Skilled migrants and international students at the heart of a successful economic recovery

Introduction:

Skilled migrants and international students are at the heart of a successful economic recovery and a strong, prosperous future Australia. While Australia has re-opened its borders in recent months, we haven’t seen the influx of skilled migrants or international students anywhere near the levels we had pre-COVID19, while outflows have more than recovered.

Our key competitors globally have been pro-active in attracting and retaining skilled migrants and international students while our borders were closed, and we’re now having to play catch-up. This, along with broader geo-political pressures within our region, mean that as a country, we need to rapidly acknowledge the contribution that these cohorts make for both current and future generations; and that big-thinking pro-active reform is required to ensure that Australia is not left behind in the post-COVID era.

The recovery in migration inflows has been modest since the borders re-opened

While movement across the border is now effectively seamless, with all material restrictions on travel eased, passenger flows have yet to fully recover. Total arrivals in the first three months of this year were just 16% of their level in 2019, and while the majority of the shortfall was in short term visitors, long term visitor arrivals (which captures international students and temporary workers) sat at around 70% of their pre-COVID level. Permanent arrivals and Australians returning home have seen a stronger rebound, to above pre-COVID levels, but these movements have only partially offset the shortfall.

In contrast, long term resident departures (that is, residents who are planning to stay abroad for 12+ months) are now running 50% above their pre-COVID levels. This category includes Australian citizens migrating overseas and the permanent departure of long term visitors (such as students and temporary workers). Overall then, the data suggests that the net flow of migrants and residents across the border continues to undershoot pre-COVID levels; broadly speaking, net flows are now sitting at around zero.

There is a further consideration which is yet to fully impact on the availability of skilled labour in Australia. As international borders progressively closed over the past two years, Australian nationals working overseas returned home in large numbers. Now that international borders have reopened, this cohort is yet to fully resume their careers overseas in pre-pandemic levels.

While a recovery in migration inflows was always likely to take time, the relatively poor performance compared to outflows is concerning. For universities in particular, attracting students back to Australia is vital as they are a key source of demand. The importance of attracting international students back, and retaining them, is equally important for the country as a whole – the international student of today, is the skilled migrant of tomorrow. The Australian Government have recognised the emerging role which international students play in helping to address skill shortages with its temporary measure extending the hours students are permitted to work whilst studying in Australia. Some of our major competitors for the student visa cohort have gone further however, with policies which deliver a clear and expedited pathway to permanent residence for this group.

In many sectors, migrants make up a significant proportion of the workforce. Skilled workers are particularly important in the food processing and ICT sectors, and while not a large proportion of the workforce the strength of demand in the construction sector has highlighted the role of skilled migrants in the industry. But it’s not just temporary workers that are being missed across the economy. International students and short-term visitors (e.g. working holiday visa holders) form a significant part of the workforce in all parts of the food supply chain, hospitality, cleaning and caring roles.

The absence of inward migration has been put under the spotlight by current economic conditions in the labour market. Although the underlying strength in demand is the main culprit, with ultra-loose fiscal and monetary policy globally key drivers of this, the absence of migrant workers has exacerbated the challenge for businesses trying to meet increased demand. This is clear in the labour market data, with the national unemployment rate below 4% and the underemployment rate sitting at just 6.1% (its lowest level since the GFC). And unlike ‘typical’ upturns, the challenge of finding workers has spread to all parts of the country; the Central Coast (in NSW), Latrobe-Gippsland (in VIC) and Mackay-Isaac-Whitsunday (in QLD) all have lower unemployment rates than their state average.

While the pandemic has created an acute shortage of migrant workers, businesses across the economy were facing challenges in the years prior to the pandemic. Despite consistent reports of shortages of skilled workers and the well-documented evidence of the economic benefit of highly skilled migration, the number of temporary worker visas declined through this period; while some of this decline can be attributed to the end of the mining investment boom, it is clear that this structural shift continued long after this cycle came to an end.

A number of explanations have been identified for this shift, including increases in the cost of sponsorship, the challenge of aligning potential employees with the government’s skills shortage list, and the disruption created by the overhaul of temporary skilled worker migration announced in April 2017.

The overhaul of the Temporary Skilled Migration program and the introduction of the Temporary Skill Shortage visa (subclass 482) has had a greater than expected adverse impact on Australia’s competitiveness in attracting skilled migrants to Australia.

The new program included a significant increase in costs associated with the visa grant, including the requirement for employers to pay a levy to contribute to the broader skills development of Australians. In addition, the changes introduced robust labour market testing requirements, as well as a grouping of occupations which determined the maximum period of temporary residence which could be granted, and limitations on pathways to permanent residence for certain occupations.

Since the changes were introduced in 2018, the economic rebound from the pandemic has created labour shortages across many sectors and our major trading partners are aggressively revising their immigration policy settings to attract skilled labour in global short supply following the reopening of international borders.

The speed of the transformation of the workplace and the workforce over the past 3 years suggest that Australia’s Temporary Skilled Migration program needs to be adjusted for the current challenges faced by the business community in Australia.

Rapidly increasing flows of skilled migrants and international students into Australia are even more important, given the megatrends impacting the Australian economy and skills sector

There are clearly a range of cross-cutting issues that Government and industry need to address to overcome the significant skills shortages we face as a country:

  • The impact of intra-state movement and the flow-on effect on regional Australia’s ability to provide services to the metropolitan workers that have relocated from the capital cities, as a result of the shift to working from home.
  • As KPMG has noted in our recent productivity report, access to childcare is a key financial barrier for many to enter the workforce, particularly for women who are underrepresented in the workforce and in many key industries and sectors. Given our current unemployment rate, unlocking this critical enabler of women’s workforce productivity has never been more important.
  • Skills shortages already emerging pre-pandemic have only been exacerbated by the degree of trainer shortages, across the country. Factors such as job instability, retirement of older workers, lack of clear pathways, salary and mobility between industry and teaching roles play into this shortage. While shortages are experienced across the whole sector, they seem to be more acute in those where there is strong wage inflation (e.g. construction and broader trades). Acknowledging this as a key impediment to economic growth, and developing innovation solutions to overcome this, will be equally important in ensuring the economy is geared to thrive into the future.

Many of these issues require multi-faceted, cross-Government and cross-Industry responses. Therefore, focusing on levers where there can be relatively quick wins and where the impact can be profound – i.e., attracting and retaining international students and skills migrants, has never been more important.

As a country, we are all greater than the sum of our parts. There are a range of quick wins that can be introduced to reposition Australia as a destination of choice – which can be driven collectively by both Government and business.

  • Rebrand and reposition Australia as a destination of choice for both skilled migrants and international students: We know from our international network that there remains for many international students in particular, some reluctance to travel to Australia. Our tight border controls and approach to quarantine is still making people think twice (despite these controls now being lifted). Students remain concerned about the impact on them if the country goes back into a lockdown.

We need to acknowledge the brand rebuild required at a national level, and the need to actively re-launch country’s image as an open, welcoming place to come. A place where, for example, international students can see a clear and easy path from study to employment.

  • International students are a particularly important cohort to rebrand “destination Australia”. A number of developed economies are building a policy scaffold which provides a future beyond the course of study. Policies to attract and retain international students should be removed from a primary immigration lens, and instead embedded into Australia’s population and future of work settings.
  • Explore ways to streamline pathways and make it much easier for international students to become temporary workers and then to stay in Australia and be clear and upfront as part of our initial international student marketing and attraction plan that this will be the case. In doing this, we will also ensure we unlock the net benefit these students will bring to the economy and society, and the flow-on impact for future generations also.
  • We need to acknowledge the impact that our lockdowns have had on the international student community who were in Australia at the time, and provide deep assurance to prospective students that we have learnt from this and will support them through whatever the future might hold. This could include both Federal and State/Territory Governments committing to including skilled migrants and international students in any future support packages that might be required as a result of workforce closures. That is, if things go wrong, they’re not ‘on their own’, and acknowledging the impact that images of international students lining up for foodbank donations has on our image overseas.
  • We need to simplify our skilled migration system. This could be achieved in a number of different ways. For example, by removing the skilled occupation list, and instead introducing an income bar driven by businesses need, acknowledging that these migrants will be a net contributor from the moment they begin working in Australia.
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