Immigration policy and the Australian labour market

Economic Papers (Economic Society of Australia), March, 2003 by Bob Birrell

1 Introduction

This paper argues that since the late 1980s in Australia, the key determinant of migration policy has been the labour market outcomes of migrants. This is not to argue that the debate conducted amongst economists on other economic aspects of the impact of migration is of no value. Rather it is to claim that such debates have much less influence in present policy settings than was the case in earlier years. In substantiating this point the main lines of reform as regards the selection of migrants since the late 1980s will be detailed.

There was an earlier era, stretching from post-world war two to the late 1 960s when economic debate also had little impact on immigration policy. During this period, immigration was largely about nation building. The main objective was population growth in the interests of national defence. While this concern faded by the 1960s, another aspect of the population building process came into focus. This was the role of migrants in helping Australia to build a self-sufficient industrial economy through their contribution to expanding the domestic market base and the industrial workforce. Governments at this time paid little heed to economists' concerns about the resource allocation inefficiencies flowing from the associated protectionist policies.

This situation changed in the 1970s in the face of challenges to 1960s protectionism. Immigration lost much of its previous rationale when successive governments supported structural change which favoured industries capable of competing in the international marketplace. Since capital and labour were supposed to flow to the more competitive industries and immigrants were already heavily concentrated in industries enjoying high levels of tariff protection, this undermined the previous rationale for high migration. Partly on this account, the Whitlam Labor government slashed the immigration intake during its period of office. While there was no great public statement to this effect, the Government's decision to promote the internationalisation of the Australian economy implied that immigration had lost its role as an agent of defensive nation-building.

The 1970s and particularly the 1980s were the great era of inquiry into the economics of immigration. One of the reasons was that for the first time since the war immigration became controversial. There was no clear rationale for its continuation at the very high levels of the late 1960s when the settler intake reached around 180,000 per year. Major interest groups (including Australia's manufacturers and builders) still had a strong pecuniary interest in continued high migration. So too did the State governments, whose growth objectives had long been regarded as linked with the impetus migration had given industry and building within their states. But they needed a new justification for continued high intakes.

The Fraser Government commissioned a conference on the economics of Australian immigration in 1982 (Douglas, 1982) and a subsequent three year inquiry into the issue, the major outcomes from which were published in 1985 (Norman and Meikle, 1985). These inquiries canvassed the range of issues which were to become familiar in subsequent debate. They included the implications of migration for capital use (capital deepening verses capital widening), effects on trade and exchange rates and scale economies. These issues were debated thoroughly during the 198 Os, especially with the establishment of the Bureau of Immigration Research in 1989. An important example was the work on trade and capital flows (Centre for International Economics, 1990). For those searching for a new rationale to justify continued migration, the outcomes of this research were inconclusive. The tendency within policy circles by the end of the 1980s was to generalise that on the broad economic issues, immigration was, at best, mildly positive.

Nevertheless, by the late 1980s the Hawke government decided to expand the immigration intake such that the program size (not including New Zealanders -- who at that time could move freely to Australia if New Zealand citizens) reached 125,000. The major impetus came from the government's embrace of the 'clever country' theme. The connection with immigration policy was that if Australia was to sell value added goods and services (rather than commodities) into the booming Asian region, it needed to boost its intellectual resources. Immigration could play a part through an infusion of disciplined, clever and entrepreneurial migrants, especially from Asia. As John Menadue when secretary for the Department of Immigration (he was later to become secretary to the Department of Trade in the Hawke government) put it;

The achievements of countries like Japan, Hong Kong and Singapore are based upon the will and dynamism of their societies. They have grasped their limited opportunities and made the most of them. This is where immigration can play a role for us. A bold immigration program is the only tool readily at hand to challenge our complacency, smugness and parochialism. That is where we must look to future development of this country and effective use of its resources (as cited in Birrell and Birrell, 1987, p. 287).