Employment and immigration at the time of COVID-19 (by Dr Giovanni Di Lieto)
13th May, 2020
This latest guest contribution on the Labour Law Down Under Blog is by Dr Giovanni Di Lieto of Monash Business School. Other guest contributions are invited from the academic community, especially on issues relating to the impact of COVID-19 on work, workers and the regulatory framework for employment relations. Email me at: anthony.forsyth@rmit.edu.au
A job crisis is generally bad news for migrants. Just as economies tend to call on people from abroad when they face labour shortages, so they tend to lay off migrants first during times of recession. This is partly because, on average, migrants have a profile typical of workers who are most vulnerable to recessions. That is, they are younger, have less formal education and less work experience, tend to work as temporary labourers and are concentrated in cyclical sectors.[1]
As early figures show, Australia’s labour market is no exception to this perverse dynamic. While COVID-19 shutdowns are pushing Australian unemployment rates up to double digit figures, new and old political cleavages on the government’s migration program are poised to reignite socially toxic narratives on migrant workers.
On the right, the COVID-19 job crisis is set to embolden populist conservatives who for a while have been hectoring on drastic cuts to permanent immigration intakes. Meanwhile, pro-business moderates will find it harder than ever to defend high population (and thus, market) growth made possible by soaring net overseas migration.
Similarly, on the left we can observe a cleavage cutting deeper in (but not quite between) the Australian Labor Party and the union movement. Early signs of immigration policy troubles ahead come from Kristina Keneally, Labor’s home affairs frontbencher, who recently called for a substantial cut to Australian temporary immigration intakes. Penny Wong, the Leader of the Opposition in the Senate, had to rush in defence of Keneally after senior ALP figures cautioned about the use of Australia-first rhetoric, more so after One Nation’s leader, Pauline Hanson claimed Keneally had vindicated her own positions. Meanwhile, the ACTU’s boss, Sally McManus called for the extension of unemployment benefits to temporary migrant workers.
Even leaving aside for the academics the policy differences between permanent and temporary immigration, a careful reader would soon realise the potential for socially toxic and polarising linkages between unemployment and immigration at the time of COVID-19. To this avail and before claiming an educated opinion on the matter, one should first and foremost address this basic question: is there evidence of an inverse relationship between employment and immigration levels during an economic crisis? The following edited extract from my book on migrant labour law might provide an initial frame to buckle up for the tricky politics of migration in the post-pandemic era.
Several factors come into play in determining how an economic crisis affects the movement of people. They include immediate prospects at home and abroad, the perceived risks of migrating, staying or returning and the increased barriers that are likely to come into place. Whether economic recessions have major structural effects on migration patterns is not yet clear. Evidence from previous recessions shows variable outcomes. For instance, a historical review of several countries, including Argentina, Australia, Brazil, Canada, the US and the UK, showed that, between 1850 and 1920, declines in domestic wages led to tighter restrictions on immigration.[2] Several scholars have argued that the 1973 oil crisis, which heralded a prolonged period of economic stagnation, structural unemployment and lower demand for unskilled workers in Europe, affected migration patterns, and a wealthier Middle East emerged as the new destination hub.[3] In contrast, there is little evidence that the East Asian financial crisis of the late 1990s had a lasting impact on international migration flows. There were deportations to demonstrate support for local workers, but once governments realised that locals were not interested in migrants’ jobs, these restrictions were reversed.[4]
There is controversy around the effects of migration on employment and wages in the destination country, especially for those with low levels of formal education. There have also been lively academic debates on the subject, notably in the OECD countries, drawing similar conclusions; namely, that the aggregate effect of immigration on the wages of local workers may be positive or negative, but is fairly small in the short and long term. In Europe, both multi- and single-country studies found little or no impact of migration on the average wages of local people.[5] The debates have clarified that it is not just the total number of migrants that matter, but their skill mix as well. The kind of skills that migrants bring affects the wages and employment opportunities of different segments of the local population, sometimes in subtle ways. If the skills of migrant workers complement those of locally born workers, then both groups will benefit. If the skills match exactly, then competition will be heightened, creating the possibility that locally born workers will lose out.
However, this is not a foregone conclusion: often the results are mixed, with some individuals in both groups gaining while others lose. Assessing these effects is problematic, because measuring the degree to which different groups’ skills complement or substitute one another is difficult, particularly across international borders.[6] For example, in the United States, workers with less than high-school education may in most respects be perfect substitutes for high-school graduates, throwing doubt on the assumption that completion per se matters.[7] One striking example of complementarity is how migrants can facilitate higher labour force participation among locally born females.[8] The availability of low-cost childcare can free up young mothers, enabling them to enter the workforce. There is consensus in the literature that low-skilled migrant labour generally complements local labour in Europe. This may arise in part because migrants are more mobile than locally born workers are, as in Italy, for example.[9] More importantly, migrants are often willing to accept work that many locals are no longer prepared to undertake, such as childcare, care of the elderly (much in demand in aging societies), domestic work, and restaurant, hotel and other hospitality industry work.
The small average effect of migration on pay may mask considerable variation across types of local workers. There is a vast empirical literature on the effect of immigration on the distribution of wages in developed countries. In the US, estimates of the effect on the wages of unskilled workers range from –9 to +0.6 per cent. Locals with low levels of formal schooling may still have advantages over migrants due not only to language, but also to knowledge of local institutions, networks and technology, which enables them to specialise in complementary and better-paid tasks.[10] Detailed investigations have not established a systematic relationship between immigration and unemployment. This is in part because of labour market segmentation, as low-skilled migrants accept jobs that are less attractive to locals, enabling the latter to move to other sectors and jobs.
In conclusion, do we have an answer to the basic question outlined above: is there evidence of an inverse relationship between employment and immigration levels during an economic crisis? The short answer is no, at most there is a non-systemic correlation under very specific circumstances.
For Australia’s migration politics ahead of us, in general this means that it should be theoretically legitimate and fairly easy to debunk proposals to slash Australia’s migration program because of the COVID-19 unemployment crisis. Nevertheless, certain empirical evidence to the contrary may still prove valid on more granular analysis of specific industries and skills. In other words, one should exercise great caution and use solid data to support the quantitative restoring of pre-pandemic immigration intakes, whether they be temporary, permanent or a mix of both. Of course, the qualitative side of the migration program is a whole other story, pivoting more on social security and moral issues than purely economic ones, such as the rise and fall of the welfare state for migrant workers and the working class in general, something that I’d like to discuss in a further place. Meanwhile, let’s hope that evidence-based analysis is not entirely lost to the emerging politics of Australia’s population strategy during the unravelling of the current economic crisis.
Dr Giovanni Di Lieto teaches international trade law at Monash University Business School and engages in expert analysis on the geopolitics of global markets for media, industry and government outlets. His professional career developed as a commercial law practitioner in Italy, and then as a global value chain specialist across the US, Europe and China. He has published two books, the latest of which is International Trade Law by The Federation Press. His first book, Migrant Labour Law: Unfolding Justice at Work for Migrants, was awarded the inaugural Holt Prize for best legal manuscript by The Federation Press.
Giovanni is also a board member of NOMIT (Italian Network of Melbourne) Inc., a charity currently engaged in supporting unemployed young Italians on temporary visas who are in economic distress and without formal support from the Australian government. During the COVID-19 job crisis, NOMIT is collaborating closely with the Migrant Workers Centre and Italian diplomatic channels in Australia.
[1] Betcherman, G., A. Dar, A. Luinstra, and M. Ogawa, Active Labor Market Policies: Policy Issues for East Asia, in East Asian Labor Market and the Economic Crisis: Impacts, Responses, and Lessons, eds. G. Betcherman and R. Islam, World Bank (Washington DC, 2001) at 295–344.
[2] Timmer, A. and J.G. Williamson, Racism, Xenophobia or Markets? The Political Economy of Immigration Policy Prior to the Thirties in Population and Development Review, Wiley-Blackwell (Hoboken, NJ, USA, 1998) at 24 (4): 739-771.
[3] de Haas, H., Mobility and Human Development in United Nations Development Programme, Human Development Report Office (New York, 2009) at 1.
[4] Skeldon, R., Migration in Asia after the Economic Crisis: Patterns and Issues, United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP), in Asia-Pacific Population Journal (Bangkok, 1999) at 14 (3): 3-24, available at <http://www.unescap.org/ESID/psis/population/journal/Articles/1999/V14N3A1.htm>.
[5] See for example: Longhi, S., P. Nijkamp and J. Poot A Meta-Analytic Assessment of the Effect of Immigration on Wages in Journal of Economic Surveys, Blackwell Publishing (Hoboken, NJ, USA, 2005) at vol. 19(3), 451-477, 07.
[6] A substitute is when an increased supply of one input lowers the price of the other input, while a complement is when an increased supply raises the price of the other input, see: Borjas, G.J. The Economic Benefits from Immigration, The Journal of Economic Perspectives (Pittsburgh, PA, USA, 1995) at 9(2):3-22, available at TEAM-Universite’ de Paris <http://team.univ-paris1.fr/teamperso/fontagne/L2_REI/borjas.pdf>.
[7] Card, D. and A. Shleifer Immigration and Inequality American Economic Review, American Economic Association (Pittsburgh, PA, USA, 2009) at vol. 99(2),1-21.
[8] Kremer, M. and S. Watt, The Globalisation of Household Production, Weatherhead Center for International Affairs, Harvard University (Cambridge, MA, USA, 2006) at [Working Paper No. 2008-0086], available at <http://www.wcfia.harvard.edu/sites/default/files/Kremer_Globalization.pdf>.
[9] Münz, R., T.Straubhaar, F.Vadean and N.Vadean, The Costs and Benefits of European Immigration, Hamburg Institute of International Economics – HWWI (Hamburg, 2006) at (3) 4.2.3:37, available at <http://www.hwwi.org/uploads/tx_wilpubdb/HWWI_Policy_Report_Nr__3_01.pdf>.
[10] Card, D. How Immigration Affects U.S. Cities, Centre for Research and Analysis of Migration, University College London, (London, 2007) at [Discussion Paper No 11/07], available at <http://www.econ.ucl.ac.uk/cream/pages/CDP/CDP_11_07.pdf>.
