will the same relationship continue in the future?
  • Is the mobility transition shaped primarily by supply or by demand?
  • Is there a micro-macro conundrum?
  • What determines the relative importance of different mechanisms in different settings?
  • What are welfare-optimal policy responses to the mobility transition?

In terms of development, the question of economic welfare is most pertinent but unfortunately, one of the least recognised within the development agenda (it must be said the interest in migration and development has grown strongly in the past decade).

Of course, there are other impacts on emigration as well as economic factors. Vipul Naik, of the Open Borders website, asks:

What I’d like to know: to what extent does it reflect immigration *policy* discriminating against poor people and/or poor countries, and to what extent does it reflect differences that would continue under open borders?

Perhaps people can afford to emigrate more heavily even in very poor countries yet policy decisions stymie this as opposed to resource constraints. Naik raises the parallels with internal migration, where barriers are not related to immigration policy, particularly rural to urban migration.

This is a good question. In the Pacific, we know many people want to work in Australia under the seasonal work program but settle for New Zealand because the immigration policy is more functional (although this may be slowly changing). Presumably the resource constraint is similar for Australia and New Zealand (although airfares are more expensive to Australia). Both societies have existing diaspora. Yet we see very different immigrant flows with an unknown effect on emigration patterns.

Clemens addresses this issue as one of the ‘theories of mobility transition’. However labour demand in the destination country gets tangled up in immigration policy settings and is difficult to quantify relative to labour supply from the destination country (to be fair, his paper is also about economic forces, as opposed to political or policy concerns). This is perhaps the main reason why labour supply theory dominates much of the migration literature. Immigration policy undoubtedly plays a role but distinguishing policy from economic forces is hard.

Both Clemens and de Haas seek to highlight how initial thoughts can be very misleading. This is vital work for improving the migration/development nexus, an approach with massive potential and the central message is clear:

This suggests that for most poor countries, most of the time, an assistance policy that seeks to deter migration will fail. People who are serious about development in the poorest countries—such as Haiti, Ethiopia, or Cambodia—need to include migration in their strategies. Successful migration and development policy, in the broadest sense, means planning for a mobile world.

For Australian development policy, while some positive steps have been taken in better integrating migration and development, there is much still to do.

457 visa “rorts”: The case against visa ceilings

Sarah Whyte, the Fairfax immigration correspondent, has a story on a recent change to the 457 visa program. Unfortunately, it lacks context and infers things which I believe to be untrue.

The premise is the Abbott government recently removed a regulation which stated employers have a visa ceiling. Say BHP wants to hire people on 457 visas, they had to say how many and this was the ceiling. The government has removed this because they see it as “red tape”. Unions are unhappy – primarily the CFMEU and the AWU – because this potentially allows an unlimited number of 457 visas.

The story leads with, “The Abbott government has quietly reopened a visa loophole that will allow employers to hire an unlimited number of foreign workers under a temporary working visa, in a move that unions say will bring back widespread rorting of the system”.

Issues:

  • This is not a “loophole” or “rort”. Under both Liberal and ALP reforms in the past, issuing a visa ceiling was seen as unnecessary. This is because it is very hard to predict the exact number of employers a company will require over a three year period. Further, it is extremely difficult to enforce without drawing arbitrary lines. Finally, companies will simply avoid just restrictions by applying for vastly inflated ceilings. A loophole is a regulatory mistake abused by people in search of profit. The lack of a visa ceiling was never unintended. It was extremely deliberate. The use of the term “loophole” is therefore regrettable.
  • More importantly, the ceiling has virtually no effect on the operation of the 457 visa program. The number of employees on 457 visas depends on a range of factors; the strength of the labour market, the relative strength of different industries, labour markets in other countries, visa regulations of other programs in Australia and the costs associated with using the program. The introduction of the ceiling was a poor piece of public policy and those who infer the cap will stop exploitation or specific cases of an over reliance on 457 visas are dreaming.
  • To illustrate this point. Whyte writes, “Before the cap was introduced in 2013, the number of 457 visas was quickly rising. In the financial year 2009/10 there were 67,980 visas granted. By 2012/13 there were 126,350 visas granted, statistics from the Department of Immigration show”. 2009-10 was of course the low point for 457 visa grants due to the effects of the Global Financial Crisis. Framing the trend of visas without reference to GFC does not assist readers in understanding why this trend has occurred.
  • This shows how the notion of an “unlimited” number of 457 visas is bunk. 457 visas are expensive, given recent price rises. Under law, migrants must be paid the same as Australian workers doing the same work. It is up to the government and bureaucracy to enforce this law in cases of exploitation, not simply rely on employers doing the right thing. Exploitation does occur because, as with other policy areas, a small minority of employers are nasty. Further, the administrative burden of visas is substantial. Anyone scaring people with the notion of unlimited foreign workers descending on Australia when no such thing will happen, does a disservice to having an informed understanding of immigration policy.
  • The ALP undertook massive reform to the 457 visa program in 2009 and no cap or ceiling was introduced. Only in the heat of ALP leadership tension combined with a sunken primary vote was this measure introduced. Instead, the 2009 reforms addressed core issues, such as establishing market rates for 457 visa holders relative to their peers.

It is true a very limited number of companies have abused the 457 visa program in the past via hiring massive amounts of migrants without any Australian workforce. However there are a range of other regulations designed to mitigate this.

The 457 visa program is designed to respond to the labour market where skilled labour ebbs and flows. The program is likely used by every single major ASX200 company as well as 30,000 other employers. Of course there will be rorts, but like other public policy issues, it is up to the government and the bureaucracy to stop this without overtly negative regulations hurting the vast majority of companies which do the right thing. Railing against individual examples of dishonesty does not improve the policy environment.

Instead, unions and reporters could helpfully highlight some of the actual problems in the 457 visa program. These include stagnant wage rates for certain industries and occupations over periods of 3-4 years and the massive rise in the use of the visa for the accommodation and food service industry. In addition, the effects of labour mobility in recessions should be explored, as I wrote about yesterday, given the increase in unemployment has likely seen a decrease in labour mobility for 457 visa holders. Working towards policy reform to tackle these issues instead of crying wolf at every occasion would help improve the program over the long-term.

Finally, the review panel into the 457 visa announced recently which AWU Assistant National Secretary Scott McDine said ”has been stacked to deliver a predetermined outcome that will hurt Australian workers”. It is true there is no union representative on the panel. This seems slightly petty from the government. However the representatives chosen have a long history and understanding of the 457 visa program. Apart from Jenny Lambert, who works for the Australian Chamber of Commerce and Industry, they do not represent industry. Further Ms. Lambert was a member of the ALP government’s Migration Advisory Committee, as was Peter McDonald, Professor from Australian National University. Not exactly hacks determined to allow open borders for big business.

I want to make it clear. It is excellent that Fairfax has an immigration correspondent. This provides an opportunity to build on knowledge over time in what is an extremely complex policy space. But the 457 visa program is heavy on rhetoric in the media and very often removed from what the program data actually tells us. Pro- and anti-457 visa advocates fail to reach any middle ground, air their differences in the media and we are worse off for it.

What can Indian IT workers on H1B visas teach Australian immigration policy makers?

IT specialists, very often from India, make up one of the larger groups of temporary migrants, both in Australia under the 457 visa program and in the U.S. under the H1B program.

Unfortunately in Australia we have a lack of empirical insight into labour mobility for 457 visas. However in the U.S. new research suggests temporary migration programs are complex, with a degree of labour mobility.

This paper on the H1B visa program and Indian IT workers – Inter-Firm Mobility and Return Migration Patterns for Skilled Guest Workers by Peter  Norlander, Briggs Depew and Todd A. Sørensen – presents some evidence to suggest low wages for temporary migrants act as the same incentive for domestic workers, namely they seek other, higher paying jobs or return home:

Our results cast doubt on the claim that these workers face severe mobility restrictions outside of the Great Recession. They reveal that during periods of full employment, inter-firm mobility of these workers is comparable to other estimates in the literature obtained from presumably more mobile workers in other labour markets, suggesting that competitive market forces provide some check against firms dramatically underpaying these workers.

There is a fair amount to unpack here from a policy perspective.

First, is this research applicable in Australia? The study analysed six large India IT firms many of which operate in Australia. The type of employees are also similar. The visa costs are similar also. One major difference may be the visa programs in Australia have a more strict method to match migrant wages to domestic wages than the U.S. As highlighted in the research, one study found as soon as H1B visa holders received permanent residency, they experienced a 20-25% pay increase. I don’t believe this occurs here however there is a lack of research to suggest one way or another. Obviously there are inherent differences in the broader labour market between Australia and the U.S. however the particulars discussed – temporary migration and labour mobility – seem a decent, but imperfect, match.

Two main policy considerations jump out. What is the difference of labour mobility compared to other workers? What happens to labour mobility in a weaker labour market?

The research finds “that a 10% increase in salary yields a 3.32% decrease in the probability of quitting”. The authors claim the “fact these results are not zero suggests that these workers have some degree of mobility and that lower paid workers are able to relocate to other employment”. However, I would also note that “This is slightly smaller than previous results in the literature that study other groups of workers”.

The fact there is labour mobility in temporary migration programs is important and positive. This means market forces are still having an effect on employees moving firms despite the more restrictive regulations governing a temporary migrant’s relationship to their employer. I know in the 457 visa program, there are always more business nominations than visa grants. The difference in these two numbers is likely to be a good proxy for a degree of mobility in Australia. Unfortunately this information is not currently publicly available.

However the authors conclusions are heavily caveated when they say “outside the Great Recession”. This indicates in periods of weak labour markets, lower mobility may be more consequential for temporary migrants than domestic workers.

When the unemployment rate is 4%, then a 10% increase in the wage is associated with a 14% decrease in the quit rate. When unemployment is 6% the 10% increase in wage corresponds to a 6% decrease in quits. At an unemployment rate of 8% we see that the quit elasticity is not significantly different from zero.

The difference in ‘quit rates’ (a proxy for labour mobility) between 4% and 6% is quite large while at 8% there is no mobility. This points to how temporary migration programs should be understood very differently in ‘full-employment’ labour markets and weak labour markets. Of course, this is similar to how other employees operate in labour markets. However the key difference is that unemployment benefits and the right to stay in Australia have a radically different impact on domestic workers than migrant workers. The worst situation for governments who manage temporary migration programs is one where there is no labour mobility, with many employees taking below market wages, increasing worker exploitation and undercutting wages and conditions. This is particularly true for progressive governments such as Democrats and the Australian Labor Party.

There are lessons here for Australia. With the unemployment rate going from under 5% to over 6% in recent years, we should assume the labour mobility rate of temporary migrants has decreased (but remained positive), at least for Indian IT workers but probably more generally. Policy makers should be aware of this when considering changes to regulations, especially those which would further restrict mobility.

Further, it is positive to see research which finds the lowest paid temporary migrant Indian IT workers have the highest propensity to quit their jobs. This counters some of the claims around the severity of labour mobility restrictions however does not remove the concerns completely. In addition, the authors find lower paid workers are more likely to return to their origin countries. We can debate whether a ‘return home’ option is preferable to the option to stay in either the U.S. or Australia, but what this does indicate is how temporary migrants react to changes in the business cycle and these programs are dynamic. Understanding temporary migration programs as simply as a static, one-size-fits-all concept, underestimates the various migrant incentives which can be accentuated under different labour market conditions.