Opinion article

Australia must make better use of migrants’ skills

While politicians debate the size of Australia’s current migration intake, many employers are still struggling to find the workers they need amid low unemployment and persistent skills shortages. One way to address these shortages is to make better use of the skills of migrants already in the country, writes CEDA Graduate Economist Sebastian Tofts-Len and CEDA Senior Economist Andrew Barker.

While politicians debate the size of Australia’s current migration intake, many employers are still struggling to find the workers they need amid low unemployment and persistent skills shortages.

One way to address these shortages is to make better use of the skills of migrants already in the country.

The Federal Government’s Migration Review found Australia has high levels of skills mismatch, where migrants are working in jobs beneath their skill level. 

We’ve found this mismatch has contributed to a growing gap between the wages of recent migrants and Australian-born workers. 

We looked at the wages of recent migrants, based on the 2011, 2016 and 2021 Census and migrant settlement data from the Department of Home Affairs. 

We found that on average, migrants who have been in Australia for two to six years earn more than 10 per cent less than otherwise similar Australian-born workers. 

Wages are widely seen as the best single measure of how productively labour is being used, with efficient matching of skills in the jobs market a critical success factor. Our findings thus suggest migrant labour is not being used as productively as it could be.

If we can better match the skills of migrants to jobs, the potential benefits are large: we estimate this would unlock around $4 billion in foregone wages each year, boosting the economy through higher tax revenues and increased productivity. 

Why are migrants' wages lower?

We found weaker English-language proficiency remains a significant driver of lower wages for recent migrants. With a greater proportion of recent migrants originating from non-English speaking countries, supporting strong English proficiency – particularly for highly educated migrants – is becoming more critical over time. 

There are two obvious ways to fix this. The first is to provide English language training for new migrants. 

Expanding the federally funded Adult Migrant English Program (AMEP) for migrants would allow them to achieve a level of competent or proficient English. Recent reforms to the AMEP are welcome, but it is unclear how far they will go to improve employment outcomes. This should be complemented by occupation specific high-level language training.

The second fix would be to raise English standards across all or some skilled visa types. The Government’s recent decision to raise English standards for international students is a good start. 

Beyond language skills, recognition of international qualifications and experience also remains a major barrier for skilled migrants. Recognition is not only beneficial to occupations that have regulated qualification requirements, such as nursing or real estate, but also to freely accessible occupations, as it can help to reduce an employer’s uncertainty about a migrant worker’s skills. 

We found mismatches between migrants’ skills and wages can increase in occupations where licences are required and recognition is low. Specifically, recent migrants educated in a licensed field, but working in a non-licensed occupation – presumably because they didn’t obtain a licence – earn 20 per cent less than similar Australian-born workers. 

There should be a comprehensive review of skills recognition to identify where competency-based assessment could help improve recognition of migrants’ skills. We should also consider establishing independent oversight of occupational regulators through a body like the Office of the Fairness Commissioner in Ontario, Canada. The Government’s Migration Strategy touched on this, but was light on detail. Ensuring a more transparent process is a worthwhile reform. 

Discrimination also contributes to the wage gap. While in some cases it might be based on race or ethnic background, discrimination can also be more subtle, due to employers’ preference for local education and work experience. 

Experimenting with new anti-discrimination programs could help, alongside schemes that allow migrants to gain local work experience as quickly as possible. Both government and business carry a responsibility for this. 

The government’s Migration Strategy sets out an ambitious plan to reform our broken migration system. But migration alone is not enough to meet the scale of our skills shortages.

Alongside better training of local workers and targeting highly skilled migrants before they arrive in Australia, we must do more to use the skills of the many highly qualified migrants already in the country.

About the authors

Andrew Barker

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Andrew Barker joined CEDA in 2022 as a Senior Economist based in Brisbane. He was previously a Senior Economist and Head of Desk in the OECD economics department, focusing on climate, labour market, productivity and housing policy. As a Research Manager at the Productivity Commission he led quantitative work on water, gas and labour markets and contributed to public inquiries on infrastructure access, automotive manufacturing, service exports and the economic effects of migration. Andrew holds a Master of Commerce (economics) and First Class Honours degrees in economics and environmental engineering from the University of Melbourne.

Sebastian Tofts-Len

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Sebastian Tofts-Len commenced his professional career with CEDA in 2022 as its new Graduate Economist, based in WA. During his undergraduate studies, Sebastian undertook internships with the Chamber of Commerce and Industry WA, as well as the Mannkal Economic Education Foundation. He also worked as a research assistant at Curtin University, drafting literature reviews on the economics of climate change. Sebastian holds a Bachelor of Commerce (Economics) with Distinction from Curtin University.