International Student Labour and Technical Efficiency in Australia: Within‐State and Between‐State Associations

ABSTRACT International students contribute to the Australian economy in a variety of ways, including serving as a source of casual labour, specifically in low‐skill sectors. Despite being the second largest group of temporary workers in Australia, there has been no research on the relationship between these workers and host‐economy productivity. This paper addresses that gap by estimating the association between international student labour and the technical efficiency of Australian states and territories over the 2005–2024 period, using a stochastic frontier analysis (SFA) with a Mundlak correction. The specification separates within‐state, time‐varying changes in international student labour from between‐state, persistent differences in average exposure. We find that, in the preferred Cobb–Douglas specification, within‐state increases in international student participation are associated with narrower inefficiency gaps, although this association is sensitive to functional form and less precisely estimated under alternative constructions of international student labour. In contrast, states with persistently higher levels of international student labour exhibit wider inefficiency gaps, and this association is more stable across specifications. These findings are consistent with one possible interpretation that persistent reliance on international student labour may be associated with labour market arrangements that prioritise flexibility and lower labour costs over efficiency. These results raise policy questions regarding the compatibility of such practices with Australia's labour standards.