How to reform Australia’s skilled visa system

The skilled stream is the largest component of Australia’s permanent migration program accounting for 61% (110,000) of Australia’s 179,000 permanent migrants (including the humanitarian intake) before COVID hit in 2019:

Australia's permanent migrant intake

Australia’s permanent migrant intake is dominated by ‘skilled’ visas.

Empirical survey data from the Department of Home Affairs’ Continuous Survey of Australia’s Migrants shows that Australia’s permanent migration program is failing to attract highly paid and highly skilled migrants to Australia.

As show in the next summary table, recent permanent migrants experienced higher rates of unemployment and are paid less than the general population:

How much do permanent migrants earn.

Permanent migrants are paid less than the general Australian population and experience higher rates of unemployment.

Of Particular note:

  1. Median annual full-time earnings of recent migrants at six months was $13,100 (18%) below the general population in 2018, and $11,300 (15%) below the general population at 18 months; and
  2. The unemployment rate of surveyed recent migrants was 12.6% at six months and 7.2% at 18 months, with both above the general population (5.0%) in 2018.

Even if we focus solely on the skilled stream, the labour market outcomes are disappointing, namely:

  1. The median annual full-time earnings of primary skilled migrants, which comprised 62% of the skilled sample, were paid $3,900 less than the general population at six months and only $1,700 more after 18 months.
  2. The median annual full-time earnings of their migrating spouses, which comprised 38% of the skilled sample, were paid $18,900 less than the general population at six months and $16,300 less after after 18 months.

These are alarming results given the general population includes unskilled workers, which necessarily drags the median full-time earnings figure down. Therefore, permanent skilled migrants should be paid far more than the population median, not less.

The temporary ‘skilled’ visa system is even worse. The Temporary Skilled Migration Income Threshold (TSMIT) has been set at the ridiculously low level of $53,900. This TSMIT was $5,900 (10%) below the median income of all Australians in August 2020 ($59,800), which includes unskilled workers (see table).

How much Australians earn

The median income in Australia was $59,800 in 2020.

Setting such a low TSMIT explicitly incentivises Australian businesses to hire low cost foreign workers instead of local workers, as well as abrogates their need to provide training.

Two regulatory mechanisms have been put in place by the federal government to give the veil of integrity to the skilled visa system:

  1. Employers are supposed to advertise the role to Australians first before hiring a migrant (called labour market testing); and
  2. The government has developed a Skilled Occupation List of roles that are supposed to be experiencing shortages and permits the importation of ‘skilled’ migrants.

Neither of these functions work in practice and are easily gamed.

Labour market testing is easily overcome by offering a job at low pay rates relative to the skill-set so that no local will bother to apply. And when no local worker applies, businesses hire a migrant willing to work for below market salaries to obtain permanent residency.

The Skilled Occupation Lists are subject to industry lobbying and bare little resemblance to actual skills shortages in the market place.

An easy policy solution

The simplest solution to give integrity to Australia’s skilled visa system is to apply a pay floor equivalent to the 75th percentile of weekly earnings ($90,480 p.a. in 2020 – see above table) to both temporary and permanent skilled visa holders.

Doing so would ensure that Australian businesses can only hire foreign workers to fill highly skilled professions, while also eliminating the need for labour market testing or maintaining bogus Skilled Occupation Lists.

These simple reforms would maximise the economic benefits from skilled migration. Skilled local workers would no longer be undercut. Complexity of the visa system would be reduced. And lifting of the quality bar would reduce the overall level of immigration – both directly via having fewer skilled visa holders arrive and indirectly by making it harder for other temporary migrants (e.g. foreign students) to transition to a permanent skilled visa.

Labor should adopt these reforms as policy for the upcoming federal election.

Unconventional Economist
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Comments

  1. “Skilled” is barely half of the 2020-21 permanent migration “plan”. And less than a quarter of net migration levels, pre COVID. Aussie immigration is primarily about bulk livestock shipments to pump up crude “Treasury GDP” levels.

    In that sense, the “Skilled” wages and occupational scams are just icing on the cake. And we can forget Labor, they won’t depart from their pure “United Nations” migration perspective. They have little interest in voters or in governing.

  2. Goes back to Groucho Marx’s comment that he wouldn’t join any club that would accept the likes of him. The more successful and qualified a potential migrant is the less likely they will decide to migrate to Australia. We tend to attract those who are not doing so well back in their home countries and are looking for a change of fortune.

  3. Arthur Schopenhauer

    Labor should… 😆🤣😂😅

    Just listen to what Shadow Treasurer Chalmers says and does. Selling out people who were born in the country at every opportunity. And for what? Donors and Mates!

    Labor is lost. Professional lickspittles since they were voted onto their respective Student Unions.

  4. Aussie1929MEMBER

    Skilled visa system is inherently racist because the expectation of paying people lessbecause they are foreign is a disgrace. I would protest the systemic wage rorting and advocate for equal pay or more for migrants because of their lack of benefits citizens get. This may help level the playing field for all and hiring based on merit and experience rather than how low someone can be paid.

  5. Strange EconomicsMEMBER

    And yet they’ve kept adding to the list not removing…..
    They’ve just added vets because of a shortage of country vets
    There is complete overload of city vets due to already high nos of graduates and many British immigrants.
    Country vets are only paid 45K-60k graduates for a difficult and remote job – the problem is the low wages.
    The result will be simply unemployment and low payment of local graduates in the cities, who don’t get a bonus of a PR with the job, and more qualified Uber drivers.