Overseas workers good – rising participation rate better

I returned from last week’s Australasian Talent Conference (ATC) with renewed optimism about the increasing importance of workers, recruitment and recruitment agencies.

Listening to world-leading talent experts, Dart Lindsley and Kevin Wheeler and other presenters on the various speaker stages at Luna Park, together with recent survey and data releases, reinforced my positive mindset.

The main reason for optimism is the inevitability of demographics.

One of Wheeler’s key messages was the impact of shrinking birth rates across the developed world. The United States, Germany, the UK and Australia are all large economies with below-replacement levels of annual average live births per woman.

In simple terms, this means that unless net overseas migration and an increased labour market participation rate make up the shortfall, the workforce will decline, with likely devastating long-term economic impact.

Here’s how these twin factors impacted Australia’s labour market between March 2013 and March 2020:

• Net overseas migration was 1.762 million people
• 1.762 million migrant overseas arrivals = 1.233 million workers*
• Over those seven years, the labour force participation rate rose from 65.1% to 66.0%, equating to approximately 180,000 extra labour market participants in March 2020
• 1.233 million net migrant workers + 0.198 million extra workers due to participation rate rise = 1.431 million additional workers
• The total number of jobs increased by 1.424 million

The summary of the above is: 100.5% of the growth in employed workers is delivered by a combination of net overseas migration (86.6%) and an increase in the participation rate (13.9%).

Running the same numbers for the most recent 12-month period for which population data is available (March 2022 – March 2023) the pattern roughly holds:

• Net overseas migration was 494,000 people
• 494,000 migrant overseas arrivals = 314,000 workers*
• Over those 12 months, the labour force participation rate rose from 66.0% to 66.7%, equating to approximately 140,000 extra labour market participants in March 2023
• 314,000 net overseas migrant workers + 154,000 extra workers due to participation rate rise = 468,000 additional workers
• The total number of jobs increased by 494,000

The summary of the above is: 94.7% of the growth in employed workers is delivered by a combination of net overseas migration (63.5%) and an increase in the participation rate (31.2%).

For the most recent twelve-month period, compared to the 2013 – 2020 period, the rise in the participation rate is doing a much greater share of the heavy lifting in the growth of jobs, compared to net overseas migration (note: New Zealand’s participation rate is 72%, which, if replicated by Australia, translates to 1.166 million extra workers in the current Australian labour market of 14.69 million).

Clearly, Australia’s economy would be in huge trouble if it relied solely on the natural increase in population.

Although industry and employer lobby groups make a big fuss of increasing the overseas migration rate (with good reason) it’s clear that increasing the labour force participation rate is just as important in adding workers to the labour market.

New overseas arrivals all need a place to live – almost every existing resident who enters (or re-enters) the labour market has a current residence.

The tail-wagging-the-dog aspect of this demand for housing was seen as recently as this week when The Sydney Morning Herald reported the Master Builders Association is seeking a federal version of a West Australian government program that offers builders a $10,000 payment for every skilled foreign worker they attract to help with the cost of the visa, moving and housing.

The demand for a cash bounty is based on the industry’s claim that they “…need 480,000 new workers by November 2026 to keep construction work at current levels, but this does not include the additional workforce needed to meet the federal government’s housing target, or its plans for renewable energy projects and new electricity transmission lines.”

Australia’s slowly rising labour force participation is an encouraging sign that the increase in flexible working conditions and the loosening of job selection criteria, brought about by both the effectiveness of work-from-home during the COVID-era lockdowns and the sky-rocketing post-lockdown vacancy rate, have both been critical in delivering more workers to, and keeping them in, the labour force.

Note: all quoted data is from monthly ABS seasonally adjusted labour force  and quarterly ABS National, state and territory populaton survey results) and *indicates application of historical migrant arrival labour force participation rate of 70%

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