Shifts in Australia's migration intake over the past decade appear to be a major contributor to the sharp decline in productivity growth, threatening economic expansion and living standards, a new report finds.
The research, by economic think tank e61, used a dataset of all firms and workers in the country to find out which businesses were employing migrant workers and how they ranked for productivity performance.
"Migrant workers are more likely to work in lower productivity industries, and within industries they are more likely to work at lower productivity firms," the report concluded.
"This appears to have worsened over the decade to 2020."
This shift into lower productivity employment for migrants coincided with a significant increase in the immigration intake, especially for students.
"The number of migrant workers in Australia has increased by around 660,000 workers between 2011 and 2020," the report observed.
"This increase has been broad-based across the visa categories, with the largest single contribution coming from an increase in the number of workers holding student visas (particularly since 2014)."
Report co-author and e61 research director Dan Andrews told ABC News that the data show Australia is getting a decreasing economic return from its migration program.
"Migration is good for productivity, but the extent to which that is true has declined over time. And by over time I mean the course of the 2010s," he said.
"The immigration boom over the 2010s has been a factor in that declining productivity growth."
Mr Andrews said the research showed that this was not only due to a relative expansion in inherently lower productivity, labour-intensive sectors.
"We know that immigrants are more likely to work in low productivity, domestic services sectors, like hospitality and admin and support, which have lowered measure productivity," he observed.
"The biggest increases in immigration have been in those sectors, so that will drag down aggregate productivity.
"But even within sectors they're more likely to work in the lowest productivity firms. In 2011 about 40 per cent of migrants worked in those firms, that was significantly higher than non-migrants, and by 2020 that number had risen 4 percentage points."
Students, working holidays drive productivity decline
The e61 research went a step further to break down migrant workers by four main visa categories — permanent and temporary skilled workers, students and working holiday makers.
The findings showed that those in the two visa categories whose primary purpose was not work were overwhelmingly employed in the lowest productivity firms and that this tendency had increased dramatically over the past decade.
"In 2020, 48 per cent of students were in the lower productivity firms, the bottom 40 per cent of the productivity distribution, that's up from 45 per cent in 2011," Mr Andrews noted.
"In terms of working holiday makers, 65 per cent of them in 2020 worked in those low productivity firms and that's up from 58 per cent in 2011."
When asked whether this might reflect a business model of some low productivity firms relying on relatively cheaper, and potentially more exploitable, migrant labour to stay afloat, Mr Andrews said it is an area worthy of more research.
"There's a strong connection within industries between firm productivity and wages," he observed.
"Those low productivity firms pay the lowest wages in an industry.
"So if you've got a big influx of labour into those lowest productivity, lowest paying firms the first implication is that they might survive when they might otherwise exit, that slows down this restructuring in the economy that's required to underpin the growth prospects of more productive firms.
"But there's also a question about bargaining power of the workers in those firms."
Mr Andrews suggested that further research may also need to be conducted into the use of student visas.
"Maybe what we want to do is just think a bit more carefully about whether all the people on student visas are actually here for legitimate education reasons, or is it being used as a potential pathway to permanent residency," he added.
'Bureaucratic delay' deterring highest skilled migrants
At the same time as temporary migrants on non-skilled visas are being employed by the lowest productivity workplaces, Australia also appears to be receiving a declining productivity windfall from its skilled migrant intake.
"They're much more likely to be in our most productive firms … even more likely than non-migrants," he observed, adding, "but the extent to which that's true is declined over time.
"So it's really good for aggregate productivity that those migrants are going to productive firms, because it releases growth constraints and bottlenecks, and allows our best firms to expand.
"So it's a positive impact on aggregate productivity, but we're getting less of that positive impact over time, which is important for understanding why productivity growth has slowed."
Mr Andrews said there is anecdotal evidence that some of the decline in the effectiveness of skilled migration over the past decade may be related to regulatory barriers that make Australia relatively less accessible and attractive for the most skilled workers overseas who have a wide choice of destination.
"There's a sense that Australia's become less competitive over the 2010s in getting really highly skilled immigrants into the country, that's partly due to some of these frictions around these occupation lists, which haven't been updated for quite a while," he noted, as one example.
Again, the economist said this is an area that should be urgently investigated further by policymakers, given the significant effect on productivity growth and the improvement in living standards it drives.
"You've kind of had this move of the most productive migrants out of the most productive firms and towards the middle of the distribution, and an increasing concentration of those immigrants who aren't here for economic reasons at the bottom end of the productivity distribution," he concluded.
"So that's like a double whammy for productivity growth."
In a recent speech, Home Affairs Minister Clare O'Neil acknowledged the problems and said the government does intend to fix them.
"Australia's migration system is broken, it is unstrategic, it is complex, expensive, it's slow," she said.
"It's not delivering for business, it's not delivering for migrants and it's not delivering for the nation."
Ms O'Neil said the government planned to rebalance the temporary and permanent migration programs and fix the complex administration system that makes Australia an "unattractive destination" for the most highly skilled would-be migrants.
"Highly-valued migrants, that the world is fighting for today, face bureaucratic delay coming to Australia, and the red carpet treatment migrating elsewhere," she said.
"We just can't let that continue. And our government doesn't intend to."
