Weeo, weeoo, weeoo. The Pascometer is redlining on weak wages:
In a nation rife with duopolies and oligopolies, businesses are telling the Reserve Bank they can’t increase wages because of intense competitive pressure.
Funny thing about genuine intense competitive pressure: it tends to squeeze profits. According to measures from the NAB business conditions survey to the national accounts, profits are growing nicely.
The last 24 hours has witnessed a very straWhat continues to be missing from RBA commentary is recognition of the cult of cost-cutting in the C suite. Since the GFC ended the boom times, cost minimisation has been a key to executive success, not investment. Competition in much domestic business is not enough to suppress profit growth, but it is enough to minimise price and wages growth.
What is happening in the real world is a degree of price signalling within industries. HR associations and recruitment firms conduct and circulate surveys of wages movements so that everyone knows what everyone is paying for labour.
Cost cutting and price signaling are not new. There may be something in the argument that the ongoing concentration of all sectors makes it more possible. But that is not what was missing from either the RBA or Pasconometric analysis of weak wages. As Ellis said of the over-supply of labour holding down wages:
Another aspect of spare capacity that isn’t always fully appreciated is the scope for extra workers to come directly from outside the labour force, or from incumbent workers working more hours, rather than from the ranks of the currently unemployed. The more that extra labour demand is met from new entrants or longer hours, the slower the unemployment rate declines.
She pointed at increased female participation and technology which are clearly factors. What was not mentioned, at all, was mass immigration. Neither was it mentioned by The Pascometer.
We know why the latter won’t discuss it. His job hangs upon the house prices that underpin failing Domainfax revenues. Even though he is dreadfully hypocritical on it. Here he is March 2007:
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.
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.
In August 2007:
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 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…
But why does the RBA have a fatwa on immigration debate?
I suspect it is much the same cause. After all, the Bank is not much more than a bubble manager these days and having shot its wad on interest rates the last prop to its pet house price bubble is immigration.
But that does not excuse it for playing Australians for chumps. The RBA is not a complete moron so one can only conclude that it is deliberately self-censoring. And, as a result, destroying its own forecasting reputation as it goes (remembering that it is your bank not theirs):
As we recently argued in the MB submission to the migration review:
Hand wringing over Australia’s anaemic wages growth (Chart 16) hit fever pitch recently, with politicians, economists and media all searching for answers.
One cause that has received scant attention is the role caused by mass immigration in driving-up labour supply and reducing the bargaining power of workers.
Employer groups often argue that a strong ‘skilled’ migration program is required to overcome perceived labour shortages – a view that is supported by the Australian Government. However, the available data shows this argument to be weak.
The Department of Employment’s 2016-17 Skills Shortages report revealed that Australian skills shortages “continue to be limited in 2016-17”, and that there are a high number of applicants per job (Chart 17):
The Department of Employment also revealed a record number of Australians studying at university (Chart 18):
Of whom many graduates cannot gain meaningful employment (Chart 19):
The Australian Bureau of Statistics’ labour force data also shows that Australia’s underutilisation rate remains high, especially for Australia’s youth, despite the recent improvement in the labour market (Chart 20).
Curiously, Australia’s permanent skilled migrant intake is significantly higher today (128,550) than it was at the peak of the mining boom in 2011 (113,850). Why? Unlike then, labour shortages are “limited”, wages growth is running near the lowest level on record, and labour underutilisation is high. What is the economic rationale for running the highest permanent migrant intake on record when economic conditions do not warrant it?
Standard economic theory claims that net inward migration has minimal long-term impact on wages. That is, when the quantity of labour increases, its price (wages) falls. This will supposedly increase profits, eventually leading to more investment, increased demand for labour, and a reversal of the initial fall in wages. Immigration, so the theory goes, will enable the larger domestic population to enjoy the same incomes as the smaller population did before.
However, a recent study by Cambridge University economist, Robert Rowthorn, debunked this argument. The so-called ‘temporary’ effects of displacing incumbent workers and lower wages can last for up to ten years. And if there is a continuing influx of migrants – as is the case in Australia – rather than a one-off increase in the size of the labour force, demand for labour will constantly lag behind growth in supply .
In other words, if the Australian Government was to stem the inflow of foreign workers, then workers’ bargaining power would increase, as will wages growth. It is basic economics.
As noted in April last year by The Australia Institute’s chief economist, Richard Denniss, the very purpose of foreign worker visas is to “suppress wage growth by allowing employers to recruit from a global pool of labour to compete with Australian workers”. In a normal functioning labour market, “when demand for workers rises, employers would need to bid against each other for the available scarce talent”. But this mechanism has been bypassed by enabling employers to recruit labour globally. “It is only in recent years that the wage rises that accompany the normal functioning of the labour market have been rebranded as a ‘skills shortage’” .
Australia’s youth is effectively caught in a pincer by the Australian Government’s mass immigration program. Not only does it hold down their wages, but it also inflates their cost-of-living via more expensive housing (both prices and rents).
Australia has an over-supplied labour market in the throes of a perpetual supply shock. The outcome of this is no mystery at all.
The inability to utter the word “i-m-m-i-g-r-a-t-i-o-n” renders all of these folks inept and, frankly, corrupt. Defending old mistakes with new ones.
Weeoo, weeoo, weeoo.