More evidence mass immigration is pushing down wages

By Leith van Onselen

Last week’s speech by RBA Assistant Governor, Guy Debelle, admitted that Australia’s turbo-charged immigration program has held down Australian wages growth [my emphasis]:

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. That’s what happens when 200,000-plus migrants are added to the economy every year, most with work rights, thus ensuring labour supply is continually expanded.

Treasury’s recent propaganda report also 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.

Yesterday, CBA senior economist, Gareth Aird, released a new report confirming that Australia’s mass immigration ‘Big Australia’ program is contributing to low wages growth:

There is a close inverse relationship between underutilisation and wages growth (chart 5). As underutilisation rises (falls) wages growth falls (rises). The fitted line on chart 5 implies that for an underutilisation rate of 14%, wages growth, as measured by the WPI, should be around 2½%pa. In other words, most, but not all, of the current weakness in wages growth can be explained by a high level of labour market underutilisation.

Slack in the labour market is elevated in Australia because the supply of labour has exceeded the demand for workers. Policy has played a role. The decision to run a very high immigration program by OECD standards (charts 6 and 7) has augmented the supply of labour and pushed up the participation rate beyond what would have naturally occurred. That intensifies the competition for existing jobs while of course also adding to the demand for labour. So there is both a supply and demand impact.

The recent evidence suggests that running a high immigration program when there is plenty of slack in the labour market means that “skill shortages” are not able to manifest themselves as quickly as they might have otherwise because employees are able to hire from abroad in sizeable quantities. The relatively high intake of skilled workers looks to be a pre-emptive strike on the expectation that there will be skills shortages in the future. If there was widespread skills shortages then wages growth would be higher than its current rate of 2.1%pa.

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).

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.

Again I ask: 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.

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Unconventional Economist
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  1. Our neo-liberal government and employers want Aussie born workers to, get as smart as, work for the same or less than, and as hard as, new migrants into the country, and also maintain a pool of compliant skilled labor so our nation is internationally competitive into the 21st century. Vision 2030.

  2. And the new Indonesian FTA allows Indonesian companies to employ Indonesian migrants at Indonesian wage rates in Australia.

  3. Did anyone see this week’s waste of electricity – QnA? That female Labor politician came out with the most extraordinary thing. She said “Immigration is just a smokescreen – we should be concentrating on youth unemployment instead”. Bob Katter was the only one to object, but at that stage he had become a bit out of control.

    The only other funny was the serial public breastfeeding ex greens senator who claimed that there was no need to cull crocs in N Qld, as the people who get eaten have been on the p1ss and had it coming. Besides, the Greens have management plans in place – education programs (although not clear if the drunks or the crocs will be re-educated).

    Anyway, if the general public don’t link immigration with unemployment, what hope is there?

  4. PassingInterest

    The CFMEU supports higher immigration levels because it knows precisely that this is what is keeping its membership in jobs. Forget about the erosion of wages, without immigration and the corresponding investment into construction, the CFMEU membership would be decimated. Ironic really, given that this membership base is usually on the fringe of the disaffected who push back at the cultural changes wrought by immigration. They go a bit quiet now when you ask if it bothers them that these residential towers and student accommodation buildings and private education facilities they are building are all predicated on higher numbers of immigrants coming to this country. They accept it, as most do, out of pure self-interest.