Perverse policy incentives and inferior economic outcomes

Abstract Between 1999 and 2012, Australia enacted a raft of policies that advantaged overseas students when applying for permanent residency, through the so-called 880 visa series. These policies greatly enhanced prospective students’ prospects to secure permanent residency when pursuing specific qualifications. Leveraging rich longitudinal administrative data linked to the universe of permanent visas issued in Australia, we analyse the economic implications of these historically skewed policy incentives. We document significant negative migrant selection. 880 migrants attracted lower incomes and exhibited lower probabilities of employment in high-skilled occupations, when compared to both migrants educated overseas as well as domestic students. 880 migrants achieved superior aggregate employment outcomes however, particularly in lower-skilled occupations unrelated to their fields of study. If visa streams are poorly designed therefore, any potential benefits of onshore education risk being crowded out by negative migrant selection.