IT specialists, very often from India, make up one of the larger groups of temporary migrants, both in Australia under the 457 visa program and in the U.S. under the H1B program.
Unfortunately in Australia we have a lack of empirical insight into labour mobility for 457 visas. However in the U.S. new research suggests temporary migration programs are complex, with a degree of labour mobility.
This paper on the H1B visa program and Indian IT workers – Inter-Firm Mobility and Return Migration Patterns for Skilled Guest Workers by Peter Norlander, Briggs Depew and Todd A. Sørensen – presents some evidence to suggest low wages for temporary migrants act as the same incentive for domestic workers, namely they seek other, higher paying jobs or return home:
Our results cast doubt on the claim that these workers face severe mobility restrictions outside of the Great Recession. They reveal that during periods of full employment, inter-firm mobility of these workers is comparable to other estimates in the literature obtained from presumably more mobile workers in other labour markets, suggesting that competitive market forces provide some check against firms dramatically underpaying these workers.
There is a fair amount to unpack here from a policy perspective.
First, is this research applicable in Australia? The study analysed six large India IT firms many of which operate in Australia. The type of employees are also similar. The visa costs are similar also. One major difference may be the visa programs in Australia have a more strict method to match migrant wages to domestic wages than the U.S. As highlighted in the research, one study found as soon as H1B visa holders received permanent residency, they experienced a 20-25% pay increase. I don’t believe this occurs here however there is a lack of research to suggest one way or another. Obviously there are inherent differences in the broader labour market between Australia and the U.S. however the particulars discussed – temporary migration and labour mobility – seem a decent, but imperfect, match.
Two main policy considerations jump out. What is the difference of labour mobility compared to other workers? What happens to labour mobility in a weaker labour market?
The research finds “that a 10% increase in salary yields a 3.32% decrease in the probability of quitting”. The authors claim the “fact these results are not zero suggests that these workers have some degree of mobility and that lower paid workers are able to relocate to other employment”. However, I would also note that “This is slightly smaller than previous results in the literature that study other groups of workers”.
The fact there is labour mobility in temporary migration programs is important and positive. This means market forces are still having an effect on employees moving firms despite the more restrictive regulations governing a temporary migrant’s relationship to their employer. I know in the 457 visa program, there are always more business nominations than visa grants. The difference in these two numbers is likely to be a good proxy for a degree of mobility in Australia. Unfortunately this information is not currently publicly available.
However the authors conclusions are heavily caveated when they say “outside the Great Recession”. This indicates in periods of weak labour markets, lower mobility may be more consequential for temporary migrants than domestic workers.
When the unemployment rate is 4%, then a 10% increase in the wage is associated with a 14% decrease in the quit rate. When unemployment is 6% the 10% increase in wage corresponds to a 6% decrease in quits. At an unemployment rate of 8% we see that the quit elasticity is not significantly different from zero.
The difference in ‘quit rates’ (a proxy for labour mobility) between 4% and 6% is quite large while at 8% there is no mobility. This points to how temporary migration programs should be understood very differently in ‘full-employment’ labour markets and weak labour markets. Of course, this is similar to how other employees operate in labour markets. However the key difference is that unemployment benefits and the right to stay in Australia have a radically different impact on domestic workers than migrant workers. The worst situation for governments who manage temporary migration programs is one where there is no labour mobility, with many employees taking below market wages, increasing worker exploitation and undercutting wages and conditions. This is particularly true for progressive governments such as Democrats and the Australian Labor Party.
There are lessons here for Australia. With the unemployment rate going from under 5% to over 6% in recent years, we should assume the labour mobility rate of temporary migrants has decreased (but remained positive), at least for Indian IT workers but probably more generally. Policy makers should be aware of this when considering changes to regulations, especially those which would further restrict mobility.
Further, it is positive to see research which finds the lowest paid temporary migrant Indian IT workers have the highest propensity to quit their jobs. This counters some of the claims around the severity of labour mobility restrictions however does not remove the concerns completely. In addition, the authors find lower paid workers are more likely to return to their origin countries. We can debate whether a ‘return home’ option is preferable to the option to stay in either the U.S. or Australia, but what this does indicate is how temporary migrants react to changes in the business cycle and these programs are dynamic. Understanding temporary migration programs as simply as a static, one-size-fits-all concept, underestimates the various migrant incentives which can be accentuated under different labour market conditions.