Throughout the immigration debate, MB has consistently argued that immigration is helping to hold down wages.
The economics is simple: when labour supply is continually increased via mass immigration, competition for jobs is intensified, worker bargaining power is reduced, unemployment and underemployment will remain elevated, and wages will be held down.
In Australia’s case, the situation is made worse because employers have been given the ability to easily employ cheap foreign workers under the ruse of ‘skills shortages’, thereby removing their incentive to train locals, and undercutting local wages and conditions.
Yesterday’s speech on inflation by RBA Assistant Governor Guy Debelle contained the short but important admission that immigration is holding down wages [my emphasis]:
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The Bank’s forecast is that, as the labour market continues to tighten, wages growth should gradually pick up, and along with that we would expect market services inflation to also increase. However, as we have noted on a number of occasions, there is considerable uncertainty about the extent of unutilised capacity in the labour market and how quickly a reduction in spare capacity would translate into higher wage and price inflation. It is possible that the unemployment rate could fall faster than expected and wages growth could pick up more strongly as a result. Alternatively, it is possible that the flow of new workers into the labour force could continue to be stronger than usual, so that unemployment declines more slowly than we expect and wage pressures could take longer to emerge.
Clearly, the primary driver of “the flow of new workers into the labour force”, which has caused unemployment to “decline more slowly” and caused “wage pressures… [to] take longer to emerge” is immigration.
When you add 200,000-plus migrants to the economy every year, most with work rights, then it represents a positive rolling labour supply shock which must be absorbed.
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Even Treasury’s propaganda report admitted that most new jobs created in Australia have gone to migrants:
Recent migrants accounted for two-thirds (64.5 per cent) of the approximately 850,000 net jobs created in the past five years. For full-time employment, the impact is even more pronounced, with recent migrants accounting for 72.4 per cent of new jobs created.
Various Productivity Commission modelling has also shown that immigration lowers the wages of incumbent workers (see here). These results were confirmed recently by modelling from Victoria University (see here). Several notable Australian economists have noted similar.
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International analysis from the Bank of England and Cambridge University also shows that immigration reduces wages growth (see here).
Again, the economics is simple: continually increasing labour supply via immigration necessarily reduces workers’ bargaining power and ergo wages growth.
So why isn’t Australia’s union movement up in arms at Australia’s mass immigration ‘Big Australia’ policy, which is not only eroding workers’ conditions and pay, but also pushing-up their cost of living via housing as well.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
