Labour Mobility With Vocational Skill: Australian Demand and Pacific Supply

• Published date: 01 December 2023
• Author: Michael A. Clemens,Satish Chand
• Date: 01 December 2023
• DOI: http://doi.org/10.1111/1467-8462.12522

The Australian Economic Review, vol. 56, no. 4, pp. 462–486DOI: 10.1111/1467-8462.12522

Labour Mobility With Vocational Skill: Australian Demand

and Pacific Supply

Michael A. Clemens and Satish Chand*

Abstract

Can new channels for mid‐skill labour mobility

simultaneouslyenhance the welfare of

Australia and the Pacific Region? Answering

this question requires forecasting Australian

demand for vocationally‐skilled migrants over

the next generation, and the potential for

Pacific supply of those migrants. We project

demand for such mid‐skill migrants over the

next three decades by combining data on

trends in the demand for basic tasks with

data on trends in native investment in educa-

tion commensurate with those tasks. We

estimate that the Australian economygrowing

at historical rates through the year 2050 will

demand approximately 1.6–2.1 million foreign

workers with Technical and Vocational

Education and Training. A large share of these

could be supplied from the Pacific Islands with

sufficient investment in training, with direct

cooperation fromAustralian employers, and

targeted access to the Australian labour

market.

JEL CLASSIFICATION

F22; J11; J24

1. Introduction

Until recently, Australia has largely lacked an

official policy toward less‐skilled labour

migration (Wright and Clibborn 2017), de-

spite a growing mismatch between the past

focus on high educational qualifications and

the needs of the labour market (Wright

et al. 2016). Over the last few years, the

Australian government has actively, increas-

ingly encouraged the takeup of work visas by

migrants without university degrees from the

Pacific region. This policy includes the 2021

creation of the Pacific Australia Labour

Mobility (PALM) scheme. What is the future

potential for expanded mid‐skill labour mobi-

lity to enhance the welfare of both Australia

and the Pacific Island countries? Answering

this question requires estimating both future

Australian demand for mid‐skill workers in

general, and assessing the potential for Pacific

supply of those workers.

In this article, we first build a simple model

of Australian demand for such vocationally‐

skilled migrant workers. In that model, the

substitution of university‐educated workers

for vocationally‐educated workers is (i) lim-

ited by the speed of technological change, as

in the seminal model of Jones (2005), and (ii)

inherently limited for some tasks. We use the

model to build rough estimates of the demand

for mid‐skill workers in the Australian

economy over the next three decades. Our

*University of New South Wales and CGD; email <s.

chand@adfa.edu.au>. We are grateful for the excellent

research assistance of Katelyn Gough and Jimmy

Graham, and for comments from two anonymous referees

and Richard Curtain, Andie Fong Toy, Stephen Howes,

Thomas Ginn, Chakriya Bowman, Cate Rogers and Ryan

Edwards. We also thank seminar participants at ANU

Crawford and the Pacific Migration Workshop. Any

errors are ours alone. We are grateful for support from the

Australian Department of Foreign Affairs and Trade and

Open Philanthropy. The article represents the views of the

authors alone and not necessarily those of their

employers, funders, or any other institutions.

© 2023 The Authors. The Australian Economic Review publishedby John Wiley & Sons Australia, Ltd on behalf of The University of

Melbourne, MelbourneInstitute: Applied Economic & Social Research, Faculty of Businessand Economics.

This is an open access article underthe terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium,provided the original work is properly cited.

contribution is to distinguish between falling

relative demand for some tasks that do not

require a university education—those that are

being substantially automated or offshored—

and other occupations with stable relative

demand that we call fundamental workers.We

find a large gap between projected demand

and native supply, reaching roughly 2.1

million by the year 2050 (stock, not flow).

In sensitivity tests allowing for a doubling of

past rates of technological change or a slow-

down in future economic growth, this gap

remains over 1.6 million.

Broadly, this gap can be reduced in three

ways: accepting lower university‐educated

employment and economic growth; occupa-

tional downgrading by highly educated native

workers; or immigration by vocationally

educated foreign workers (temporary or

permanent). We explore the case for this last

option and, in particular, the case for

recruiting vocationally educated workers

from the Pacific region. Labour migration

from the Pacific to Australia has historically

been extremely low, despite channels that

Australian employers could in principle use to

hire mid‐skill Pacific workers. We conclude

that the potential for shared benefit from

future labour mobility in the region requires

new institutions focused on training, at a scale

substantially larger than current institutions.

The article begins by presenting the model in

Section 2 and discussing its implications in

Section 3. Section 4 discusses how the model is

more consistent with recent Australian data than

the canonical model used to study immigration,

and Section 5 explores the implications for

future scenarios of demand and supply of

vocationally‐skilled workers in Australia. The

potential for managed migration focused on

Pacific‐region labour supply is considered in

Section 6, and Section 7 concludes.

2. Demand for Workers With Less Than

University Education

The effect of labour on national production

can be modelled in various ways. The

canonical model admits two types of workers:

one with high education and high marginal

product; the other with low education and low

marginal product. In this framework, national

output is always strictly higher if a worker

with vocational education is replaced by a

worker with university education.

These assumptions yield a strong implica-

tion for immigration policy. In such an

economy, admitting any given immigrant

worker with vocational education imposes an

economic cost relative to admitting a

university‐educated worker—a cost that could

only be compensated by non‐economic policy

objectives such as humanitarian protection or

family reunification. It implies that for any

given quota of immigrants, the output‐

maximising number of vocationally‐educated

immigrants is zero. Such a conclusion appears

to inform immigration policy around the

world. The United States and United

Kingdom, for example, have explicitly barred

almost all employment‐based settler immigra-

tion for workers without tertiary education.

1

Here we set out a simple theoretical

framework in which the output‐maximising

number of immigrants with vocational skill is

nonzero. Prior literature has focused on the

impact of foreign workers in Australia on the

distribution of income, generally finding little

to no effect (Breunig, Deutscher and To 2017;

Crown et al. 2020). We focus instead on

macroeconomic impact: estimating the de-

mand for immigrants with vocational educa-

tion that would maximise productivity and

fiscal revenue.

2.1 Labour Demand: The Canonical Model

Studies of the economic effects of immigra-

tion focus on the ‘canonical’model of the

relative demand for labour by education level

(Tinbergen 1974; Katz and Murphy 1992;

Acemoğlu and Autor 2011; Dustmann

et al. 2016). In the essence of that model,

national output

Y

is created by a long‐run

neoclassical production technology with two

types of labour, constant returns to scale and

constant elasticity of substitution

σ

:

()

αα=+(−)

ν

σσσσ

σ

σ

−−−

Y

AL L1

h

111(1)

463Clemens and Chand: Labour Mobility with Vocational Skills

© 2023 The Authors. The Australian Economic Review published by JohnWiley & Sons Australia, Ltd on behalf of The

University of Melbourne, Melbourne Institute:Applied Economic & Social Research, Facultyof Business and Economics.