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'Losing its credibility': the abolition of the 457 visa program

In March 2018, the 457 visa will be formally abolished and replaced by the Temporary Skills Shortage visa. In his press conference to announce this change, the Prime Minister said ‘So we are bringing the 457 Visa class to an end. It's lost its credibility.’  This FlagPost analyses one part of the visa in an attempt to understand how its credibility may have changed over time. 

According to the 2014 Azarias Review, the primary policy rationale of the 457 visa was initially to allow ‘businesses to sponsor highly-skilled workers’. This morphed in the 2000s to a narrative centred on addressing skills shortage. But measuring a skill shortage is not simple. Professor Sue Richardson, in research commissioned by the Department of Employment in 2007, found:

While the term ‘skill shortage’ seems to be clear and unambiguous, in reality it is a slippery concept with many meanings. For a shortage to occur, it is necessary for the demand for a particular type of worker to exceed the supply of such workers, but the notions of supply and of demand are themselves quite inexact.

One proxy for whether 457 visas were addressing skills shortage was to compare visa trends with job advertisements. Both 457 visas and job advertisements should be related to demand for labour by employers. If an employer has difficulty hiring workers, they will advertise more jobs, signalling a tighter labour market. In this environment, more overseas workers are expected to fill workforce gaps. The inverse is also true–in a slack labour market, employers should have fewer advertisements and less need to hire from overseas.

Charting the 457 visa program over time

ANZ Job Advertisements Series and 457 visa (primary) applications lodged

 Sources: Department of Home Affairs, Temporary Work (Skilled) visa (subclass 457) Programme statistics; ANZ Job Advertisement Series; Senate Legal and Constitutional Affairs, Senate Additional Estimates, Question on Notice AE14/216

The chart plots an index of 457 visa lodgements against the ANZ job advertisements over time, starting from January 2003. While the relationship between visas and job ads, like any correlation, is an imperfect measurement for assessing skills shortage (for example, the job ads series is for the whole labour market but 457 visas are not allowed for lower-skilled occupations), this chart was used by government officials to support policy decisions.

In 2011, the then Chief Economist of the Department of Immigration and Citizenship, highlighted the chart at a presentation to the International Organisation for Migration, arguing it was clear evidence the visa program was responsive to changes in labour demand. In a submission to the Senate’s Legal and Constitutional Affairs Legislation Committee examining the Migration Amendment (Temporary Sponsored Visas) Bill 2013, the Department used the chart as one of their main pieces of evidence to support the Government’s Bill.

What does it show?

There are three distinct periods for the 457 visa since the early 2000s. The first saw a strong correlation between job ads and 457 visa lodgements from 2003 until about March 2011 (the spike in 2007 is related to a policy decision about English language proficiency). During the Global Financial Crisis, as unemployment rose and employers stopped hiring, the number of 457 visas being applied for also decreased. By the job advertisement/visa lodgement measurement, 2003-2010 was a success for the 457 visa as applications for visas broadly reflected the demand for labour across the labour market.

But something happened to the relationship from mid-2011. A substantial gap opened up as employers sought additional 457 visas but growth in job ads stalled and then declined. Using the same job advertisement/visa lodgement measurement, the 2011-2017 period is less successful for the 457 visa program. Along with other factors, such as migrant exploitation, this may have contributed to the Prime Minister’s comments about a loss of credibility.

The most recent data for late 2017 indicate in a period of rising labour demand, however 457 visas have dropped to their lowest trend since the GFC.

Why did this happen?

It is difficult to say what caused this divergence between job ads and 457 visas. Noting that there are many possible explanations, the following two factors likely had some influence.

The number of employers sponsoring 457 visa workers grew from 20,000 in December 2010 to about 35,000 in June 2013. The characteristics of these new employers may speak to why additional visas were being applied for at the same time as soft job advertisement figures. For example these sponsors may disproportionally come from industries experiencing growth. In addition, increased public attention on the visa may have attracted more employer interest. For example, the Gillard Government provided $10m in the 2011-12 Budget for faster visa processing times to ‘allow employers to gain more timely access to overseas labour for genuine skill vacancies’.

Second, in the same period, the number of international students and backpackers in Australia was rising. Figures from the Azarias Review show from 2011-12 to 2012-13, the number of students moving onto a 457 visa increased three-fold while backpackers almost doubled.

These trends may indicate that migrant intentions, in addition to employer hiring decisions, were an important factor behind an increasing number of visa applications. If this explanation holds, it likely caused a degree of disconnect between the 457 visa program and labour market trends. Further, if residency is the primary motivation for a visa and not a skilled vacancy, this may have led to more precarious employment relationships and possible exploitation.

The role of policy

While economic fundamentals such as employment will affect labour market programs like the 457 visa program, the chart also shows several points where policy decisions had a strong influence.

The large spike in June 2013 was price-related. The 2013–14 Budget raised $198m over four years by increasing the price of a 457 visa to $900. As this was announced in early May but not implemented until 1 July, many people who were planning to renew their visas did so earlier than they were required to. This brought forward many visas from the 2013-14 financial year into the 2012-13 financial year, drastically changing the shape of the curve in the above chart. Most recently, the pronounced drop the in the number of visa lodgements in September 2017, appears to be related to the Turnbull Government’s announcement, which I wrote about in a previous flagpost.

This analysis suggests there are multiple factors behind immigration trends that can change over time. With job advertisements on the rise again, following the strong employment growth of 2017, it will be interesting to see the shape of migration trends under the new Temporary Skills Shortage visa from March 2018.