The Goldilocks wage threshold for temporary skilled migrants

The migration system has undergone “staggering” changes.

The migration system has undergone “staggering” changes. Photo: Getty

The Albanese government has committed to raising the Temporary Skilled Migration Income Threshold (TSMIT), which puts a floor under the wage at which employers can sponsor workers to Australia via the Temporary Skill Shortage (TSS) visa.

Everyone seems to agree that the so-called TSMIT is too low and should be raised. It hasn’t been increased since 2013, and at $53,900 a year is now lower than the wages earned by 80 per cent of Australia’s full-time workers.

But the big question for the federal government is, how high should the TSMIT be? The ACTU wants it raised to $90,000. The Australian Chamber of Commerce and Industry also wants it lifted, but only to $60,000. We suggest a threshold of $70,000 – just above where it would have been if indexed to wages this past decade.

Here’s why we think $70,000 is the Goldilocks threshold – not too low and not too high.

Firstly, $60,000 is too low, because the wage threshold needs to reflect the fact that the temporary skilled program is, as the name suggests, a program for skilled migrants. Yet in the years since the TSMIT was frozen, more and more low-wage workers have come to Australia, notably in sectors such as retail and hospitality.

Sponsored migrants who earn $70,000 or less on arrival get few or no pay rises. Photo: Getty

One big problem with a too-low threshold is that lower-wage migrants are vulnerable to exploitation. Grattan Institute research indicates that sponsored migrants who earn $70,000 or less on arrival get few or no pay rises, whereas those who start out on more than $70,000 get big pay rises. Migrants earning more than $70,000 have a lot more bargaining power than migrants earning less than that.

Exclusively targeting temporary sponsorship to higher-wage workers – who are at much less risk of exploitation – would also mean sponsorship could be simplified for employers.

But on the other hand, a $90,000 threshold is too high. Here’s why.
Temporary skilled visa-holders are often young – the typical TSS visa-holder is 31 years old – and therefore in the early stages of their career. The median full-time wage for Australian workers aged 25-34 is $72,774 a year. By contrast, $90,000 is around the average full-time earnings of a person in the Australian workforce, but that average person is about 40 years old and halfway through their career.

Temporary skilled visa-holders are often in the early stages of their career. Photo: Getty

Setting the TSMIT at $90,000 would cut out many of the younger skilled workers who start out earning lower-than-average wages but form the backbone of Australia’s permanent skilled migrant intake and earn much higher wages in the long term. After all, one-quarter of all permanent skilled visas, and 90 per cent of permanent employer-sponsored visas, go to migrants currently in Australia on a TSS visa.

Setting the TSMIT too high would also risk locking out large numbers of the skilled workers Australia desperately needs right now. A $90,000-a-year threshold would have excluded about 60 per cent of recent TSS visas granted, including up to half of all healthcare workers on TSS visas and one-third of all education workers on TSS visas.

By contrast, our preferred $70,000 threshold would lock out one third of TSS visa-holders, and less than 20 per cent of sponsored workers in healthcare.

A $70,000 threshold would still result in many sponsored workers in low-wage sectors such as hospitality and retail being excluded, but these are precisely the workers who are at greatest risk of exploitation. And those visa-holders locked out would account for less than 1 in every 200 workers in all sectors other than hospitality.

A $70,000 wage threshold would also have little impact on sectors such as aged care. While workers on temporary and permanent visas account for about 30 per cent of workers in aged care, less than 1 per cent are here on temporary sponsorship. That’s because low-wage jobs such as carers and cleaners are not eligible for temporary sponsorship in the first place.

We therefore believe $70,000 is the Goldilocks threshold, for four reasons.

It would strengthen the integrity of the temporary skilled migration program by making sure the program is indeed available only to skilled workers.

Could $70,000 be the perfect threshold to attract skilled workers? Photo: Getty

It would lower the risk of exploitation by preventing businesses from hiring vulnerable migrants with less bargaining power.

It would ensure we continue to attract younger, skilled workers to Australia via temporary sponsorship who become high-earning permanent migrants in future.

And by allowing sponsorship only of higher-wage workers, Australia could simplify sponsorship rules for both employers and migrants, making sponsorship much more attractive.

Brendan Coates is Economic Policy Program director and Tyler Reysenbach is an associate at Grattan Institute.

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