Victoria University modelling: Immigration flattens wages

By Leith van Onselen

MB has argued consistently that running a mass immigration ‘Big Australia’ policy necessarily lowers the wages of incumbent workers.

This view is supported by various Productivity Commission modelling (see here), as well as several notable Australian economists.

International analysis from the Bank of England and Cambridge University also shows that immigration reduces wages growth (see here).

The economics is simple: continually increasing labour supply via immigration necessarily reduces workers’ bargaining power and ergo wages growth. And yet commentators from the Fake Left, in particular, continually ignore this obvious fact.

Now, we have another set of modelling from Victoria University confirming that immigration does push down wages. Here is the summary of the results via The Conversation [my emphasis]:

As part of our research, we modelled two scenarios. In the first we looked at what happens with regionally targeted 457 visas, by assigning workers on these visas to non-metropolitan regions. In the second we modelled what would happen if the visa holders were to settle across regions according to their current settlement patterns…

At the national level, we found that employment and real GDP increase by nearly identical amounts and, likewise, decreases in national wages are the same under programs where immigrants are targeted to rural and regional areas and where they haven’t been targeted.

At the regional level, in the short run, we found targeted visa programs boost regional activity. But this does not hold in the long run. After five to 10 years, economic variables such as real regional GDP and regional employment start to look the same as the untargeted scenario.

The reason for this largely lies in the regional displacement of workers already in the country. In the short run, the targeted migration program boosts workers in the target region. This causes wages in the region to fall relative to wages in other regions. This discourages workers from other regions from moving to the region, and encourages workers in the region to leave.

We have also examined what would happen with permanent skilled migration programs targeted at regional and rural areas… we found similar results to temporary visas.

Below is the key chart from the report clearly showing the negative impact on average real wages from immigration:

As you can see, under the labour supply shock from immigration, it takes a decade for real wages to recover back to baseline levels.

In a time of surplus labour supply and anaemic wage growth, it makes absolutely no sense to run a mass immigration ‘Big Australia’ policy.  Doing so is unambiguously detrimental to Australian workers – by reducing their bargaining power and wages, as well as increasing their cost of living through housing and eroding their overall quality of life.

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Comments

  1. There is also wage theft:

    a 457 skilled worker visa to work in the hotel’s restaurant

    the Malaysian couple had been reluctant to complain because they were worried it would affect their visas and applications for permanent residency.

    https://www.smh.com.au/business/workplace/boss-who-treated-workers-like-family-fined-more-than-200-000-20180526-p4zhqx.html

    A mere $35,099 fine. And they only complained because they got permanent residency. The income tax that “skilled” cooks pay should be checked by the ATO every year and if it is inadequate, their visa should be cancelled.

    Also, put a massive tax on each work visa! I said that in 2014 and Marcus Wong agreed with me:

    https://wongm.com/2014/05/yarra-trams-british-invasion-457-visas/#comment-248652

  2. Shock horror – for those who believe in perpetual motion.

    Here’s images of the “villas” that are scattered through the vast (once was a first world) metropolitan area of Buenos Aires, Argentina, population 13 million. Take a good look, that’s the direction our cities are headed long term.

  3. The theory behind this is simple, it’s calked Factor Price Equalisation Theorum. An often-cited example of factor price equalization is wages. When two countries enter a free trade agreement, wages for identical jobs in both countries tend to approach each other.

    The result was first proven mathematically as an outcome of the Heckscher-Ohlin model assumptions.

    Simply stated the theorem says that when the prices of the output goods are equalized between countries as they move to free trade, then the prices of the input factors (capital and labor) will also be equalized between countries.

    Simple!

      • JojoyubbyMEMBER

        Baristas is not a good example, the coffee bean can be traded but would you drink a coffee that was made in china and shipped across?

      • That’s my point. Most workers are not in businesses in competition with with workers in another country. A carpenter in Oz is not in competition with one in China, etc. From what Peter stated, the theory implied this was the case in some roundabout way. Anyway, a theory that has poor predictive power is, from a failed theory, although that seems to have little meaning in economics because….assume a can opener….

      • And this is why China and India are our biggest sources of immigrants. It seemed like overnight the government thought it would be a good idea to have immigration from these two countries. Government wants to cook the GDP books and bring down wages, particular as we move into a ‘service economy’.

    • Almost all migration studies ignore the country of origin of the immigrants. Of course this is critically important. The wages and work conditions that they expect at home, will have a huge bearing in what they will demand in their country of settlement.

      Migrants from low wage countries like India and China will suppress wages in a way that migrants from the US, or Singapore would not.

  4. My question via text to the Victorian Premier on ABC Radio this morning: What would you like Melbourne’s Population to peak at, or will it grow forever?

    Premier: Well, we are seeing very strong population growth at the moment, and there is a bit of a debate going on about that. I think the best response to a growing Victorian population whether it be in Melbourne or in other parts of the state is to get on and get things done. Thats why we’re building more schools and hospitals…

    Jon Faine: That doesn’t answer the question, about a target for population growth.

    Premier: Well, there will be a whole lot of different views on that, my my view on this is that rarely does a State government have the levers necessary to be controlling the number of people who come here. There are others who think you can just get on the phone to Peter Dutton and complain about things all the time. No my approach is get on, build the infrastructure we need, the road the rail, all those other things that we need. Get it done. That sets us up for growth. It also, it also fundamentally acknowledges we could go back to the 1990’s if you like, where people couldn’t wait to get out of here fast enough, that is not good.

    Jon Faine: Managing growth is a completely different argument than having a specific target or a ceiling, isn’t that the point?

    Premier: Im not here to announce a growth target, but I am realistic to know that I don’t run immigration policy for instance.

    • Unbelievable. Can you imagine if both Andrews and Berejiklian demanded the federal government cut immigration? It would have no choice. And yet they pass the buck and plead they are powerlessness.

      • The states can put various taxes on foreigners but they refuse to.

        $5,100 for each primary school child

        It should be $10k/year per kid.

        You will not be required to pay the school fees if your annual gross household income is $57,000 or lower.

        There should be no exemption for any kid of any 457 visa worker!

    • StephenMEMBER

      Not surprising tbh. Vic is CFMEU heartland and they don’t want the slowdown in construction activity. That’s right, their jobs are more important than everyone’s standard of living.

      Andrews getting on with what? Infrastructure cost blowouts?

    • Jon Faine: That doesn’t answer the question, about a target for population growth.

      Maybe Jon is not a closet globalist!

      • You bet the premier is and he knows it’s a dirty word these days, so he just loves this opportunity to pass the buck. What a weasel.

        As for Jon, yeah he probably is too. Never question growth!

  5. Migrant cost Impacts (and ’persistence’ of that impact). $160 billion is a conservative estimate.
    And some facts not generally known.
    1 in 6 people in Sydney or Melbourne is a PR / Citizen grant last 10 years migrant.
    But 1 in 4 in Sydney or Melbourne today will be a TR or TVI migrant.
    It is the TR / TVI issue that also needs urgent action, as well as the PR intake.

    Migrant intake costs & persistence can be separated into New PR/Citizen grant impact, and then TR / TVI impact.

    •Permanent Resident (PR) & Citizen grants.2 million PR & Citizen grants in the last decade. 85% of third world origin.
    76% are in Sydney (0.8 million) or Melbourne (0.6 million) so a much smaller number versus the migrant TR/TVI of 2.7 million with 1.3 million in Sydney & 1.1 million in Melbourne. See below.

    92% of the migrant PR / citizen grants were unskilled or below an Australian average skill & income level.
    (71% skilled category, less 33% partners or dependents, less 30% below Aust avg = net 8% skilled & needed in Australia).

    A large proportion of PR grants were from the onshore TR pool of Foreign Student or Sponsor visas, an intake widely corrupted in fraudulent & useless qualifications.

    The ABS Census 2016 & the Productivity Commission Migrant Intake Report 2016 shows that in the last decade, these new PR/ Citizenship Migrant individuals and families – earned less than Australian averages, had higher unemployment, & cost more in health care & welfare cost than Australian averages.

    https://www.pc.gov.au/inquiries/completed/migrant-intake/report/migrant-intake-report-overview.pdf
    Page 10 has charts on this.

    Interestingly they note as these migrants age, their contribution goes down & health and welfare costs go up, so this migrant intake currently is actually their ‘peak performance’, and it will only get worse.

    The ABS 2016 and 2015 ABS Migrant Outcomes Study) confirm this.

    The PR Citizen grant intake is unskilled.
    TR foreign students to PR results a decade on are shocking, only 3.6% in high income or professional vocation. Business sponsor & others – all end up as low skills, low income & high cost impact.
    We should not be giving PR to foreign students or any TR. The Productivity Commission Report page 30 says this.

    And all rest, in fact 90% are third world low skill. Low income, high social cost.

    Each of these Migrant individuals contributed $2,500 per year less in income/tax contribution, had higher welfare & health care costs of $2,500 yearly, plus housing, public infrastructure, transport, congestion & other impacts costing $3,000.

    Each Migrant individual on average was an $8,000 yearly cost burden, compared to existing average Australians.

    Persistence.
    They note the $8,000 cost burden per year ‘persists’ for Migrants for at least five years until they are ‘established’.
    This is longer than most migrant intakes.

    More detailed reports show Migrants from the Middle East, China, South East Asia, India, Bangladesh & Africa are persisting’ for longer in a very low contribution and much higher cost impact, often for a decade or intergenerational.
    (Lebanese, Middle East, African, Afghan, Nepalese, many rural Indians, Vietnamese Chinese PRC, Malay & Indonesian).
    In other views, Muslim’s in general (-12%) & the PR intake from TR ‘foreign students’, family re-union, spousal & business sponsorships’ in particular.

    Using a 5 year persistence of sub-par contribution and higher cost – each 200,000 Migrants each year at $8,000 is a cost impact of $1.6 billion yearly or $8 billion over 5 years.

    Over the more likely 10 years persistence, the intake of 2 million primarily third world unskilled has or will cost $160 billion.

    That is a $6,600 impact to every Australian, and $17,000 cost impact to each Australian Household.

    •TR & TVI impact.
    In addition to the 2 million PR/Citizen Migrants we also have onshore long stay 2.2 million Temporary Residents (TR). They are of 81% of third world origin (includes 203k of 610k NZ SCV as non NZ born back door), with 92% unskilled.
    Most are on pretext ‘student, visitor, bridging, sponsor etc visas.

    TVI (Tourist Visa Illegals)
    We have 440,000 illegally working Tourist Visa holders (5% of 8.8 million tourist work illegally DHA/ABF). Almost all are third world & unskilled.

    So that’s 2.7 million long stay onshore migrant guestworkers, the majority third world and unskilled on a pretext visa.
    This is a far higher number than PR.

    89% or 2.4 million of these TR or TV illegals are concentrated in Sydney or Melbourne.
    1.3 million live in Sydney & 1.1 million live in Melbourne. 1 in 4 people in both cities.
    The is the largest & most concentrated migrant guestworker population in the OECD. In fact it exceeding Gaddafi’s migrant guestworkers at its peak.
    This is also a far higher number than the PR migrants – almost double in the two cities.

    In other words 1 in 6 people in Sydney or Melbourne will be a PR migrant.
    But 1 in 4 will be a TR or TVI migrant.

    The impact of the 2.7 million migrant TR & TV Illegals has been to decimate housing, education, legal employment & wages. (For Australians & new PR/Citizens also).
    Obviously with 2.4 million in Sydney & Melbourne that is the epi-centre of impact.

    No housing was built for these 2.4 million TR or TVI migrant guestworkers.

    They have massively corrupted housing, now occupying some 550,000 modest Ex-Australian dwellings in both cities, purchased by foreign criminal to run as migrant only cash in hand sub let bunk & mattress share.

    The housing bubble as foreign criminal syndicates voraciously acquired & convert low cost modest Australian housing into migrant slum share has destroyed housing affordability for Australians with mortgage debt, higher rents (some tens of billions of direct impact to all Australians) and now 120,000 Australian homeless, some $1.4 billion in addition cost.

    The Temporary Visa group is the mainstay of foreign criminal run vice, drugs, money laundering, fraud.
    It has corrupted our education institutions (global ranking fell 10 places), university’s & colleges prostituted themselves in sham courses for a visa alibi, and massively increased the cost of education for Australians.
    There is widespread corruption of all the visa categories (sponsor, spousal, 457, rural extension churn, backpacker, NZ SCV, visitor, student, bridging churn).

    The 2.7 million migrant guestworkers form a $106 billion underground foreign run blackmarket, labor racketeering, cash in hand, vice & criminal industry onshore.

    That has destroyed wages, employment and employer investment in Australians.

    We now have 1.1 million Australian unemployed and 1.2 million also seeking work. Various media & government reports confirm that almost all new jobs growth, most casual low skill low income jobs btw – has ‘gone to the migrants’.

    The new arrivals on PR/ Citizenship complain that jobs, wages, tenure is massively impacted by the 2.7 million Tr or TVI migrant guestworkers most working illegally.

    The situation is in crisis.

    -/-

    The action needed is to follow other countries in managing migrant economic & social impact.

    1. All Permanent Residency grants are replaced with a 10 year Provisional Resident Visa (incepting from their original PR Grant date). This Provisional Resident Visa does not allow Australian Voting rights, Medicare or Centrelink benefits.
    Australian property purchase rights are restricted to Australian Government approved new dwellings and to a suburb and city control limit. This is consistent with most other countries, including where these migrants originate from, China, India, South East Asia etc, so we are just being consistent with their home country.

    2. Australian Citizenship only be granted to a Provisional Visa applicant after a proof of 10 years of net overall Australian economic contribution (tax contribution less welfare & health care costs) as well as proven English language & Social Assimilation skills, and the Applicant has passed Health and Criminal checks. (standard in most other countries)

    3. The new intake of Provisional Resident Visa holders is capped to 30,000 a year from July 2018. All applications for a Provisional Resident Visa need to be made from overseas. Australian Temporary Visa Holders DO NOT have any preferential Provisional Resident Visa selection. (again standard in most other countries).

    4. Total Australian Citizenship Grants are to be capped at 30,000 per year from July 2018 until 2028. That would be the % based limit for our size population plus that we have an existing multi million ‘Migrant overshoot’ and cost burden to digest for at least a decade.

    5. Temporary Visa holder changes include changes so that only NZ/Australian born adults can apply for SCV reciprocity. Non NZ Born as NZ residents would need to apply for a Provisional Visa like other non NZ migrants and this shuts down the back door. A normal alliance visa, restricted to only those born in either country, very common.

    6. No work rights for International Students, who can only hold a 1 year renewable visa, with their International Student fees fully paid up front from offshore. Declared funds of all Temporary Visa holders are checked and monitored for the duration of the Temporary Visa holder stay. This is normal in most other countries.

    7. No allowance for any onshore Visa churn/extensions for Working Holiday, Visitor, Tourist or Students – they have to exit Australia and apply from offshore. Spousal and Family reunion applications are within the 30,000 PR cap, with proof of sponsor funds, and no health care or welfare benefits allowed for 10 years until they may gain Citizenship. Most countries enforce this as an offshore application rule and a decade or so of no government health care or welfare entitlement.

    These are all sensible and reasonable changes that are standard practice in most other countries – including China, South East Asia and India.

    This would be given to the Australian people as a referendum, and when passed, made binding constitutionally so it can’t be changed.

    That allows time for Australia to recover from the migrant intake impact and to prevent the Politicians and vested interests trying to change it.

    And then reviewed as another scheduled Public Referendum in 2028.

  6. Jumping jack flash

    “In a time of surplus labour supply and anaemic wage growth, it makes absolutely no sense to run a mass immigration ‘Big Australia’ policy. Doing so is unambiguously detrimental to Australian workers – by reducing their bargaining power and wages, as well as increasing their cost of living through housing and eroding their overall quality of life.”

    Yes you’re absolutely right, but like most things it’s a trade-off.

    If they stop the immigration, the recession we’ve been in for the past 10 years will appear in the statistics and continue for the next 10 years while wages recover. People will still have to pay off gargantuan piles of debt while “costs of living” are continuously gouged for all they can be. Recession causes unemployment. Everyone defaults. Banks collapse.

    But if they keep it going then the recession is hidden and everything appears, statistically, to be awesome.
    Wages are still rising, on average – they go into the pockets of the business owners after they replace their expensive staff with cheap ones.

    There’s more downside to stopping immigration than keeping it going. So it stays going.