Immigration – Points-based admission is less effective than the employer sponsored program research finds

This paper has examined the causal relationship between earnings and high skilled migration inflows under two central selective policies: employer sponsored admission and the points- tested scheme. We attempted to isolate the endogeneity by instrumenting average local area worker earnings with time series variations in global commodity prices, interacting with cross-sectional variation in the commodity contributions in the five most populous states of Australia. Furthermore, by utilising policy setups in a single country (Australia), we can avoid possible disparities in migration costs. We focused on major cities to reduce the possibility of differential trends in earnings and immigration caused by unobservable factors. We utilised highly detailed data from several sources including the Household, Income, and Labour Dynamics in Australia Survey (HILDA), administrative Australia migration data from the Settlement Database and local area characteristics from Australia National Regional Profiles.

The paper finds evidence that points-tested migrants were not distributed in line with wage growth across Australian states, while the business sponsored scheme promoted migration to areas experiencing positive economic shocks. More specifically, our central point estimate suggests a 1 per cent increase in annual earnings over the commodity boom period led to a 2.57 per cent growth in business sponsored visas. Our results are robust, controlling for potentially confounding factors regardless of various identification changes. Moreover, the general pattern of our estimates in the downturn period 2011-2015 is consistent and reaffirm our findings in the commodity boom period 2001-2011.

Our analysis adds important insights to the academic debate on the efficiency of selective migration policies. First, the points-based admission is less effective than the employer sponsored program in distributing high skilled migrants to regions requiring their skills. This could be due to asymmetric information resulting in government interventions being less effective than employer programs, leading to distortion in allocation quotas to occupations. This is remarkable as anti-globalization and anti-immigration have been rising in developed countries in recent years. Voters are putting employers at centre stage, and blaming them for their recruitment policies, while points-based system is attracting more support. Further, requirements for labour market testing might be unnecessary given employers have already performed in conformity with a shortage in labour market.

Chosen excerpts by Job Market Monitor. Read the whole story at  Immigration misallocation: evidence from Australia