Examining the Relationship Between Migration and Wages in Australia

Globalisation has led to a significant increase in international migration, with migrants now accounting for approximately 3.6% of the global population (IOM Annual Report 2023). This movement of people has sparked debates about the potential impacts of migration on local labour markets and wages. While existing research has produced mixed findings, the general consensus indicates that the impact of migration on wages is generally modest. Australia presents an interesting case study, having implemented selective migration policies aimed at addressing skill shortages. As a result, the country has a substantial migrant population that plays a significant role in the labour force. The various visa streams have historically been closely aligned with the country’s labour market needs that usually vary with economic conditions, industry requirements and regional needs. This thesis aims to provide a comprehensive investigation of the relationship between migration and wages in the Australian context, examining both aggregate and industry-specific links. In particular, the thesis explores the long-run relationships between migration and wages, while also considering the differential impacts of specific visa types and migrants’ country of origin. Building on this, the research then takes a deeper, industry-level approach to uncover how the migration–wage relationship varies across sectors with differing concentrations of migrants and skill levels. Using time-series data for the period 1996–2022, the analysis of wages and net overseas migration in Chapter 3 indicates a stable long-run equilibrium relationship as well as short-run bidirectional causality. However, migration encompasses diverse visa streams, each with distinct characteristics and labour market impacts. Indeed, a further analysis by types of visa streams provides interesting insights. Migration under the (permanent) skill stream indicates a long-run equilibrium relationship with wages. In the short run, there is evidence of a causal relationship where wages can predict the number of (permanent) skilled migrants. However, such a relationship is not found with (temporary) skill migration. Migration under the student visa stream, on the other hand, exhibits a short-term bidirectional as well as a long-term equilibrium relationship with wages. This dynamic clearly reflects the unique position of international students, both by contributing to the labour market as workers and also by transitioning into potential future skilled migrants in the future. Disaggregating migration by country of origin further enriches the understanding of the migration–wage nexus. For instance, a stable long-run equilibrium relationship as well as short-run bidirectional causality is observed between Asian-born migrants and wages. Migrants from Asian countries often engage in entrepreneurship, starting businesses that contribute to local economic growth by creating jobs and stimulating economic activity. The inflow of Oceania-born migrants is found to predict short-run wage changes but not vice versa, consistent with the fact that migrants from Oceania often have skills and qualifications that directly influence their employment and wage prospects in Australia. Additionally, the one directional causality running from wages to migration for European-born migrants reflects a more passive relationship, where competitive wages and job opportunities become an attraction for migrants. In Chapter 4, the wage–migration relationship is further explored using an industry level approach. Using panel data from 19 industries for the period 2001–2019, the analysis suggests an overall positive relationship, with a 1 percentage point increase in the migrant workers (measured as a share of the labour force) leading to a 0.28? rise in weekly wages. However, the magnitude and direction of this impact vary significantly with industry-specific characteristics. A key insight is that the positive influence of migrants on wages is more pronounced in industries with a lower baseline of migrant employers compared to more migrant-intensive sectors. This indicates that the contribution of migrants, in terms of filling critical skill gaps, boosting productivity, and creating new economic opportunities, has a greater impact in those sectors that are less saturated with migrant workers. In contrast, the migrant-intensive industries may experience a smaller wage effect, as the increased supply of migrant labour can also exert downward pressure on wages. The analysis across industries with varying skill intensity provides further insights. In high-skill-intensive sectors, migration has a positive impact on wages, consistent with migrants complementing the domestic workforce and leading to positive wage outcomes. However, a negative relationship is found between migration and wages in low-skill-intensive industries, indicating that migrants could be close substitutes for domestic workers. This suggests that the composition and skill profile of the migrant workforce play a significant role in the migration–wage relationship.<p></p>