The brain drain is not a curse that needs to be prevented, writes Owen Young, but it may provide a great benefit for Australian firms
The brain drain is not a curse that needs to be prevented, writes Owen Young, but it may provide a great benefit for Australian firms
There has been much discussion about Australia’s ‘brain drain’. The Department of Foreign Affairs and Trade (DFAT) estimates that there are 800,000 to 900,000 Australians living offshore on a permanent or long-term basis. Most Australian expats are located in a relatively small number of locations – the UK and Ireland (180,000), Greece (120,000), USA (100,000), Hong Kong (50,000) and Singapore (10,000).
While the UK and Greece have strong historical and family links, other destinations such as the USA, Hong Kong and Singapore are more driven by economic reasons. The Committee for Economic Development of Australia found that most Australian expatriates are tertiary educated, with more that 30 per cent of those in the US and 25 per cent of those in Asia earning more than $200,000 per annum.
With so many Australians working overseas, it’s not surprising that Australia is perceived to have a relative shortage of competent senior managers. One way to overcome the brain drain is to import more skilled labour. The World Bank found that Australia was the third highest importer of skilled labour after USA and Canada. While the Australian Government and employers have been placing greater emphasis on this area, it is relatively difficult to bring in foreign staff. Surveyed executives considered Australian immigration laws to be more restrictive than those of Singapore, UK, Hong Kong and USA. Furthermore, foreign skilled staff found these countries to be more attractive as work destinations.
Australian expats are a rich potential source of talented staff. They are not restricted by immigration laws and have family ties back to Australia. However, it is not so easy to encourage them to return to Australia. There are real deterrents to them returning home including lower wages, lower thresholds and higher marginal tax rates. According to a 10-year Australian expat in New York, Jamie Iredale, “it is not just the nominal tax rate you need to consider but allowable deductions. A key difference between Australia and the US is that home mortgage interest payments are tax deductible in the US.”
On an after-tax, after-mortgage payments basis, highly qualified Australian expats can be significantly better off. Richard Pankhurst, another long-term expat in the US had returned briefly to Australia, but subsequently moved back to the US. Relatively low-income wage earners or retirees are better off moving back to Australia where they would have equivalent or better lifestyles,” he says. “Otherwise, the economics of staying in the USA are overwhelming. In my case, moving back to Australia would almost double my mortgage payments. In addition, the fees and taxes on my compulsory Australian superannuation account are outrageous.”
Managing Australian staff’s desire for international experience is a key issue for HR executives. Dharma Chandran, general manager, employee relations, performance and rewards at Westpac, advocates taking a longer term, pragmatic approach tailored to the career stage of staff:
First five to seven years. Staff in the early stage of their careers, early to mid 20s, should be encouraged to stay by providing training opportunities and to build a relationship with an employer that includes mentors and internal networks. For more junior staff, the salary level differential between countries is not that large and they can be encouraged to stay to prove themselves with one employer and establish their careers.
Mid-level managers. Once staff reach their late 20s to 30s, if they want to go overseas it is difficult to discourage them. If possible, we can offer offshore opportunities. Otherwise, if they join another firm offshore, then we keep track of their careers, either through recruiters or through our managers. We view that it is better to respect the interests of employees who want to work offshore than to leave them with a feeling that they have in some way been disloyal. If they return to Australia we will then be in a better position to attract them back.
Returning expats. Many Australian expats will eventually return. The typical trigger points are getting married, having children and the children reaching high school age. The key is to be in a good position to hire them when they decide to return. If we can maintain contact with talented executives over the longer term then we can be in a position to attract them when they return. You need to be the employer of choice by being a high performance organisation with desirable values and a strong reputation. We cannot always offer the same level of remuneration that they received offshore but Australia does have important lifestyle benefits. We can also possibly provide talented expats with the opportunity to work in more senior roles with more responsibility than they had access to offshore since we are an Australian organisation with our HQ in Australia.
In closing, the transition back to Australia is expensive and complex. To aid this transition, Australian firms need to do more than just provide relocation allowances. Access to services of tax advisors and relocation experts is desirable. Tax issues include the treatment of expenses for temporary accommodation and selling a principal residence and buying another in Australia. Similarly, returning expats need to obtain medical insurance, child-care places, and schooling for children.
The brain drain is not a curse that needs to be prevented; it may provide a great benefit for Australian firms. A report by the Institute for Management Development found Australian managers are perceived to be less internationally experienced than Hong Kong or Singaporean managers (which is to be expected given the small size and high export dependency of these markets) but more internationally experienced than US or UK managers. One of the factors driving Australia’s better performance is the large number of Australians who have worked internationally and have eventually returned home.
Owen Young is a researcher at the AGSM. He was an expat in New York and South East Asia for eight years.
