Australia is in the midst of a historic worker shortage. There is less than one unemployed person for each job opening. Before the pandemic, three people chased each open position.
It's not because Australians aren't willing to work. Labour force participation and employment rates have never been higher.
We simply don't have enough workers. Demand for labour has increased and supply has been unable to keep up.
This is partly due to highly accommodative fiscal and monetary policies fuelling robust growth in domestic demand. But it is also because of the dramatic decline in net overseas migration since the onset of the pandemic.
Net overseas migration fell from more than 241,000 in the 2019 financial year to less than 88,000 in the 2021 financial year.
Much of this decrease was driven by temporary migrants who disproportionately worked in sectors hit hard by the pandemic but who were ineligible for JobSeeker and largely excluded from JobKeeper.
Border reopenings have seen net migration return to positive territory during 2022. But the legacy of the pandemic lingers.
There are still between 57,000 and 186,000 missing temporary migrant workers, according to e61 analysis. The COVID-19 pandemic has disrupted our migrant-driven growth model and continues to have a material effect on the supply of migrant workers.
These missing workers are potentially a big driver of our workforce challenges. Missing temporary migrant workers plausibly account for almost a fifth of the recent spike in job vacancies, even under a conservative scenario where the number of migrants living in Australia is assumed to remain at 2019 levels.
The impact of the pandemic is even larger when examining a more realistic migration growth scenario. If net temporary migration had followed its pre-pandemic growth trajectory, the additional migrant workers would plausibly account for 71 per cent of the recent increase in job vacancies.
Of course, migrants do not just boost labour supply, they also boost consumption and thus labour demand. So any increase in net migration would be partially offset by an increase in consumption and demand for workers.
But missing migrant workers are not spread as evenly throughout the economy as their consumption. A large portion are concentrated in a handful of industries like hospitality that previously relied heavily on international students and working holiday makers.
The pandemic induced migration shock has hit these industries hard. Missing temporary migrant workers can plausibly account for 83 per cent of the increase in job vacancies in hospitality, even under our most conservative scenario where migration remains at 2019 levels.
This highlights the material effects of border closures on labour supply. The shock has been asymmetric: missing temporary migrant workers are particularly important to some industries, which continue to feel the long tail of the pandemic.
It also emphasises the significant challenges that lie ahead with net overseas migration still well behind pre-pandemic trends.
Immigration reform is now a stated priority of the Albanese government. And measures announced at the jobs and skills summit may help boost immigration.
But more will need to be done to accommodate the scale of catch-up required. We will need to enable more housing to be built in our cities and invest in the infrastructure required to handle a rapid increase in population growth.
There is also an implicit assumption in many policy announcements that Australia remains an attractive destination for migrants. But global competition for labour is heating up. We may live to regret our poor treatment of temporary migrants during the pandemic.
Policymakers must urgently look to grow the stock of workers and consider how we can deploy our existing stock of talent more efficiently. Australia's pandemic recovery depends on it.
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