New report shows Australia doesn't lack labour for the resources boom

The Centre for Population and Urban Research (CPUR) has recently released a major new report on immigration and on Australia's alleged need for labour. It shows that there is no real problem with supplying labour for the Resources Boom -- even if you accept the government's assumption that we need to export our resources as fast as possible.

(For the view that we don't and shouldn't see
http://www.energybulletin.net/node/29145 --but the CPUR report shows that even if we did, there isn't a problem.)

Authored by B. Birrell, E. Healy, K. Betts and T. F. Smith, it's called
"Immigration and the Resources Boom Mark 2."

It says that the government's immigration decisions in the 2011-12 budget show that the PM has walked away from her implied promise to stop Australia "hurtling down a track to a 36 million or a 40 million population," (interview with Leigh Sales, Lateline 28/6/2010).

Among its explosive findings:

There is no real labour shortage. Half of current Net Overseas Migration (NOM) would still produce 1 to 1.7 million extra workers by 2025.

A Skills Australia/Access Economics study that the government relies on, which appeared to show that we would need high migration to provide enough workers, was circular. It assumed a much higher population, such as only high immigration would produce, and then deduced that we need high immigration to provide that population's workforce!

The government has given in to the vested interest of big business.

As Dr Katharine Betts, Sociologist, puts it,

"The Gillard Government has yielded to the demands of the business lobby for a big Australia of 36 million plus by 2051.

This decision was also influenced by the level of aggregate growth in GDP that the government wants to achieve. The government is not managing the economy to increase the people's welfare; rather it is increasing the number of people in order to boost an arbitrary measure of aggregate economic growth.

Projected increases in per capita GDP are miniscule. They will in no way compensate citizens for increased congestion, inflated costs of housing and loss of amenity.

The report also shows that arguments about the the need to import immigrant skills to fuel the resources boom are weak to the point of falsehood. It demonstrates that it would be possible to halve annual net overseas migration from 180,000 to 90,000 with no adverse effects on export-oriented industries."

Here is the Executive Summary:

EXECUTIVE SUMMARY

Contending pressures

Two contending pressures have shaped the Australian Government’s population policy. One reflects employers’ desire to sustain a rapidly growing workforce and a high rate of population growth so as to maximise aggregate economic growth. They want to maintain net overseas migration (NOM) at 180,000 per year or above. The other is urban sustainability. This reflects voters’ concern about the implications for their quality of life if NOM should continue at 180,000 or above. They fear ever-growing congestion, loss of urban amenity and dwindling housing affordability
.
The Australian Government’s decisions on the immigration program were detailed at the time of the 2011–12 Budget announcements. These show that the employers’ concerns have prevailed. As a result, NOM is likely to track at 180,000 or higher into the medium term and the population will grow to 36 million or more by 2051. If this happens, the ‘Big Australia’ that politicians promised to avert at the 2010 election will be unavoidable.

Why do the government and employer groups want continued high migration?

The case for higher migration partly rests on estimates of the number of skilled workers that employers require. The most widely quoted source on the scale of this need has been prepared by the government’s workforce advisory body, Skills Australia. It concludes that, Australia will need an extra 2.4 million skilled workers by 2015 and an extra 5.2 million by 2025. Such enormous numbers cannot be achieved without very high net migration.

However, these forecasts were determined by the assumptions that the econometric modellers (Access Economics) were required to work with. These included that NOM would grow from 220,000 in 2010 to 250,000 by 2025 and that Australia’s aggregate GDP would grow at nearly four per cent per annum over the period to 2025.

These extreme assumptions meant that there would have to be rapid workforce growth. Moreover, Access Economics assumed that productivity growth would be very high, and that this would result in a more skills-intensive economy. This meant that new entrants to the workforce were assumed to be more skilled than in the past. In other words, the Skills Australia projections are based on a circular argument, grounded on the assumptions fed into the model used by Access Economics.

Sustaining aggregate economic growth

The Australian Government’s immigration policy is also influenced by the level of aggregate economic growth that the government wishes to achieve. Currently, this is 3.25 per cent per year. This target requires NOM to be around 180,000. Though this is little known, the government is explicitly setting its immigration program so as to achieve pre-set targets for aggregate economic growth.

This policy is strongly supported by business interests. What matters for their bottom line is the number of workers and consumers in Australia. The higher these numbers, the more rapidly their businesses will grow. This is why there has been a scare campaign by lobbyists that Australia’s workforce growth will dry up in the absence of high migration.

For instance, Bernard Salt claims that 2011 is a watershed year. After 2011 the number of people entering the working ages will fall below the numbers exiting them. This claim is wrong. Even with zero NOM, we would have to wait until 2042 before the numbers entering the ages 15 to 24 fall below the numbers exiting the 55 to 64 age group.

We provide two workforce projections, both based on a NOM of 90,000 per annum. These indicate that, contrary to this scare campaign, there is likely to be substantial growth in the Australian workforce in the medium term even with NOM at half its present levels.

The first assumes that current workforce participation rates by age and sex will remain unchanged and the second that these will increase to match those achieved in Sweden by 2005. In the first scenario, Australia’s workforce grows quite strongly by 950,000 between 2010 and 2025 and in the second by 1,700,000 over the same period.

Per capita productivity will not be lower if aggregate economic growth slows.

Our workforce projections confirm that, with NOM at 90,000 per annum, workforce growth will be well below what it would be with 180,000 NOM. However, it is not the case, as is often argued, that Australia needs high NOM to offset an inevitable decline in per capita economic growth as the baby boomers retire. When this cohort, now aged 55 to 64, leaves the labour market, Australia’s labour-force participation rate will fall and thus per capita economic growth will decline as well. However, recent research by McDonald and Temple and by the Treasury shows that this decline is only marginally affected by the size of NOM. Australia’s per capita economic growth will be determined not by the level of immigration but by the extent to which residents participate in the workforce and by how productively they are employed.

Could NOM of 90,000 deliver the skills needed by the resources industries?

The key finding is that NOM at this lower level could satisfy the skill needs of the resources industries. Most of Australia’s current migration intake has little to do with the skills needed by these industries. ABS final figures for NOM show that when NOM peaked at 315,690 in 2008, 203,820 or 65 per cent derived from temporary-visa holders —students, temporary workers (457-visa holders), working holiday makers and visitors. Apart from the 457-visa holders, most of these migrants work as casuals in metropolitan semi-skilled jobs. And, most 457s are employed in service industries by metropolitan-based employers. Concessions granted by successive Australian governments have opened up pathways to permanent entry visas for all these temporaries. This encourages them to stay on in Australia and thus generate a continuing surplus of arrivals over departures in the NOM counts of temporary visa holders.

The great majority of permanent-entry visas in recent years have also been issued to persons working in metropolitan areas.
There have been major changes to the rules governing both temporary and permanent entry access to visas. We examine whether these new rules have produced an outcome better targeted to the needs of the resource industries. The conclusion is that further reforms need to be adopted.

Permanent migration

The analysis is based on a review of each of the three categories of visas for economic migrants: the points-tested, state-sponsorship, and employer-sponsored visa subclasses.

The share of the skilled visa program allocated to the points-tested visas has been reduced and priority is to be given to applicants with good English and skilled work experience. These visas have been heavily used by former overseas students. A result of the changes is that the number of visas issued to former overseas students will fall sharply, thus largely removing the incentive to study in Australia as a pathway to gaining permanent residence. However unpublished statistics show that tens of thousands of former overseas students will benefit from the transitional arrangements in place. Applications for permanent residence from these students will crowd out better qualified applicants for several years.

The state-sponsored visa subclasses have also been reformed in ways that will improve the English language proficiency and skill level of the migrants sponsored, but not the targeting of skills needed in the resource industries. Moreover, the legacy of past policies remains, notably the propensity of some states to use this visa category to pursue population building objectives. Reflecting this legacy, South Australia and Victoria retain an undeservedly high share of the visas to be allocated. For 2010–11, South Australia has been allocated 4,900 visas of the 23,000 visas available and Victoria 4,500, almost as many as Western Australia (6,000) and far more than Queensland (2,990).

The Labor Government is giving the employer-sponsored visa subclasses priority and these visas have seen the most growth in numbers. They also offer the greatest potential for cut backs. This category gives no priority to jobs crucial to the resource industries, and its policies for assessing credentials and testing English-language abilities are weak. They are far less stringent than those applying to the points-tested and state-sponsored visa subclasses.

A smaller, better-targeted permanent migration program could provide for much of the skill needs of the resource industries. There is also ample scope to tighten the rules governing the length of stay of temporary visa holders and to reduce their current large contribution to NOM. If these reforms were implemented, it would not be difficult to achieve a NOM of 90,000 per annum.

Temporary-entry migration and the construction needs of the resource industries

There will be a high demand for temporary workers in the construction (or start-up) phase of the mineral boom Mark 2. This demand should be satisfied, at least in part, by an increase in the number of workers recruited on temporary-entry 457 visas. This is appropriate as long as local workers are not excluded and as long as the extra temporary workers really are temporary.

A new scheme is to be introduced, the Enterprise Migration Agreements, to allow resource projects of at least $2 billion to recruit 457-visa holders on concessional terms, including the right to recruit semi-skilled construction industry workers. The government intends to allow all of these extra 457-visa holders to be eligible for permanent residence if they can find an employer to sponsor them. This could have serious social repercussions if Australia has to absorb large numbers of semi-skilled construction workers in the post-mineral boom Mark 2 era.

The government asserts that these temporarily recruited workers will ‘only be a temporary solution’. But recent history belies this assertion. In 2005, the government liberalised access to the permanent-entry employer-sponsorship visa subclasses for 457-visa holders. Currently, nearly half of them eventually gain permanent residence visas, and the great majority of those sponsored by employers are former 457-visa holders. The result is that the 457-visa program is becoming a pathway to permanent residence, rather than a temporary solution to Australia’s skill shortages.

The downside of population-induced economic growth

Most migrants locate in the Eastern metropolises, where they are the main contributor to the current city-building and people-servicing boom. The result of this influx is competition for scarce skills, particularly in the construction industries, and for public funds as these cities clamour for subsidies for their infrastructure and public services.

Victoria is a clear example. Thirty-six per cent of all job growth in Australia between March 2009 and March 2011 occurred in Victoria, yet Victoria’s share of Australia’s population is only 25 per cent. Most of this job growth was in Melbourne, where it was largely driven by growth in the construction and people-servicing industries. Links between this growth and the nation’s resources industries were minimal.

Australia risks wasting the fiscal dividend from the resources boom in this city-building process. With more modest population growth, this dividend could be far better spent on investment in education and the development of knowledge-intensive industries.