The evidence is clear: immigration reduces wages

By Leith van Onselen

Robert Breunig, Professor of Economics at the Australian National University, has penned a piece in The Conversation arguing that immigration has no impact on wages of the incumbent worker population:

…our research shows that the impact of immigration on the labour market in Australia over the last 15 years is negligible.

The notion that immigration impacts wages or employment is largely based on a simplistic analysis of supply and demand. The idea is that immigration increases the supply of labour and, if everything else holds constant, this results in lower wages.

But the world is not this simple.

If the demand for labour is also increasing, then a greater supply of workers might be absorbed without reducing wages or increasing unemployment. Failure to attract new workers to a country could also lead to under-utilisation of capital. Mining equipment, for instance, might sit idle if there are no workers to run the machines. This would reduce economic growth.

But, at the end of the day, the question of whether immigration hurts the wage and employment prospects of in-country workers is an empirical question. So my colleagues, Nathan Deutscher and Hang Thi To, and I decided to investigate…

Let’s look at two groups of Australian workers. The first are young, with five or fewer years of work experience and a high school education. The second group is older, with 21-25 years of work experience and a tertiary education…

We looked at changes in immigration rates into different skill groups in Australia to identify the effects of immigration on the earnings and employment prospects of Australian workers.

Our dataset was made up of data from the Australian Census, the Surveys of Income and Housing (SIH), and the Household Income and Labour Dynamics in Australia (HILDA) Survey.

There are some drawbacks to using these data sets. We are missing migrants who reside in Australia for less than one year and are not picked up by the census, such as backpackers and short-term 457 visa holders. The time period was also one of robust economic growth – we can’t say what would happen with the same level of immigration in a period of much slower economic growth…

Once we controlled for the fact that immigrants to Australia disproportionately flow into high-skill groups with higher wages and other positive outcomes, we found immigration had no impact on the wages of incumbent workers…

Our research only looked at one, very limited, aspect of immigration. Immigrants can also bring cultural and culinary diversity, innovation and creativity. But while employment is only one aspect of the costs and benefits of immigration, it is not as impacted by immigration as we may think.

The final paragraph gives the impression that the ANU academics have a bias towards immigration, given they noted the ‘benefits’ of “cultural and culinary diversity, innovation and creativity”, without also acknowledging the negative externalities from immigration, such as increased traffic congestion, reduced housing affordability, and environmental degradation. This is hardly surprising, given the ANU is a factory for foreign students.

Their modelling also has a clear short-coming in that it only examined labour market outcomes during a period of “robust economic growth”, rather than the situation we have now where immigration remains strong:

Despite very high (and worsening) labour underutilisation:

And record low wages growth:

Despite increasing labour productivity:

Instead of trusting their modelling, I prefer to go with the Productivity Commission (PC), which has studied the economic impacts of immigration for well over a decade, and can rightfully be considered an ‘independent umpire’ on the issue.

On the specific issue of whether immigration lowers incumbent workers’ wages, the PC’s view is clear. In 2006, the PC completed a major study on the Economic Impacts of Migration and Population Growth, which modelled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25 and found that the benefits from increasing skilled migration accrue to the migrants themselves and wealthy capital owners, whereas existing resident workers are made worse-off. Here’s the money quote:

The increase in labour supply causes the labour / capita ratio to rise and the terms of trade to fall. This generates a negative deviation in the average real wage. By 2025 the deviation in the real wage is –1.7 per cent…

Broadly, incumbent workers lose from the policy, while incumbent capital owners gain. At a 5 per cent discount rate, the net present value of per capita incumbent wage income losses over the period 2005 – 2025 is $1,775. The net present value of per capita incumbent capital income gains is $1,953 per capita…

Owners of capital in the sectors experiencing the largest output gains will, in general, experience the largest gains in capital income. Also, the distribution of capital income is quite concentrated: the capital owned by the wealthiest 10 per cent of the Australian population represents approximately 45 per cent of all household net wealth…

In a similar vein, the PC’s most recent modelling found that labour productivity is forecast to decrease under current immigration settings, as are real wages, versus a zero net overseas migration (NOM) baseline:

Compared to the business-as-usual case, labour productivity is projected to be higher under the hypothetical zero NOM case — by around 2 per cent by 2060 (figure 10.5, panel b). The higher labour productivity is reflected in higher real wage receipts by the workforce in the zero NOM case.
ScreenHunter_14902 Sep. 12 16.24

The PC has, of course, also found significant negative externalities from immigration, which further lowers incumbent residents’ welfare:

…whether migration delivers an overall benefit to the existing Australian community will also depend on other factors, including the distribution of those economic benefits, and the broader impacts of immigration, notably the associated social and environmental impacts…

High rates of immigration put upward pressure on land and housing prices in Australia’s largest cities. Upward pressures are exacerbated by the persistent failure of successive state, territory and local governments to implement sound urban planning and zoning policies…

Urban population growth puts pressure on many environment-related resources and services, such as clean water, air and waste disposal. Managing these pressures requires additional investment, which increases the unit cost of relevant services, such as water supply and waste management. These higher costs are shared by all utility users…

Immigration, as a major source of population growth in Australia, contributes to congestion in the major cities, raising the importance of sound planning and infrastructure investment …governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation.

Hence, running a high immigration program becomes increasingly costly for existing residents. A classic example is infrastructure, where the PC in 2013 warned that total private and public investment requirements over the next 50 years are estimated to be more than 5 times the cumulative investment made over the last half century:

Australia’s population is projected to increase to more than 38 million by 2060… The likely population growth will place pressure on Australian cities… In response to the significant increase in the size of Australian cities, significant investment in transport and other infrastructure is likely to be required. This is true both within the cities themselves and for the links between regional and major cities. Policies will be needed to reduce congestion problems, and to ensure adequate infrastructure funding and investment efficiency…

Total private and public investment requirements over this 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century, which reveals the importance of an efficient investment environment…
ScreenHunter_15679 Oct. 25 14.39

The PC report also warned that without such massive investment, multifactor productivity – the key driver of living standards – would fall:

ScreenHunter_15680 Oct. 25 14.45

The implied level of investment to drive such capital accumulation is large — estimated at around $38 trillion dollars over the projection period in constant 2011-12 prices (table 4.4)…  Australia will be buying and building a large amount of physical capital. Without the efficient allocation of that capital, the achievable labour productivity growth rate would be considerably lower.

The bottom line is that running a high immigration program requires massive investment and costs a lot, and these costs are borne to a large extent by the incumbent population.

Therefore, if you want wages to be reduced, traffic congestion to get worse, to pay more for utilities and housing, and to see the environment get degraded, then continue with current mass immigration settings. But if you care about maintaining Australian living standards, then immigration needs to be slashed to sensible and sustainable levels.

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Comments

  1. simpeltonMEMBER

    Nail on the head. This is all you need for the property bubble to pop. Falling wages due to increased competition amongst the growing population. Not unemployment. The Australian government can keep spending for a while yet to keep everyone employed but it will be at a dollar an hour so zero effective employment but thats not going to help rents or mortgage repayments. As the government ignores the role of credit and talks about supply and supply reform, they will increase net supply when additional supply is not required because wage pressure is going to become self evident in the coming 12 months. At that point, they will turn off the tap on immigration but will need to continue to incentivise construction as thats a good number of jobs adding even more supply (in Sydney – apartments but other cities, mixed). Everyone else is going to competing against each other for the same and more low paying jobs. Remember and MB simply does not cover this enough, we are going through a revolutionary period where automation is going to reduce number of jobs and no there will be no new jobs created from the automation (the consultants who talk about data related jobs are using new buzzwords for existing jobs). The automation is accelerating and requiring less capital and time to put into place. This is in fact driving productivity, contrary to the non sense we hear from economists saying productivity rates go up because their measure is simply dollar units rather than quantity or quality. Big part of why the central bankers can’t creation inflation, forget reflation, is because we have inherent deflation which brings me full circle to falling wages that is going to kill the australian credit and housing ponzi and the collapse will happen when everyone comes to this realisation and we are close to the same.

  2. George Megalogenis wrote a book in 2015 about immigration:

    https://www.thesaturdaypaper.com.au/2015/10/31/australias-second-chance/14437944002448

    “A union movement and Labor Party born in the struggle for an eight-hour day and a living wage for the working man and his family would not easily accept large-scale immigration that could mean 10 or 20 men competing for one job.”

    The ALP now love importing 300 people to compete for 1 entry level job.

    “As a candidate at the 1928 election, Chifley accused conservative prime minister Stanley Bruce of putting “dagoes” before “heroes” by allegedly favouring Italian immigrants over World War I veterans in employment policy.”

    Boy is the ALP favouring 457 visa workers over Anzacs today! And so did Gillard.

    “The migration program was not always consensual – Labor and the Coalition dissented when they thought it would help them politically”

    What? Why the hell have they refused to cut immigration in the last 15 years?

    • Liberals Know it makes them ritch by pumping housing demand and lowering wages.
      Labor think the new immigrants will vote for them while powering construction and their union fees.

    • ErmingtonPlumbingMEMBER

      Well, if we are going to have a bit of fun dissecting the Politically incorrect utterings of past politicians,

      Former Labor leader Authur Calwell,

      “I am proud of my white skin, just as a Chinese is proud of his yellow skin, a Japanese of his brown skin, and the Indians of their various hues from black to coffee-coloured. Anybody who is not proud of his race is not a man at all. And any man who tries to stigmatize the Australian community as racist because they want to preserve this country for the white race is doing our nation great harm… I reject, in conscience, the idea that Australia should or ever can become a multi-racial society and survive.[15]”

      “Anybody who is not proud of his race is not a man at all.”

      Mmm,…how do we define “a Man” these days ?

      Does what race you are make a difference, in the social acceptability of Race pride?

      If someone says they are proud of their Aboriginal blood, we say Good for you, but if someone says they are proud of being White,…everybody gulps and shits themselves,..that they have been cornered by some racist nutter.

      Boomers grew up around all this.

      “Calwell’s attitude to Indigenous Australians should also be considered. In his memoirs he wrote: “If any people are homeless in Australia today, it is the Aboriginals, They are the only non-European descended people to whom we owe any debt. Some day, I hope, we will do justice to them.”[16]”

      • No, the point is that immigrants have always been imported into AUS to smash wages.

        George Megalogenis said that in the 1960s there was a newspaper headline saying “more jobs than people” and in those days people would just get hired without a resume :-). And of course low-wage immigration should have been slashed when Rudd gave out $900 cheques.

        Now 28% of AUS is foreign born. That was never the case from 1901 to 2011.

  3. DarkMatterMEMBER

    You are probably wasting your time batting down Prof. McGoo and his Magic Pudding data sets. He is saying what a lot of people want to hear, so I suppose you could say it is some Professorial Virtue Signalling. You can tell that by the last paragraph where he displays his feathers of Virtue –
    ” Immigrants can also bring cultural and culinary diversity, innovation and creativity.”
    – which presumably is irrelevant if his main point is true. You would think a Professor would know that.

    I think we will see a lot more of this nonsense. –
    Immigration doesn’t lower wages.
    Automation will create more jobs!
    Houses will get cheaper and more expensive at the same time.
    Bigger cities are better for you.
    Little tiny houses are just so cute and super cool.

  4. CounterfiatMEMBER

    But these facts go against the ‘professional development’ conferences attended by journalists, so that they can keep their job and advance in the field of presstitution. The Globalist Gob has something to say you know, and they pay handsomely to recruit their harlots abusing the minds of a captive people.

  5. I’m sure I read from one of the economists at a business school that skilled immigration artificially lowers the wage gap.

    Anyway, Dick Smith is right. Australia is heading toward a working poor like America. We don’t re-skill.

    That worker on the mining equipment now sit idle as a hiring manager finds a closer match through Infosys.

    It’s basically this: https://youtu.be/daysCqmqd2Y

  6. The Professor is, well, he is a Professor right ! he has letters after his name, or should have ! NFI would be appropriate.

    ANU is a visa factory for Asian students. So its hardly surprising in this world where integrity is a rare quality.

  7. Jake GittesMEMBER

    Publishing or referring to articles from The Conversation is heroic. As the article earlier this week on affordability, and several others over the months have shown, The Conversation has a low threshold to publish tendentious intellectually feeble work which reflects very baldy on Australian academia. It is mostly ‘publish or perish’ poor quality work and it looks as if academic use it to pad out their CVs.

  8. ” The idea is that immigration increases the supply of labour and, if everything else holds constant, this results in lower wages.”

    He’s got that totally wrong that’s not the idea at all. The idea is that many immigrants come from low wage countries and are brought in deliberately to undercut the wages and standards of Australian workers as they have lower expectations. They have very little impact on Australian wages if they have higher expectations because they come from a country with similar living standards.

  9. It’s bleeding obvious that the effect of immigration will depend on the state of the labour market…it could raise wages in times of labour shortages (by facilitating new economic activity) and would decrease them in times of underemployment…So the only question that really matters is the state of the labour market.
    But I would have thought the more interesting impacts to assess are those involving certain cohorts – e.g:
    – with whom do “skilled” immigrants compete for labour – and how does this differ by industry? Is it against experienced local workers with similar qualifications, or graduate local workers, or unskilled local workers?
    – how has immigration of “skilled” workers impacted tertiary graduates in Australia (who are experiencing record low levels of full-time employment after graduating).
    Overall I tend to think that skilled immigrants have their qualifications undervalued in Australia, so have to take entry-level jobs in many instances. That would mean skilled immigration most disadvantages our recent tertiary graduates, and the data suggests this might be true.

  10. We just have immigration in the wrong sector than. The wages of medical professionals, like specialists, dentists and pharmacists are outrageously high and need to be supressed. This will also reduce waiting times to boot.

    • We have already tried pretending that 3rd world medical degrees are better than Scandinavian and British medical degrees.

      “Dr” Jayant Patel, “nurse” Bhavesh Shah, and in 2017, “Dr” Shyam Acharya.

      But yes, low-wage immigration means that Aussies like me miss out on jobs.

      There are Kiwis on low wages too, so why must staff be imported from the 3rd world? Oh yeah, they are willing to work for $10/hour – Kiwis do not really come here to work for $10/hour.

  11. lermontovMEMBER

    There was a shill on the radio this morning saying that NSW is 10,000 well-trained tourism specialists short due to a spike in tourist numbers. The suggested solution was that we urgently need more 457 visas – because nothing says Welcome to Australia mate, more than foreign-accented English (if any) from a very recent immigrant on a temporary workers visa.

  12. The left would rather drop dead than give up their moral superiority. Their answer is always just tax something and create another department of basket weavers. Dumb as posts.

    • Mass skilled immigration to suppress wages via high unemployment is right-wing policymaking.

      Left-wing policymaking would be humanitarian immigrants and a jobs guarantee.

      • True left wing would remove the job search requirements of Newstart given that there are not enough jobs to go around and the ALP are hell bent on giving entry level jobs to 457 visa staff anyway.

  13. demografixMEMBER

    1. Our natural growth is going to fall rapidly as increased deaths are inevitable. – http://tinyurl.com/kv3wthx
    2. Our NOM may not grow, at all as an ageing nation becomes anti-immigtaion politically and as other countries ‘compete’ for the skilled labour.

    Please note, I do not support ‘Big Australia’. I do support dealing with what we ‘know’ rather than populism and fear. So when we see conflicting conclusions in ‘academic’ or ‘political’ articles like this by Robert Breunig and MB, the PC etc, one must just remain aware of the underlying trends and actual data. Confirmation bias is clearly evident in demographic and economic articles.

    • “I do support dealing with what we ‘know’ rather than populism and fear.”

      And what we “know” is that Australia’s population is projected to hit 40 million mid century under current immigration settings. These are official government projections. Why do you continue to ignore them?

      • demografixMEMBER

        Well mainly because we have been below even the lowest of their predictions for NOM as Series C for three years now since these projections were made. So what we ;know’ is that the ABS got that wrong…who would have thunk it… 🙂
        Data – http://stat.data.abs.gov.au/Index.aspx?DataSetCode=NETOVERSEASMIGRATION_CY
        (193,000 for 2016)

        Also worth noting again that the methodology changed again in 2006 and that made a significance difference in the NOM being reported higher. In my opinion, the methodology will change again to decrease the reported NOM to suit the politics of the day.
        https://s9.postimg.org/hqq63ifqn/NOM.jpg

      • demografixMEMBER

        In short..

        Ok, so this is why I ‘ignore’ the ABS projections…

        Our NOM average over the last 4 years is 189,900, well below Series C projections for the population since the 2013 projections were done.

        Why would you ‘believe’ projections that are so wrong to date?

        What we ‘know’ is how much it has grown and when in the past and how the methodology for the measurement has changed.

      • On the topic of government forecasts, it’s interesting to note how the DIBP went at their last forecast attempt (Sept 15), seeing as the most recent DIBP forecast (Sept 16) feeds into the material above.

        Forecast Actual
        June 14 224k 186k
        June 15 232k 177k
        June 16 246k 182k

        If they’re aiming for a target, they’re not getting there. If they’re simply trying to make a forecast, they have a persistent upside bias suggesting the forecasts are inflated for someone’s political ends, rather than being an honest attempt at getting the correct result (more likely to see misses on both sides, and not such a uniform overshoot).

        If the DIBP continue with the same forecast accuracy into the future, assume that the next three-four years of NOM will be closer to 180-190k than to the almost 300k in the graph above labelled ‘Population Growth- Rolling 4 quarter sum’

    • It wouldn’t surprise me if the figures are incorrect. The more important consideration is still the ongoing push for population growth and the Big Australia despite the declining conditions here.

      These declining conditions, increasing exploitation and the growing unrest may certainly give rise to a situation where we see migration levels plummet as Australia no longer offers a decent quality of life or relative safety.

      We still seem to be growing by a greater number each year at the moment though.

  14. Mate you missed the ball with the first swing.

    They ONLY looked at people under 21 or over 40 years of age. So, basically students (who are not in the work force) and senior position holders. No surprise that migrants don’t impact wages then.

    They also only considered highly skilled migrants – what ? Seriously ? Since most migrants are highly skilled ?! What the fuck ?

    So they then “adjusted” for that. So the only area that could have been impacted out of students or over 40’s – was over 40’s – so they adjusted that out.

    Further they did not consider the impact of ANY 457 visa holders.

    No, really. Here is a study measuring the impact of migrants – which does not measure the impact on anyone under the age of 40 except those still at uni.

    Why bother responding with facts and figures to a completely and utterly risible, bullshit made up, designed explicitly for business science.

    You should not have bothered – instead you should just call it out for what it is – agenda driven science which is the root cause of large swathes of our current global cultural malaise.

    Shocking stuff.

    • Lol, I’m going to have to read that a few times. Agreed on the agenda. Sigh….it is certainly tiresome having to respond to this nonsense time and again, but it has to be done so that vested interests that continue to try and hoodwink an uninformed public with econobabble and demographic nonsense are confronted and hopefully, public awareness is raised.

  15. Immigration has improved competion, productivity and the average IQ in Australia…why would you stop it?

    • the everything issue

      Nobody is staying “stop immigration”. We simply need to lower it from the current 200,00 p/a back to the long term average of 70,000. Only then will we ever have a Sustainable Australia.

  16. First text block gives a clue to the real issue..

    2.2 million of the 2.4 million temporary & tourist pretext visa are mostly illegally working migrant guestworkers and are completely missing in the analysis.

    “There are some drawbacks to using these data sets. We are missing migrants who reside in Australia for less than one year and are not picked up by the census, such as backpackers and short-term 457 visa holders”

    So ADD
    pretext visa ‘international students’ well over half a million working illegal fake id no tax cash in hand.

    And pretext non nz born back door nz visa – nearly half coming in via nz backdoor special Visa are not nz born.

    And 457 & family members work rights – 200,000.

    And the 230,000 fake partners across all visa categories with work rights.

    And the 400,000 plus illegally working tourist visas.

    And the 85,000 overstayers.

    And the 150,000 mostly pretext bridging visas…

    That’s 2 million completely missing

    Yet that’s 17% of the actual workforce and the one doing the tremendous damage to our housing employment and wages in blatant third world migrant guestworker importation..

  17. Bring on the bust.

    We need a deep deep deep recession.

    The greedy sheep can suck it up.