Memo to Greg Jericho: Lower UK immigration lifts wages

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By Leith van Onselen

Over the weekend, the poster boy for the globalist ‘Fake Left’, Greg Jericho, penned a spurious article in The Guardian spruiking Phil Lowe’s debunked immigration propaganda and claiming that Australia’s mass immigration ‘Big Australia’ policy was not contributing to weaker wages growth:

Low wages growth, congestion, poor schooling, crime – pretty much whatever you want can fit under the “if only we cut back migration things would improve” argument…

It seems logical, but it really only looks at half of the equation…

Yes, migrants affect the supply of labour, but they also increase the demand for goods and services, which creates a demand for more workers to produce those goods and deliver those services. Yes, they increase the demand for housing…

After all, if Abbott’s supply of labour fallacy were to hold, you would expect the population to increase faster than the employment.

However, the percentage of 25- to 64-year-olds in employment is higher now than at any time in our past…

Lowe’s speech was a very timely push back to some of the pretty lazy claims against migration, and pointed to the actual economic benefits it brings…

Amusingly, the very next day Jericho’s own newspaper – The Guardianpublished an article explaining how UK companies were experiencing a labour “supply shock” from lower immigration, which has forced them to lift wages:

Companies are suffering from a “supply shock” as fewer EU citizens come to the UK, and companies struggle to fill vacancies, according to a survey of 2,000 employers.

The Chartered Institute of Personnel and Development (CIPD) said the number of applicants per vacancy had fallen since last summer across all levels of skilled jobs, and said shortages were forcing many companies to raise wages.

The number of people moving to the UK from other EU countries has fallen to its lowest level since 2013…

Half of organisations with recruitment problems said they had increased starting salaries in response…

Alex Fleming of recruiters the Adecco Group, which helped with the research, added: “With Brexit looming we’re seeing a talent shortage and a more competitive marketplace. In this candidate-short landscape the pressure is on employers to not only offer an attractive salary, but also additional benefits.”

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Low unemployment (4.2%). Wages growth. Improved conditions. What’s not to like?

Back in November, Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University, penned an excellent article in Project Syndicate which, among other things, smashed Jericho’s argument and explained why never-ending mass immigration pushes down wages growth:

Standard economic theory tells us that net inward migration, like free trade, benefits the native population only after a lag. The argument here is that if you increase the quantity of labor, its price (wages) falls. This will increase profits. The increase in profits leads to more investment, which will increase demand for labor, thereby reversing the initial fall in wages. Immigration thus enables a larger population to enjoy the same standard of living as the smaller population did before – a clear improvement in total welfare.

A recent study by Cambridge University economist Robert Rowthorn, however, has shown that this argument is full of holes. The so-called temporary effects in terms of displaced native workers and lower wages may last five or ten years, while the beneficial effects assume an absence of recession. And, even with no recession, if there is a continuing inflow of migrants, rather than a one-off increase in the size of the labor force, demand for labor may constantly lag behind growth in supply.

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This analysis followed an empirical study by the Bank of England, which found that immigration into the UK had pulled average wages down:

This paper asks whether immigration to Britain has had any impact on average wages. There seems to be a broad consensus among academics that the share of immigrants in the workforce has little or no effect on native wages…

We find that the immigrant to native ratio has a small negative impact on average British wages. This finding is important for monetary policy makers, who are interested in the impact that supply shocks, such as immigration, have on average wages and overall inflation. Our results also reveal that the biggest impact of immigration on wages is within the semi/unskilled services occupational group… where a 10 percentage point rise in the proportion of immigrants is associated with a 2 percent reduction in pay.

…the impact of immigration on wages in semi/unskilled services is much larger than can be accounted for by purely compositional effects, suggesting that the vast majority of this effect refers to the impact on native workers.

The economics is the same in Australia.

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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.

It is basic economics that if you stem the flow of foreign workers, then workers’ bargaining power will increase. This was explained beautifully 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'”.

Even left-leaning economist, Stephen Koukoulas, has noted similar recently on Twitter:

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Sadly, Fake Left economic commentators like The Guardian’s Greg Jericho cannot bring themselves to even acknowledge these basic facts when discussing wages, because to do so would somehow be ‘racist’:

Immigration – because there are many desperate to hate – must be treated with extreme care by politicians and journalists, and certainly with more care than Abbott seems capable. The inherently racist parties will seek to use any discussion and any seeming evidence of the negative impact of migrants as fuel to burn their fires of hate.

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I say again: when will Greg Jericho stand up for ordinary Australian workers and lobby to lower Australia’s reckless ‘Big Australia’ immigration program, which is not only lowering workers’ wages but also raising their cost of living via housing, as well as eroding their overall living standards and wrecking the natural environment?

It is precisely because of the Fake Left’s failure to rationally discuss immigration that ordinary Australians are being pushed to “the inherently racist parties” that Jericho hates so much.

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About the author
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.