CEDA Submission: Review of the points test

The Committee for Economic Development of Australia (CEDA) welcomes the opportunity to provide a submission to the government’s Review of the points system discussion paper. 

CEDA’s migration research, analysis and advocacy goes back to the early days of the points test system in the 1980s. The economic impact of the skilled migration stream has weakened in recent years, however, due to growing labour market mismatch. The points test needs modification to better select migrants with the best potential to contribute to Australia.

CEDA continues to advocate for better settlement support for migrants, governance of the migration system, management of the interaction between the temporary and permanent migration systems, and changes to enable Australia to get the essential skills we need.¹ This submission is focused on the narrower objective of informing the current review of the points test, while highlighting some important interactions between the points test and other aspects of the migration system.  

In our responses to the discussion paper questions below we argue that the points test must give greater weight to factors strongly associated with better labour market outcomes, reduce the complexity associated with multiple occupation lists, and support greater gender equality by giving greater weight to the skills and experience of secondary applicants.

Question One: How can we design the points test to best target migrant success in finding a skilled job? 

Good design of the points test must begin with clear objectives. The Migration Strategy 2023 set out five core objectives for Australia’s migration system, but the points test cannot serve all these objectives – several will be met through other migration streams and policy settings. The government’s Migration Review noted that the points test is intended to select migrants ‘who have skills and attributes (i.e. human capital or capabilities) that will allow them to contribute to the labour force and economy over the long term’.² CEDA supports an objective of the points system to select migrants who will make the greatest long-term contribution to Australia. Under a primarily skills-based selection system, workforce capabilities and prospects of successful labour market integration and contribution should be the priority, but we also need a migration system that supports social integration as a key driver of long-term success.   

Give greater weight to education and English language proficiency

Education and English language proficiency are two of the most crucial factors in the labour market outcomes of migrants, and both should be given greater weight in the points test. 

Assessing English language skills has become more critical in recent decades, as more migrants have come from non-English-speaking countries. Recent CEDA analysis of Census data found that poor English language proficiency is a significant drag on skilled migrants’ earnings, even when controlling for other important factors such as age, education, location and industry of employment.³ 

The labour economics literature has demonstrated that stronger English is associated not only with higher earnings, but also higher labour force participation rates, employment rates and hours worked.⁴ Currently, a maximum of 20 out of 130 points can be awarded for English language proficiency. We believe this is not high enough to reflect its importance to migrant labour market outcomes. 

Our research indicates that higher levels of education are also strongly associated with better wage outcomes. Again, the maximum of 20 points that can be awarded for education level is not high enough. The difference in points between educational qualifications is also too small. For example, a PhD earns 20 points, a bachelor’s degree earns 15 points, and a trade qualification earns 10 points, yet analysis of administrative data⁵ and the Census is consistent in finding significantly greater wage premia for those with advanced degrees: our analysis indicates that migrants earn roughly  40 per cent higher wages when they have a postgraduate degree, and almost 30 per cent higher when they have a bachelor or diploma level qualification.⁶  

Giving greater weight to education and English language proficiency means reducing the range of other criteria that attract points. Criteria relating to regional study, specialist education in Australia and credentialled community language should only be retained where there is evidence of a significant contribution to better labour market outcomes. A professional year in Australia offers demonstrated benefits through higher employment rates for IT, accounting and engineering graduates, but such programs would need to be redesigned and made available to a broader range of professions to reach their full potential.⁷ Points should not be awarded for nomination by a state or territory government, as this is associated with poorer labour market outcomes: government-sponsored skilled migrantsⁱ earn 16 per cent less than Australian-born workers, whereas employer sponsored and skilled independent migrants earn more.⁸  

Employers are better at assessing the value of work experience

We believe that employers are much better placed than the government when assessing a migrant’s work experience and capabilities. The great variation in quality of work experience suggests that industry-specific expertise is required. This would greatly minimise skills mismatch, which is widespread across visa types that have the least employer involvement. 

Migrant labour market outcomes and skills matching tend to improve when there is greater employer involvement in the selection process. This is reflected by comparing the superior labour market performance of employer-sponsored migrants to skilled independent migrants. CEDA research found that between 2013 and 2018, only 13 per cent of employer-sponsored migrants were working in a job below their skill level, compared to between 20 and 26 per cent of skilled independent migrants.⁹ Employer-sponsored migrants who had been in Australia for 2 to 6 years earned on average nine per cent more than otherwise similar Australian-born workers. Recent skilled independent migrants have good wage outcomes, reflecting their (high) education, (young) age, industry of work and predominantly city-based location, but still earn 12 per cent less than otherwise similar Australian-born workers.¹⁰ 

The points test may still need to include recognition of work experience, particularly for applicants who do not already have a job in Australia. However, the number of points awarded for work experience should be limited, reflecting the low capacity of government to accurately assess the quality of work experience, and diminishing returns to experience in some fields.

CEDA supports a shift in the skilled migration selection process to include more employer involvement. Selection by an employer provides an endorsement of an applicant, their capabilities, skills and experience that goes beyond just the capacity to meet current skill needs. In the longer term there would be value in exploring models where employers have a greater role in selecting migrants who satisfy a skill threshold, as CEDA has previously advocated.¹¹ 

In principle onshore migrants should be required to have a skilled job in order to apply for a points tested visa, but there can be mitigating circumstances. For example, an applicant may be waiting for a decision on recognition of their skills and qualifications under occupational licensing. While there is a need to improve processes for skills recognition, including stronger independent oversight of occupational regulators, in the meantime there is a need for sufficient flexibility in the points test to reflect individual circumstances.

Question Two: How can we better target points tested visas to meet Australia’s skills needs? 

As set out in the Migration Review, occupation lists are unresponsive and outdated. Having several different lists adds to complexity and does not serve the long-term contribution of permanent migrants to the Australian labour market and economy.  A transparent process is needed to update occupation lists to better align with contemporary skill needs.

CEDA has advocated consolidation of occupation lists as a first step towards using better mechanisms to filter demand.¹² There are important interactions between the new Core Skills Occupation List for temporary migration and occupation lists for permanent migration, as many applicants for permanent migration will initially enter Australia as temporary migrants. A lack of consistency between these occupation lists could leave many temporary entrants without a pathway to permanent migration.

Analysis of administrative data has found that occupations are important for migrant wage outcomes.¹³ This suggests that even if there is a strong case for reforming occupation lists in their current form, the points test should still target high skilled occupations through modified means, either directly through allocating points for high skilled occupations or indirectly through a high wage floor¹⁴ (albeit wages are difficult to assess in a consistent and reliable manner for applicants who do not yet have a job in Australia). 

Question Three: How should we redesign the points allocated to age to better select younger migrants? 

CEDA agrees with the proposal in the Migration Review to take a more granular approach to awarding points for age, based on the Canadian approach. This would add much needed nuance to the points system by better distinguishing younger migrant workers from older migrant workers in line with their lifetime economic contribution.¹⁵ Currently, Australia allocates the same number of points to a 24-year old and 39-year old applicant, while a 40-year old applicant receives half the points of a 39-year old applicant. This clearly poses a problem by not recognising that all else equal, a 24-year old applicant is able to contribute much more economically over their lifetime than a 39-year old, while the differences between a 39-year old and 40-year old applicant are not stark enough to justify a 50 per cent difference in allocated points. 

Question Four: How should we design the points allocations for partners to best reflect their potential labour market contributions? 

In our recent report, Making better use of migrants’ skills, we recommended that the Federal Government review the potential to give greater weight to the skills and work experience of secondary applicants to skilled migration visas. Our analysis found that among recent skilled migrants, both male and female secondary applicants earned significantly less than primary applicants. This can largely be explained by this group being younger, less educated, working in lower paying industries and having poorer English, on average.¹⁶ These large earnings disadvantages persist over time.

Secondary applicants are not assessed separately for their skills and (where applicable) account for less than 10 per cent of the contribution towards the primary applicant’s points test. Given that the adult partners of primary applicants account for a large share of total visa allocations, it is important to assess their skills if we are to maximise the overall migrant contribution to the economy. 

Giving greater weight in the points system to the skills – including English language ability – of secondary applicants would shift the balance towards selecting skilled independent migrants who have skilled partners, with consequently better labour market outcomes. Given the low contribution currently, there would need to be a substantial increase in the weight of a partner’s skills in order to make this effective. There is international precedent, as Canada and New Zealand allocate a higher proportion of points for the language skills, experience and education of a skilled primary applicant’s partner.¹⁷ 

Beyond the points test itself, there is merit in expanding access to settlement supports, such as English language training, to skilled migrants.¹⁸ This support is likely to be particularly valuable for secondary applicants given their lower skills on average and lower probability of being in work, and can help settlement and integration of the whole family unit. 

Question Five: How could the points test support gender equality in the Australian labour market? 

Our research finds that female migrants are disproportionately secondary applicants – 57 per cent of skilled visa holders compared with 27 per cent of males, in the five years leading up to the 2021 Census. Consequently, there is a higher share of female migrants entering lower-paid occupations. They are the majority among new migrant workers in community services and clerical work, but the minority among those new migrants working as managers, professionals and tradespeople. This contributes to greater occupational gender segregation in the labour market, which has negative implications for labour market flexibility and productivity.¹⁹ Giving greater weight to skills of secondary applicants, as outlined in our response to the previous question, would assist. 

Question Six: How should transition arrangements for the points test reforms work? 

A key aspect of transition arrangements is ensuring that pathways to permanent residency are not cut off for temporary migrants who are already in Australia. This is particularly relevant for migrants who have settled in regional areas on the basis that this offers a pathway to permanent residency. A gradual transition of new rules for applicants who are already in Australia may therefore be warranted. CEDA has previously argued that temporary migrants who have been in Australia for a decade or more should be offered a path to permanent migration as a matter of course.²⁰

Question Seven: How regularly should the points test be reviewed? What should reviews consider? 

Previously, CEDA recommended a strategic review of the migration system every five years, to be enshrined in the Migration Act 1958.²¹ We believe this would provide a coherent and predictable framework for users of the system and institutionalise continuous improvement across political cycles. A review of the points test should naturally be a key part of this overall review. 

CEDA has also advocated for better monitoring and evaluation practices.²² Transparent data practices and disaggregation by skilled visa type would allow researchers to effectively evaluate labour market and social outcomes of skilled migrants over the long-term. For future research on the economic outcomes of the skilled migration program to be effective, systematic processes to collect and/or aggregate longitudinal data would be preferable. The Person Level Integrated Data Asset (PLIDA), which combines information on health, education, employment and population demographics over time, is a promising resource to continue applied research on migrant labour market outcomes.