Pascometer red lines on wages

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Weeoo, weeoo, weeoo. From The Pascometer, which ventures beyond property spruiking today:

Lowe’s speech to the annual Annika Foundation lunch spectacularly failed by somehow omitting two important factors that anyone operating in the real world is aware of. Michael Pascoe comments.

In more than 3000 words on the labour market and monetary policy, with a specific section on the mystery of low wages growth, there was not a single mention of the decline of unionism. The words “unions” or “organised” do not appear in the speech.

Lowe admitted nobody really knows why there is a global slowdown in wages growth, but he doesn’t help shed light on the issue by ignoring two obvious partial reasons for the Australian experience.

…Simultaneously, an important change has been taking place at the other end of town, another change not mentioned by Lowe. It’s a factor partially responsible for the other mystery that has bedevilled the RBA – the lack of non-resources investment growth.

This century has seen the rise and rise of “shareholder value” as the key determinant of executive bonuses, the K KPI, so to speak. It basically means a relatively short-term focus on boosting the share price.

Investment in plant and people and new products and markets takes years to pay off, by which stage the average listed company chief executive has long gone.

Cost suppression and risk avoidance, rather than increased sales, has become the key to fat bonuses for the C class.

The first reason is a good one. The second is symptom not cause. If you have oversupply why invest?

Yet still this debate continues to transpire without reference to the key input. The labour market is flooded with cheap foreign supply. That is sitting on wages across the entire services sector as firms give up on training locals in favour of pulling discounted labour via 457s, student visas, holiday visas, permanent migration from what used to be called the slave labour of the “third world”. The work of Adele Ferguson makes it plain how widespread this is. It is equally obvious in the broader statistics of per capita earnings.

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To be sure this foreign labour adds demand to certain sectors, too, but it sure weighs on wages growth as well. That’s why we ran it so hard during the mining boom skills shortages, right?

Here’s The Pascometer in March 2007 arguing just that:

Immigration Minister Kevin Andrews is reportedly taking to Cabinet next month [a submission] increasing the permanent migration program from the present 140,000 a year to “at least 180,000”…

The surge of guest workers and skilled migration has already kept a lid on wages. As we’ve previously reported, more than half the growth of 200,000 full time jobs last year went to guest workers and targeted skills migrants.

With no apparent cap on 457 visas, plus the Kevin Andrews’s migration submission, it will continue to do so.

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Here’s The Pascometer in July 2007:

From Brisbane to Perth and all major centres in between, Australian cities are groaning under inadequate infrastructure, choked roads, unaffordable housing, failing public transport.

…the influx remains beyond the planning and delivery capabilities of hapless state governments, never mind a federal government that underfunds the states.

The immigration surge plays a major role in keeping wages inflation under control and, therefore, interest rates down — but it’s putting plenty of strain on other parts of the system.

Here’s The Pascometer in August 2007:

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Crucial skills shortages in a number of areas means the idea of a flexible and fast temporary visa system has considerable merit, but the badly-administered and demonstrably slip-shod 457 scheme presently run by Kevin Andrews doesn’t.

And there are broader issues yet to be debated about the impact of 300,000 migrants this year on the labor market and economy, the role such an unprecedented intake will play in keeping down inflation by keeping down wages.

And Here’s The Pascometer in July 2008:

457s are now being processed faster than ever… As the Minister correctly notes, “the increase in the subclass 457 visa grants highlighted the importance of the program in delivering skilled labour to employers across a wide range of professions and industries.”

It also helps reduce inflation by keeping down wages in at least some select industries.

And, with the economy coming off the boil, the matching of 457 visa applicants with areas of particular skills shortages is somewhat less than laser sharp, if only because 47 per cent of those 110, 570 visas were for “secondary grants”, i.e. dependents, who themselves have a very high workforce participation rate in whatever field they fancy…

It’s not so good for workers in the lower half of the pay spectrum who lose bargaining power when positions are filled by 457 visa holders…

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Yet in today’s great spray at the RBA chief for omitting labour market influences, immigration gets no mention. Indeed, The Pascometer has recently spruiked it.

This is exactly the same as Ross Gittins yesterday, who appeared on the ABC yesterday where he blamed robots, capital, failing confidence, casualisation, the gig economy and Elvis Presley for weak wages. Everything except the major issue. Listen here if you’d like.

What happened to the Ross Gittins of 2011?

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Whether it is Paulinephobia or support for the Domainfax housing classifieds, I honestly do not know how these dirty old men sleep at night.

Weeo, weeoo, weeoo.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.