Skilled migration for a more productive future

The Productivity Commission’s inquiry into a more productive labour market, and its specific focus on the migration of skills, comes at a critical juncture. The resurgence of migrant interest and flows, skills shortages, a change of government, and a rapidly changing world of work, learning and credentialling have combined to bring skilled migration policies and settings and their need for reform to the fore.

Focusing on migration and applying a productivity lens over reform proposals makes perfect sense in an economic context where capacity constraints are adding to inflationary pressures and monetary policy responses are threatening to bring about a recession unless those constraints are overcome.

Skilled migration occupation lists

Some commentators argue the skilled migration occupation lists should be abandoned, with migrants accepted based on their age, or with an employer offer at a minimum salary threshold. Setting an income threshold risks depriving Australia of global talent with low current earnings but high expected lifetime earnings, or skills needed to address labour market gaps.

The Australian Government uses lists to target migrants in occupations deemed to be in shortage over the short term, the medium term and the long term, or in regional areas, which often have specific needs. The primary purpose of the lists it to fill labour shortages.

The lists also facilitate labour market matching. The assessment of the credentials and experience of migrants skilled in occupations that are on the lists gives employers confidence that migrants have the qualities that match their needs. This makes it more likely that the newcomers work in roles that put their skills to their most suited and productive use. In this sense the lists also assist in making best use of migrants’ human capital.

That doesn’t mean the lists cannot be improved.

A single skilled occupation list for migration

An alternative to many lists is the adoption of one skilled list.

Multiple lists add complexity to Australia’s skilled migration settings. The lists are also outdated. They draw from the occupations listed and described in the Australian and New Zealand Standard Classification of Occupations (ANZSCO). The Australian Bureau of Statistics and Statistics NZ developed the classification in 2006, drawing on labour market data from 2001. Since then, ANZSCO has undergone only minor revisions. It is largely out of date and likely to become more outdated given the speed at which new roles are emerging. Australia may be depriving itself of talented people skilled in areas of growing need.

A single skilled list could contain occupations that either target areas of shortage or which enhance the nation’s human capital, based on an ANZSCO that is reviewed and updated on a regular cycle. Rather than reviewing all occupations annually, alterations could be made on a case-by-case basis if triggered by substantive change.

A skills list instead of an occupation list

Replacing occupation lists with a single skills list recognises that many skills may be transferable between occupations and that, while migrants may not work in roles within their nominated occupation, they may nevertheless be making good use of their skills.

A minimum income threshold for skilled migrants

Proponents of a minimum income threshold say that if there are shortages in some roles, employers will be willing to pay more. This is not always the case, aged care being a well-known example. Another example is the relatively low earnings of cooks, despite sustained and now biting shortages.

An income threshold is also a poor indicator of the value of human capital. An early career migrant might be at the bottom rung of a very steep lifetime earnings ladder. Locking them out of Australia deprives the nation of their potential.

The table below compares the average salaries of people who completed undergraduate studies in selected areas shortly after they graduated in 2017 and five years later, in 2022. I have deliberately selected study areas whose graduates command salaries under a proposed $70,000 income threshold but who now can earn well above the threshold. The standout example is Pharmacists, who started out on less than $50,000 and now earn close to $87,000.

Merits-based assessment is the best guide on migrant quality and future earnings potential. This makes it all the more imperative to get the criteria for those assessments right.

Occupational licensing of trade occupations

Individuals are required to be licensed to work in some trade occupations in Australia. Each state and territory has a regulator responsible for this licensing and critics argue that differences in state and territory licensing can limit mobility in the trades and thereby reduce productivity.

One answer is to introduce an Offshore Technical Skills Record (OTSR) to all licensed occupations.

This will ensure that migrants who have qualified and gained experience outside Australia are not excluded from working in their licensed trade, because they can gain an OTSR as a form of skills documentation.

VETASSESS issues OTSRs as part of the Trades Recognition Australia (TRA) process. Individuals undertake a practical skills assessment in licensed trades such as electrician, plumber and air conditioning mechanic and, if successful, gain an OTSR that lists the technical skills demonstrated in the assessment and any gaps in the Australian skills or knowledge component that need to be bridged to meet the full standards

State and territory regulators can provide a provisional (restricted) licence against the OTSR to allow applicants to work in Australia while they complete gap training. The OTSR also entitles the holder to obtain registration within their occupation. To obtain a full licence, individuals must undertake work experience in Australia along with relevant content gap training to meet Australian standards. They must also complete gap training and work under supervision before they can be awarded a full certificate in the occupation.

An expansion of the OTSR approach to all licensed occupations would enable workers to move more easily between jurisdictions.

Encouraging international students to stay

Many talented international students do not remain in Australia because of migration policy settings. It is a myth that students come to Australia with the intention of staying on. Research from Grattan Institute shows that 10 years after arriving, 16% of student visa holders have transitioned to permanent residence. The majority have left. This compares with more than 50% of temporary visa holders who have gained permanent residence.

People who have studied in Australia are highly skilled and likely to have worked here and developed an understanding of the workplace culture and norms. They add to the diversity and reach of Australia’s workplaces.

They do not stay because of the current settings for student visas, which emphasise the temporary nature of those visas. Two of Australia’s largest competitors in the international education market, Canada and the UK, actively try to convert their international students into permanent skilled migrants.

Australia should adopt policies that encourage the students to stay and contribute.

Helping prospective migrants in source countries meet skill expectations

More could be done to assist prospective migrants in key source countries to meet Australia’s skills expectations before they arrive. VETASSESS is working with the Indian Ministry of Skills Development and Entrepreneurship and the National Skills Development Council of India to assist in developing a pathway for semi-skilled Indians to be trained to Australian industry standards. They may then come to work in sectors such as horticulture, hospitality, health and construction.

In summary, while there are shortcomings associated with the skilled migration occupation lists and how they are applied, we caution against moving too far and too hastily away from them, as they provide a pragmatic way of managing and shaping migrant demand to meet our nation’s needs.

by Rob Thomason

Rob Thomason is Executive Director of VETASSESS. This blog is based on VETASSESS’ submission to the Productivity Commission inquiry into a more productive labour market.