Skilled labour migration removes incentives to invest in education

This global competition for skills is no secret. A 2004 Senate inquiry (PDF 712KB) into the “brain drain” was commissioned in order to understand the problem better:

Many of these expatriate Australians are young, well-educated, highly skilled, and keen to see the world and to make the most of the opportunities presented to them. This has led many to fear that Australia is experiencing a “brain drain” of its best and brightest workers, with damaging consequences for Australia’s economy and society.

A key finding of this research was that Australia is in fact experiencing a “brain gain” - more highly skilled workers were arriving rather than departing. Unfortunately, this simply supports the argument that returns on education for Australians are far greater if they move abroad, and that our skilled immigration system is providing returns for those educated in less developed countries. If we continue to perpetuate this shuffling of skills around the globe, Australia will always struggle for skills and may become completely reliant on imported skilled labour.

We do have an advantage though. Educational services are one of Australia’s biggest export industries. Our universities are full to the brim, but not with local students keen to pursue careers in Australia. Foreign students and those looking for returns on the education investment abroad are becoming more common - the incentives are stacked in their favour. We need to attract domestic students and then keep them here to retain and grow our skills base in the long run.

Allowing more skilled migration will keep the wages premium low, and further remove incentives for domestic students to invest in these skills. Decreasing skilled migration will force business to place a wage premium of those skills it values most highly, which will in turn attract students to these professions.

While this is quite clearly a chicken and egg problem (did we need to attract skills because skilled Australians were leaving, or did they leave because we imported so many skills and decreased their domestic returns to education), a government, if it had the will and the backbone, could incrementally step back skilled migration quotas and other sponsorship arrangements, thus forcing salaries higher and tempting some of these Australians home, and many more into our universities.

As a member of this group of relatively young and highly skilled professionals I can attest to the growing numbers attracted overseas by high salaries and fashionable lifestyles. There are apparently more than one million Australians living abroad, and a large proportion of them have taken the skills they acquired at home on the road. Because of the higher salaries, having skills in demand can offer a far better lifestyle even in the most expensive cities in the world. My network of friends and family here in Brisbane is diminishing by the month as the world tempts them away - will I be next?

Remember, well being is not about how much business is in your country, or how quickly you can dig things out of the ground. Well being is reflected at the level of the individual. One key aspect to this the real wage, or how much stuff you can buy with an hour of work time. In the long run this key measure will improve if we can train and retain highly skilled people who will be driver of future productivity improvements. In the short run, businesses will need to adjust their operating structures to more effectively utilise these necessary skills as their wage premium grows. Immigration is not the problem here, but twisting the composition of new Australians in favour of those already possessing skills simply exacerbates the “brain drain” and reinforces a reliance on imported skills.