Assessing Australia’s South Pacific guest worker programme

| April 10, 2018

Reports of further cuts in development aid in May’s Federal Budget have made the World Bank’s newly released study of Australia’s Pacific guest worker program even more timely.

The six-year-old program is one of the few in the world that explicitly links labour imports to economic development in the source country and so provides insights that have global value.

The reports suggests Pacific workers face more regulatory hurdles than backpackers but are more likely to return to their mostly rural employers and do send a large share of their income back home. The bottom line is that an expansion of the program could have a considerable positive economic impact in source countries.

For example, the net $100 million Tonga has received in remittances since the program began is about double Australian’s annual aid spending there. Expanding the program should be part of any new round of aid cuts.

The Seasonal Worker Programme (SWP) was initially introduced in 2012 following a four- year pilot scheme, which commenced in August 2008. It started off with a 12,000-worker cap for the initial four years of implementation, but this was removed in 2015, and a host of additional reforms aimed at addressing the demand-side constraints of the programme were introduced.

Since these reforms, the programme has expanded rapidly–with 6,166 workers arriving in FY17. The SWP is one of only a handful of migration schemes globally that maintains the explicit objective of contributing to the economic development of labor- sending countries.

The world bank paper assesses the extent to which the programme has met this objective, since it moved from a pilot into a fully-fledged scheme, although given the limited data availability and relatively small size of the SWP, it was not possible to measure its economic development impact in terms of Gross Domestic Product.

As a result, the report primarily focuses on measuring the development impact of the programme in terms of its income effects at the individual, household, community and aggregate level.

What impact does the programme have for individual workers?

Some participating workers are employed prior to departure, but the majority (65 per – cent) are not, and for these workers the scheme represents an opportunity to fulfil their productive potential. The income gains vary by country but, in all cases, represent a significant increase on their earning potential back home.

The Pacific-wide factor increase on income is 4.3, while it stands as high as 5.6 in the case of Tonga. Over a six-month employ ment stint, the average Pacific seasonal worker is remitting approximately A$2,200 while in Australia and transferring A$6,650 in savings home at the end of their stay.

While the vast majority (86 percent) of Pacific seasonal workers are remitting money home, a large number are using costly money transfer operators, which capture a higher percentage of their earnings in fees.

More women are benefiting from the SWP but, proportionally, their representation remains low (14.4 percent) and the same as when the programme was introduced. Female workers in the SWP are earning slightly less than men, but remitting more. This is despite them having a higher mean level of education than the male workers participating in the SWP.

Only 42 percent of Pacific seasonal workers have the opportunity to take part in the formal Add-on Skills Training, however, a much larger proportion learn skills on the job. A vast majority (91 percent) of the seasonal workers surveyed felt the skills they had learned in Australia would improve their employment prospects upon return.

Given the substantial wage gains and skills obtained in Australia, Pacific seasonal workers reported being very satisfied with their experience in Australia.

What does the programme mean for participating households?

At the household level, the programme has a significant impact on savings, but not income, excluding earnings from the SWP. In Tonga, for example, SWP households had 169 percent more savings per capita than non-participating households. The lack of a significant impact on per capita income is probably a result of the relatively low level of investment due to the lack of sound business opportunities.

The impacts on per capita expenditure, on the other hand, were positive and statistically significant in the case of Tonga (37 percent more than other households). This extended to both cash expenditure and the value of own-produced food that was being consumed.

The cash expenditure was primarily being channeled into home improvements and the accumulation of durable assets. Participating households in Tonga and Vanuatu were 14-16 percent more likely to have made improvements to their dwellings, for instance.

The additional income also permitted the purchase of farm equipment, cars and pickup trucks. The SWP has notable impacts on certain human development outcomes for participating households. The proportion of school-age children enrolled and attending classes was 7.7 percent higher in Tonga for those involved with the programme.

Meanwhile, the impact of participation on health outcomes was negligible. In terms of the incentives (or disincentives) the programme provides for remaining household members to work, there was no notable impact on household labor supply.

What are the community-level benefits from the SWP?

Participating communities are also clearly benefiting from the significant contributions of returning workers.

A larger portion of these contributions are, however, going to the church rather than to improving community infrastructure or investment in local schools. As a result, the improvements in public infrastructure are less pronounced than could be expected for the level of contributions from returned workers.

It is plausible that the church is providing needed community services with these funds, but there is little information available and a need for greater transparency.

What have been the aggregate development impacts?

At the aggregate level, the SWP has employed 17,320 Pacific Islanders since 2012 and delivered approximately A$144 million in net income gains to the region. The programme is therefore clearly delivering on its core objective of contributing to the economic development of participating countries, as measured in terms of income.

The aggregate development impact to date is most significant for Tonga, Vanuatu, Samoa, and Timor-Leste. The A$99.4 million in net income that Tonga has gained through the programme since its inception is more than double the annual bilateral aid budget from the Australian Government (DFAT 2017).

The A$26.2 million earned in FY17 also represents more than double the A$12.4 million generated through Tonga’s exports. For Vanuatu, the A$31.5 million generated amounts to approximately 45 percent of Australia’s annual bilateral aid budget (DFAT 2017).  The A$5.8 million in income gains for Samoa and A$5.5 million for Timor-Leste are equally remarkable, given they were later entrants to the programme.

How can the development impacts from the programme be enhanced?

The programme is clearly delivering significant development gains for most participating countries, but there are further improvements that could be made to maximize the potential development impacts.

The World Bank report sets out 11 recommendations that could help further the development impacts of the scheme:

1. Enhance opportunities for countries with lower rates of participation

Additional provisions should help countries with low levels of participation such as Nauru, Kiribati, Papua New Guinea, the Solomon Islands and Tuvalu to gain a foothold in the scheme. The government should invest additional resources to strengthen sending capacity in these countries through the soon to be launched Pacific Labor Facility.

2. Ensure poorer areas of participating countries are benefiting from the programme

More steps should be taken to ensure that poorer individuals and communities have equal access to information and support in applying for the SWP. Another measure would be to link registries of poorer households with the work-ready pools that sending countries maintain.

3. Lower barriers to participation for more remote areas

Where feasible, the government should provide decentralized access to passport and visa services, as well as health checks that ensure prospective workers from the outer islands face similar cost structures for participation. Sending countries could also invite Approved Employers (AEs) or their recruiting representatives to visit the outer islands and more remote areas of participating countries.

4. Increase the female participation rate in the programme

Given the SWP is a demand-driven scheme, efforts to boost the female participation rate should be concentrated towards altering the perceptions of AEs in Australia and looking at expanding into other industries that would support a higher participation rate amongst women.

5. Focus recruitment efforts on unemployed labour

For certain sending countries, most seasonal workers being sent through the programme are in formal sector jobs prior to departure. The opportunity cost for this cohort is substantially higher, given the forgone wage earnings and temporary exodus of skills. Sending countries should focus recruitment efforts on the unemployed who constitute a large percentage of the working-age population.

6. Examine the scope for reducing predeparture costs.

The cost of flights incurred by workers could be reduced if the incentives were put in place for AEs to book flights in advance. Furthermore, a case could be made for subsidizing the A$280 visa fee and potentially setting up clothing exchanges for departing workers.

7. Encourage the use of lower-cost Money Transfer Operators (MTOs)/ banks for remitting

Almost all Pacific seasonal workers are remitting using Western Union which remains one of the most expensive options. Further efforts should be made to promote the Send Money Pacific website which compares the costs of different MTOs/ banks, as well as ensuring that basic financial literacy is covered in predeparture briefings, which would allow departing workers to make these calculations.

8. Enhance portability and ease of accessing superannuation.

Many Pacific seasonal workers remain unable to access their accrued superannuation in Australia. There is an estimated A$11.4 million in superannuation contributions that workers have not been able to access.

The preferred option would be to establish an arrangement whereby superannuation earnings in Australia can be easily transferred across the Pacific Provident Fund accounts. Where this is not feasible, workers should be assisted to submit their withdrawal applications.

9. Provide tailored financial advice and savings options for Pacific seasonal workers upon return

Returning workers should be offered tailored financial advice and options to tie up their savings in investments with higher returns. Ultimately, the money derived from the programme are private earnings, so there should be no requirement that they save or invest, but ensuring that they are fully informed and aware of all options at their disposal would provide a net benefit.

10. Provide greater transparency around the use of community contributions made through the programme

Measures should be put in place to ensure that there is a degree of transparency around the expenditure of community contributions from the programme. This is particularly important for the church which receives a large share of earnings through the programme.

11. Address the demand-side constraints to increase the number of arrivals

Most importantly, this involves providing an equal footing with the Working Holiday Maker Visa programme. Eliminating or revising the second-year visa extension for Working Holiday (subclass 417) visa holders would remove the incentive in place for the 36,264 backpackers in rural areas, who predominantly work in horticulture.

This is not to suggest backpackers should be entirely replaced with Pacific workers, as they are also an important source of labor for the horticulture sector, but levelling the playing field would be a step in the right direction.

Successfully implementing these recommendations will require a significant commitment from the Australian Government agencies responsible for managing the SWP and AEs as well as the full set of countries participating in the programme. Nevertheless, the additional development gains from their realization are expected to be significant.

This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. World Bank. 2018. Maximizing the Development Impacts from Temporary Migration: Recommendations for Australia’s Seasonal Worker Programme. Washington, DC: World Bank. doi: – License: Creative Commons Attribution CC BY 3.0 IGO