The Information Assymetry problem for Immigrants in Australian labour market

I have been thinking about the issues facing students and immigrants coming to Australia. The biggest issue they face is to get a job. The issue is not lack of skills on their part or lack of jobs in Australia.

The issue is what economists would call “asymetric information“.

In this scenario, in any the two parties in a market, one party will have more information than the other. In the example of  used cars, the seller generally has more information than the buyer. In a labour market, the employee has private information which is not known to the employer.

This creates “adverse selection”. In a path breaking work on this issue, George Akerlof, the joint Nobel Prize winner in 2001, wrote about the Market for Lemons. This paper and other work suggested that due to this asymetry the entire market tends to favour the lemons or lower quality products/services.

In the case of a immigrant/student who is new to Australia from countries like India, China and South east Asia they do not get a job or if they do get it; it is not matching their capabilities.

The problem stems from the fact that in the labour market they face specific issues.

One, the employers are not sure about their english language capabilities. Most of the time due to lack of knowledge the employers tend to believe that these immigrants have poor english language capabilities. People like myself have had a english medium education all through my life. The latest being from a university in Australia!

Two, the experience, skills and certificates are not being given the same value as somebody who studies in Australia or in a Anglo-Saxon country.

The problems stems from some perceived beliefs, lack of knowledge and not being able to screen the skill sets/certifications of these candidates. In this scenario, the employers are classifying all immigrants/students are lemons and most of them do not get the jobs matching their capabilities. How do we solve this?

The solution suggested by the the economists in these cases are “signalling” and/or “screening”.

Signalling could be where “Qualified candidates might be able to send a signal  to potential employers that indicates that they are good potential hires. For example, the employee may have some difficult-to-obtain credential or an advanced degree from a good institution.”

Screening is used when ” neither the employee nor the firm knows the true skills of the employee. It is done either before hiring (through some test or other certification process) or after hiring, by closely observing the employee.”

Further research in this area directs me (Link from New Economist) to an OECD study into immigrants in Australia  (PDF) and their experience in the labour market provides some good conclusions which match what I have stated above. 

Some of the conclusions are:

  • Overqualification: This is where immigrants work in jobs which have lower skills than what they have
  • Skills recognistion: A system of recognition of overseas skills compared to Australian standards. The study suggets that this may help in some areas.
  • English language: For skilled migrants this should not be a worry however, for migrants from non-OECD countries and especially from Asia, they still face barriers.
  • Qualifications (OECD/non-OECD): It suggests that it may not be Australian qualifications per se which matter, but rather qualifications from an  education system that is viewed  as similar to  the Australian which means where the study is from a OECD country.
  • Job placements: An effective solution suggested was govt. sponsored  temporary  and assisted work placements in skilled jobs, but they suggest that funding for this is limited and regional (which means some states do it and not others)

This study highlights the type of problems faced. As an immigrant to Australia from a non-OECD country I can confirm all of the findings.

I think that this should not be left to a govt. sponsored solution. The solution should come from the private sector.

The solution in this scenario is the creation of a job placement agency which caters to immigrants.

The temp/casual/part-time work is already a major industry in Australia. Major government agencies and the private sector function in this manner.

So what is temping?

From TeamLease, India’s largest temping agency.

Temping is a co-employment relationship between a Client company, temping company and the Employee.

The relationship between the three players is shown below:

 
 
  • The Temp Company and the Client Company sign a service level agreement (Overlap1)
  • The Employee and the temp Company have an employment relationship (Overlap 2)
  • The Employee provides services to the Client (Overlap 4).

 

Structure:

If this temp agency can have two parts. One, the local Australian part who can provide the connections and credibility to the employers about the hires. And two, the immigrant part which is manned by local residents of the immigrant community.

For example, as an Indian immigrant and a Australian resident I am in a better position to check the credibility in terms of experience, skills and education of an Indian candidate. Same goes for other countries/culture.

This combination will provide a methodology to screen the candidates and also provide credibility required to work with local employers.

The goal of this agency should be to focus on short term and casual jobs which does not need high level of skills. Experience in Australia has suggested that the first step is the biggest problem. Once immigrants start working and gain local experience they tend to be able to manage their career better and work in jobs which match their qualifications and experience.

The solution can be based on three parts.

Signalling:

As suggested before this can be an effective method in “information asymmetry” cases.

Signalling can be provided in a variety of ways:

  • Australian qualifications/certifications
  • Overseas skills and qualifications recognition 
  • English language capabilities through the IELTS

Screening:

The local immigrants screening oversease immigrants will provide a better quality and understanding of skills. The job placement organisation with a local Australian face and workers will provide the required screening for employers.

Also, the target market of short term casual work generally does not require any kind of interview etc from the employers. The job agency screening is considered adequate.

Support:

  • This revolves around helping immigrants to go through the required procedures to create the right signalling opportunities in terms of IELTS, Overseas qualification recognition etc. 
  • This should also include mentoring programs from Australian residents in similar professions. 
  • If possible, a paid or unpaid job placement

Considering the issues, the importance of a job for an immigrant/student, the need for good workers for employers there definitely seems to be a market for a organisation which can provide this solution.

The business model would revolve around two parts. Charging the immigrants on a success-fee basis for their placement and guidance and the general practice of earning a commission per hour for all the hours placed for a candidate.

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