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Skills Shortages: How Migrants Plus Older Workers Equal a Solution

April 17, 2012
Business strategy

​​​The three Ps – population, (workforce) participation and productivity – are inextricably linked to Australia's future prosperity and standard of living. National productivity levels are under threat as the population ages. As baby boomers retire, the changing demographics will have a profound impact on workforce participation levels. Immigration is considered one quick fix to the workforce participation problem, but it's contentious. 

And with the rules about to change to streamline the process for bringing skilled migrants into Australia, it's an ongoing topic of hot debate. Demographer Peter McDonald, deputy director of the ARC Centre of Excellence for Population Ageing Research, suggests skilled migration is one ready way to keep growing the economy and may also increase wages for lower-skilled workers. While keeping older Australians engaged in the workforce remains key, McDonald tells Julian Lorkin of Knowledge@Australian School of Business, an important part of boosting productivity also involves improving infrastructure to ensure international competitiveness.

An edited transcript of the interview follows.

Knowledge@Australian School of Business: More than 200,000 people temporarily or permanently immigrate to Australia every year. What sort of economic benefits do they bring?

Peter McDonald: Well, 200,000 is a net number so there's actually more coming in, because there are other people leaving the country. The Australian program is a Skilled Migration Program and those coming in bring a lot of different skills. But increasingly, we've moved towards temporary migration in which there's an association between an employer and a worker that enables the worker to come into the country – this is very efficient because sometimes the people come in within 24 hours. And people come in at different skill levels because an employer wants them.

Some other temporary categories are international students who are relatively skilled people, but they work in lower-skilled jobs. Working holidaymakers and backpackers are in a similar category. New Zealanders are in another category – and they're spread right across the skill spectrum.

Knowledge@Australian School of Business: What's the impact of this migration on the labour force in Australia?

Peter McDonald: If we had no migration at the present time, the Australian labour force would be flat and then falling because currently there's quite strong labour demand in Australia. So we would have a labour shortage and that risks causing wage inflation and gets the economy into trouble. Migration assists by not only providing the labour that's needed for the development of Australia and for the demand that's here now, but  also for economic parameters, such as inflation.

Knowledge@Australian School of Business: Australia has an ageing population and this is becoming a major issue. Some countries – Japan, for example – already have a large number of people who have passed retirement age, but the number of productive workers is very small. How can immigration, particularly with younger skilled workers, help in Australia's case?

Peter McDonald: The big impact on population age structure is births. And Australia's birth rate is relatively high at the moment compared to, say, Japan's. But immigration does have some impact on age structure and immigrants to Australia at the present time are very young, early 20s is the average age – this includes the people who come in as international students and stay on, and backpackers. So the impact on the age structure is small but meaningful in economic terms.

Knowledge@Australian School of Business: Many of these people who are immigrating to Australia, either temporarily or even permanently, are going to be highly skilled. How does that impact on the employment levels of Australians who are relatively unskilled?

Peter McDonald: An international study recently conducted in the US looked at the impact of immigration on the wages of low-skilled workers in some different countries and there were only two countries in which the immigration raised the wages of the low-skilled workers – Australia and Singapore. It's macro economic – a skilled labour force brings better growth in your economy, so you're investing in new areas and that benefits lower-skilled workers. The effect on wages is positive in Australia's case.

In terms of employment, it's a more complicated picture. There's quite a large group of what you might call prime-aged males, in the 25-to-54 age group, about 9% are not in the labour force and it's probably true that the people who come in as temporary migrants would take jobs that those people might potentially get. But over the last decade we have had a big effort to train and skill up – and the percentage was 9% ten years ago as it is today. It has achieved nothing really. I don't think this is due to competition from migrants because over the last decade we've had very strong economic growth and very strong demand for labour. It's related to that particular 9% and their skill levels and their capacity to work – and getting them into the labour force is actually quite a difficult exercise.

Knowledge@Australian School of Business: More than a quarter of Australia's population was born overseas. Previously most came from the UK but that's just been slightly eclipsed by New Zealand. They make up the majority followed by people from China, Italy, Greece and Germany, in descending order. What's the impact on the labour force of mixing all these different cultures?

Peter McDonald: That's a good question. Since the 1980s we've had an open border with New Zealand, so New Zealanders can come here to work. And because of the change in the exchange rate between the Australian and New Zealand dollars, wages in Australia are roughly 50% higher than they are in New Zealand. A lot of New Zealanders are going to want to come to Australia to work and they do – there are 600,000 living in Australia. One of the biggest migration movements in Australia is people from the UK – and China and India, as you say – going to Western Australia.

How does that affect the country culturally? People who migrate to Australia are actually choosing Australia. You know, they could migrate to Canada, the US, New Zealand or somewhere else. In choosing, I think they are selective people who are not going to want to overthrow Australian culture. So there's gradual cultural change but it doesn't mean we're not Australia anymore, as it were.
Obviously Australia changes as new people come in and as we have contact with the rest of the world in all kinds of other ways. But to me it's not a threatening change.

Knowledge@Australian School of Business: Let's move on then to the second of the three Ps: participation in the workforce. Does participation at older ages really help in terms of reducing our deficit and give us economic benefits?

Peter McDonald: Yes it does. In the last decade there have been substantial increases in labour force participation rates at older ages. The older population has a lot of skills that the employers want and they are now negotiating with employers to get the kind of package that suits them.

Knowledge@Australian School of Business: But is this because older workers want to work – they want something to do instead of retirement – or because they have to work for financial reasons, either the pension is not enough or they did not put away enough superannuation?

Peter McDonald: A bit of both. With the global financial crisis, a lot of people's pension incomes dropped fairly substantially. People in that category are interested in working longer to improve their retirement incomes. Some educated people and professionals want to keep working. Blue-collar workers are less likely to continue to work longer in blue-collar jobs. But if you're a professional, you've had a relatively flexible career and you've done lots of different things, it's hard to suddenly stop doing that. We will see professionals and para-professionals representing a much higher proportion of the labour force as time goes by – but on a part-time basis.

Knowledge@Australian School of Business: Are we talking about multi-skilling here? People are doing various different jobs, so life is more interesting – they just want to carry on working – which is very good economically for the country.

Peter McDonald: Again, I think that's more on the professional end. People have a career history in which they have (a demonstrated capability to) change jobs, so if they need to do that at an older age they can. But if you've been working in a factory or in construction as a blue-collar worker, the story is quite different. People working in those industries do retire early on.

Knowledge@Australian School of Business: Working in manufacturing is much more physically demanding than sitting behind a desk, so it affects their health?

Peter McDonald: Yes, quite. The professional and educated people are in better health than those who have been in a blue-collar job. And a lot of blue-collar people have actually left the labour force earlier anyway. Due to the decline in the manufacturing industry in Australia, they haven't gone back to work – there have been a lot of examples of that.

Knowledge@Australian School of Business: Let's move on to the third of the three Ps – productivity and generating wealth for the country. We're increasingly moving to a knowledge-based economy rather than just a production line making stuff. What impact does that have on the workforce?

Peter McDonald: Productivity is by far the most important of the determinants; you know it's the underlying factor. The problem that Australia faces at the moment is not so much in the skills and the knowledge-based industries, but in infrastructure. Our infrastructure is not good. We're inefficient in ports, we're inefficient in transport, we don't even have a dual carriageway all the way from Sydney to Melbourne, the two biggest cities in Australia. China has dual carriageways between 500 different cities so we are a long way behind in infrastructure and that is the factor that may hold back our productivity.

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