Fighting for livelihoods while protecting lives: the importance of skilled migration

7 August 2020

“When the coronavirus is vanquished, migration will still be what it was before: a powerful tool that can lift up the poor, rejuvenate rich countries and spread new ideas around the world.  A pandemic is no reason to abandon it.”

 

This quote is from a recent article in The Economist.  While written with an eye to the situation in the United States, it applies equally, if not more so, to Australia.  Aussie battlers are fighting for their lives and their livelihoods.  It is important not to exclude a critical weapon from this fight.

 

As I write this under conditions of a stage four lockdown from my home office in Victoria, it is hard to look ahead in time, particularly as I obsessively interrogate the State’s latest new cases count.  It is hard not to let our fears take over.  What if the pandemic escalates?  What if we get through this, but the next pandemic is just around the corner?  What if we continue to bleed jobs?

It is scary, there is no denying it.  But we need to be careful not to let our fears fuel emotively inspired myths.  Such as the myth that led some to associate foreigners with the disease.  Witness the premature deaths of restaurants, cafes and other businesses in Melbourne’s Chinatown.  And instances of harassment of Chinese-looking students at some of the nation’s universities.  Another is the myth held by many that migrants take jobs that would have otherwise gone to Australian-born.  Neither of these myths should be entertained, and I will eventually get to why.

While hard to do, looking forward with a clear head to a future where COVID-19 has receded or been vanquished, is precisely what we should be doing.  It is critical for recovery.  Despite our fears, and contrary to the myths, skilled migrants are an important weapon that Australia needs to bring to this fight.  It is possible to fight for livelihoods while protecting lives.

Skilled migrants have been one of Australia’s secret ingredients to continued growth

The last recession, the one “we had to have”, ended 29 years ago.  Since then Australia’s unbroken record of growth has been the envy of the world.  Initially it was driven by productivity and improving labour market conditions.  Multifactor productivity averaged 1.4 percent between 1994-95 and 2004-05.  Since then it has been in the doldrums, averaging 0.4 percent.  Labour market conditions have continued to improve over the whole period.  That is, until recently.

One of the secret ingredients to continued growth since 2004-05, even as productivity slumped, has been strong population growth.  While Australia’s families played their part, most of the heavy lifting was done by people from countries like China, India and the United Kingdom who now call Australia home.  The most recent statistics attribute 60 percent of population growth to net overseas migration, and only 40 percent to natural increase.

Components of annual population change

Thousands of people

Source:  Australian Bureau of Statistics (ABS) Australian Demographic Statistics, Dec 2019, catalogue number 3101.0.

Note:  Annual components calculated at the end of each quarter.

 

Migrants have contributed to growth through their consumption - buying up houses, cars, food and everyday goods and services, just like the local born population, with the added bonus that they demand goods and services that are different from the locals.  Skilled migrants, in particular, have expanded the productive capacity of the nation.  By definition they are well educated and of working age.  The former drives innovation and productivity more broadly.  The latter offsets the effects of withdrawals from the labour market as the local population ages.

 

In other words, as I have previously argued in a separate piece, skilled migrants matter for growth.  Pre-pandemic, predictions were that Australia’s migration program will add between a half and one percentage point to annual average GDP growth over the period 2020 to 2050. 

 

Neither migrants nor babies are currently contributing much to growth

 

Those predictions were made by the International Monetary Fund (IMF) in 2017, assuming business as usual.  In 2016-17 the migration program outcome was 183,608 permanent migrants.  That figure has come down every year since.  According to the Government’s Mid-Year Economic and Fiscal Outlook (MYEFO), estimates are that migration will be 154,000 in 2019-20, before falling dramatically to 31,000 in 2020-21.  International travel bans imposed in March 2020, are assumed not to ease up until January 2021 at the earliest.  Only migrants from essential occupations are being let through.  Business has been anything but usual in 2020. 

 

Despite the Treasurer doing his best to encourage a “coronial” baby boom, natural increase cannot be relied upon to make up the shortfall.  The opportunity to form partnerships is lessened when in lockdown.  And, for established partners, it takes more than sex to make a baby boom.  While many may point to the increase in babies born post World War II, many forget that birth rates plunged during the Great Depression.  And that was well before contraceptive use was either possible or legal.  Today contraceptives are widely available.  Many couples will likely put their plans to have children on hold when their household finances are uncertain or depleted.  The Treasury’s own (MYEFO) expectations are that the fertility rate will fall due to the weaker economic conditions and outlook.

 

As a woman with a background in economics, I feel compelled to also point out that even if the Treasurer was successful in encouraging expanding families, this will unlikely provide an immediate economic panacea.  Yes, it might cause money to be spent on a family car, baby essentials and the like.  But it might also cause mum or dad to exit the labour force and leave less household finances available for other more discretionary expenditures.  Further, to the extent that it is mum and not dad who stays home, it risks exacerbating the gender inequalities spurred on by the pandemic.

 

Fewer migrants plus lower fertility equals a predicted slowing of overall population growth to 1.2 percent in 2019-20 and to 0.6 percent in 2020-21 — the lowest annual rate of growth since 1916-17.

 

Mythbusting realities

 

The economic wreckage wrought by the COVID-19 pandemic is like no other.  Just as health professionals are trying to make sense of a previously unknown virus and find either a treatment or cure, economists are trying to make sense of its economic fallout, how best to treat it and put nations on pathways to recovery.  The economic crisis is simultaneously impacting the supply-side of economies – disrupting supply chains and production – and the demand side – as people are less able to spend if they cannot go out, and are less willing to spend on anything other than the bare essentials if they are not sure where their next pay cheque is coming from. 

 

While closing borders was an early step taken by many governments as they sought to contain a health crisis, managed pathways for skilled migrants is arguably one of the best ways out of the economic crisis.  This is because, as implied by the arguments above, skilled migrants positively stimulate both the supply and demand sides of economies.

 

I am, however, pessimistic.  Unless challenged, populous mythologies that migrants will add to Australia’s health and economic woes may prevail.  So, let me acknowledge and address these concerns in turn.

 

First the health risks.  Certainly, unfettered entry into Australia by migrants and travellers would create a health risk.  That is how the virus got into the country after all.  And, prior to the second wave, it was the primary source of its spread.  However, the passing few months have been a very long year over which we have learnt much.  Sometimes by our mistakes.  This includes how to create safe corridors into the country by requiring periods of managed quarantine and testing.  Arguably this will take time to finesse.  And there will be a need to work within capacity constraints to quarantine.  But Australia should be mindful not to take too long and risk squandering an unprecedented opportunity.

 

Right now, Australia features amongst only a handful of nations regarded as relatively COVID-safe places to study, work and live.  So why not capitalise on this advantage in what has typically been a highly competitive race for global talent?  Australia is in an enviable position that it can pick and choose amongst the very best talent that the world has on offer.  And it has the power to dictate terms of entry, including quarantine, testing and other conditions that serve to minimise any health risk and neutralise any fiscal impact.

 

To my rhetorical question in the previous paragraph – why not capitalise on this advantage? – some may have answered in their heads: because Australia has high rates of unemployment and under-employment and this is not going to change anytime soon.  Jobs should go to Australians first and not migrants.  Any significant reopening of the borders should be years down the track when things have returned to ‘normal’.  This is the second myth that I want to call out and challenge – the myth that migrants take our jobs.

If that is the little voice in your head then you are not alone.  It is the little voice that speaks to many.  The first figure below is derived from responses to an annual survey conducted by the Scanlon Foundation.  Over the period it has been conducted, the Foundation has more than doubled its reach from around 1,550 to over 3,500 respondents to its latest survey.  Their responses have time-after-time demonstrated that the public perception is that migration is closely linked to the rate of unemployment.  That is, if the unemployment rate is high, the majority of those surveyed hold the view that the immigration intake is ‘too high’.  If its low, then fewer take this view.  This collective voice is echoed and amplified in the media and too often listened to by politicians, even though (one would hope) they will have more reasoned voices in their ears.

Unemployment and the view that the immigration intake is ‘too high’
 

Skilled migration and unemployment

Source:  Thomason, R (2019) Attracting Global Talent, Groningen Declaration Network Annual Meeting, updated.

 

The voice of reason is that populous mythology could not be further from the reality.  In a speech to the Groningen Declaration Network’s (GDN’s) 2019 Annual Meeting, Australia’s representative, VETASSESS’ Executive Director, Rob Thomason, deliberately juxtaposed an earlier version of the chart on the left with an earlier version of the one on the right (or top versus bottom, if you are viewing these charts on your smartphone or tablet).  The GDN is a worldwide network with a shared interest in supporting the global mobility of professional and academic talent.  The presenter’s intent was to bust a myth by contrasting it with the reality.  The myth that migrants take jobs transcends Australia and undermines global mobility.  The reality in Australia is that as the number of skilled migrants has increased, the rate of unemployment has decreased.  The net effect of skilled migrants is not to take jobs, but to make jobs.  This is because not only do skilled migrants fill critical labour market gaps (such as nurses and other health care professionals in this time of crisis), but they are productive, set up small businesses and buy things.  In my article on skilled migration and growth, referenced earlier, I explain and evidence these claims.  But don’t just take my word on this.  Far greater minds than mine have come to the same conclusion, such as the Migration Council of Australia, the Productivity Commission, and the Treasury and Department of Home Affairs.

 

Some of you who have an eye for detail may observe that in both charts my claimed correspondences that have held historically appear to have become unhinged in more recent times: people were less comfortable with levels of migration, and unemployment came down as skilled migrant numbers fell.  True on both counts.  But do not be too hasty to revert to the voices in your heads.  It is important to have an ear and an eye to what has happened in the broader context.  One relevant contextual consideration is that the public’s views on migrant numbers has become increasingly about overcrowding, urban congestion, rising house prices and the like in the big cities, and not about jobs.  The other is that, as alluded to above, the Government responded by downsizing its migrant program with former ‘targets’ becoming ‘ceilings’ that were okay to undershoot.  Preference has been given to regionally-bound migrants, despite less attractive job prospects.  In other words, the downturn in skilled migration has been policy driven.

 

Skilled migrants are important as Australia fights for its future

 

I suspect that I do not need to tell you what happened to unemployment next.  That is, beyond the period of the charts.  Unemployment has risen to levels not seen since the Global Financial Crisis and is forecast to get worse before it gets better.  At the time of writing, the unemployment rate was 7.4 percent and the underemployment rate was 11.7 percent.  The effective unemployment rate – the one not propped up by JobKeeper and other measures – is much higher.  Analysis by the Australian estimates that the real jobless rate in Victoria could climb to as much as one in five workers.  The so-called ‘eye watering’ figures released only a matter of weeks ago in the MYEFO have already turned out to be wishful thinking.  They were built on optimistic foundations.  Not in the least that Victoria’s stage three restrictions would end after six weeks.  Well, that didn’t happen.  The Government is now conceding that the official unemployment rate could climb as high as 10 percent.  New Treasury analysis forecasts Australia’s economy will contract by one percent over the three months to September, compared with its previous forecast for 1.5 per cent growth – the worst slump in almost 40 years.

 

Policies that keep highly skilled migrants out for too long run the risk of deepening the recession and prolonging recovery.   The fight for recovery will need to go a few rounds.  To win it, Australia needs to arm itself for the future.  Skilled migrants are a critical part of its arsenal, made more powerful by the enviable position Australia finds itself in.  Notwithstanding Victoria’s situation Australia is a relatively safe place to be.  Now is the time to be crafting policies designed to attract the best and the brightest from across the globe.

Mary Clarke

Principal

DXP Consulting

M: +61 401 088 571

E:  mary.clarke@dxpconsulting.com.au