ACTU head, Sally McManus, appeared on ABC’s Insiders yesterday whereby she once again identified a bargaining power imbalance for Australian workers, which is hindering wages growth:
McMANUS: Things have changed since Paul Keating. Since the global financial crisis, we’ve seen profits and we’ve seen power concentrate in the hands of a few and because of that the system is no longer balanced… enterprise bargaining… is failing. There are less people on them, they are dropping back to awards and they’re not delivering the pay increases that they need…
The main reason why enterprise bargaining is failing is because working people don’t have the power they need to negotiate fair pay rises. So, if you work in a childcare centre, for example, and there is five of you, it is very hard to negotiate a pay rise with your management committee who might be volunteers. Really, why shouldn’t childcare workers be able to band together across the sector and say, “We want to set fair wages for childcare workers no matter where you work…
Often pay rises come about, not so much because workers go on strike, but because they have the option to do so… [S]o because of that employers can think, “Well, we can just keep saying “no” and if we keep saying no the workers don’t have any other options so we know we will get the outcome we want.” That system hasn’t worked. We haven’t seen that operate successfully anyway, so we need to re-look at that and say we need to re-calculate our system to make sure it’s fair for working people.
However, when queried about the roll that mass immigration has played in holding down wages, McManus played it coy, questioning the efficacy of temporary visas, but remaining silent on Australia’s huge permanent migrant intake:
CASSIDY: Can I ask you about immigration just before we wrap up because it’s become quite an issue this week. The level is at 190,000 now. It looks as if that not going to be reached for various reasons, really around tighter control of visas and so on. What do you think about the level of immigration? Is 190,000 about right?
McMANUS: Yeah so Peter Dutton is the one that has brought it up all of a sudden and I think of it this way: Whenever they are in trouble, it’s as if they want to break the glass and get the emergency hammer out and ‘let’s start talking about immigration,’ and I really feel as though what they do is try and blame immigrants for things that are actually – things that are wrong with the economy, and a lot of things that I’ve talked about, it’s not the fault of immigrants that jobs are being casualised or we can’t get pay increases.
CASSIDY: No, but they take about overcrowding as well.
McMANUS: With immigration, we’ve got permanent immigration and this new issue of temporary visas that are operating in Australia that were only tiny 20 years ago. Now there is around a million people with work visas, temporary work visas. What’s happening is that we are shipping in exploitation and it is taking away jobs for local people, so if we wanted to do something about this issue, Peter Dutton could do something about that now and we should move away from this temporary idea of having guest workers and instead move to ensure we maintain a proper permanent migration system.
CASSIDY: What do you say about overall numbers then? If you were to reduce the temporaries, are you happy with the overall number?
McMANUS: We wouldn’t put a number on it, we think at the moment we have far too many people on temporary work visas, though.
It is basic economics that if you stem the flow of foreign workers – be they temporary or permanent – then workers’ bargaining power will increase.
This dynamic was explained by The Australia Institute’s chief economist, Richard Denniss, last year when he noted that 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”. That is, 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'”.
Brian Redican, chief economist at the NSW Treasury Corporation, noted similar last year:
There are more well-qualified graduates today than ever before. The increase in Australia’s immigration intake is part of the reason. Over the 20 years to 2005, annual net overseas migration was around 100,000 people; in the year to March 2017, it was 232,000. And the composition of the intake has shifted, away from humanitarian and family reunion categories and toward economic migrants who are ready to work…
The combination of strong employment and subdued wages is consistent with a rapid uplift in labour supply. With so many highly qualified graduates after the same job, employers have less incentive to compete by offering higher starting salaries. Those graduates who miss out on the best jobs will find work, but this might be a teaching graduate working in a childcare centre, or a law graduate driving an Uber…
As has labour market economist, Dr Bill Mitchell:
There are thousands of overseas workers on the special 457 Visa (temporary workers) who are exploited relentlessly but who will not mostly complain…
One of the advantages of maintaining full employment is that it introduces what I have called in earlier work I did a dynamic efficiency into the economy. Firms have to be continually offering training and skills development as they create new jobs because otherwise they will not maintain market share…
With mass unemployment, firms get lazy and refuse to offer on-going training. They then cry out that there are skills shortages when, in fact, all they are saying is that they cannot be bothered laying out the resources to train their workers in job-specific skills.
But lurking behind all that is the 457 ruse – which employers know is a way to further undermine domestic wages growth and working conditions.
CBA senior economist, Gareth Aird, also made similar arguments last week:
…strong growth in labour market supply has reduced the capacity of workers to negotiate pay rises.
How? As we have discussed before, Australia has adopted a policy decision to run a very high immigration program by OECD standards (charts 6 and 7). It has continued down this policy path despite several years where labour market slack has been elevated (that is, there has been plenty of Australian’s looking for work in some capacity). From a wages perspective, immigration augments the supply of labour beyond what would have naturally occurred. That intensifies the competition for existing jobs while of course also adding to the demand for labour. The bigger the supply side shock, the more that the competition for existing jobs intensifies. This puts downward pressure on wages initially, but its effect should only be temporary. However, if the supply side shock continues when slack is elevated the temporary impact may not prove to be so short lived…
If “skills shortages” are not able to manifest themselves because employees are consistently able to hire from abroad, then employees have had a reduction in their bargaining power that is independent of the level of slack in the local labour market. Essentially talent is not scarce because firms can hire from a global pool of labour. The downward pressure that this applies on wages growth is amplified if a worker from abroad is able and willing to work at a lower rate of pay than local residents.
UBS senior economist George Tharenou chimed in:
The labour market is strangely mixed. Jobs – especially full-time – are around as strong as possibly could be expected at this stage of the cycle. This is supporting housing activity. However, booming population (especially migration) & a spike in participation is a massive ‘positive labour supply shock’, seeing unemployment ~steady for 2 years now. There is still likely more spare capacity in Australia’s labour market compared with other major economies which are at or below NAIRU – and hence we still don’t see a large lift in wages in the near-term. Overall, we still see the RBA on hold in 2018.
Think about it from an employer’s perspective: why would you grant a pay rise when you can easily replace a local worker with a migrant willing to work for less? You wouldn’t. Nor would you bother to train-up a local.
It is good to see Sally McManus taking on the immigration class war, “shipping in exploitation” as she put it, via the temporary migration system, which is “taking away jobs for local people”. But she conveniently ignores that it is the permanent flow that is behind the choking of infrastructure and rising housing costs, and also adds wages pressure. Moreover, many migrants come to Australia on temporary visas with the hope of transitioning to one of the many permanent non-humanitarian visas handed out each year (numbering roughly 190,000).
Thus, if Australia was to remove the carrot of permanent residency by slashing the intake, it would also reduce the flow of temporary migrants, since the two areas are intrinsically linked. In turn, workers’ bargaining power would be increased.
Let’s also not forget that ordinary workers’ cost of living would be reduced through lowering immigration, for example via cheaper housing (both prices and rents) and infrastructure, not to mention sinking the Australian dollar, thereby making trade exposed industries more competitive.
The bottom line is that the ACTU should make restoring integrity to Australia’s bloated temporary and permanent visa system a central plank of its policy agenda. Few other policies would do more to safeguard ordinary workers’ living standards.