Attention Labor: All migrants kill wages

It appears Labor is revving up to cut temporary visa workers, via Craig Emerson at the AFR:

Add to the 900,000 temporary work visa holders the number of illegal workers in Australia and the total reaches almost 1 million.

The Fels report found underpayment of wages to these temporary workers is rife, citing estimates of as many as half of them being paid less than the legal requirements.

…If Australia wants more workers it should increase the rate of permanent immigration rather than increasing the number of guest workers.

It’s definite progress for wages that temporary workers will be cut. You’d have to be Blind Freddy to have missed the destruction wreaked upon industrial relations by five years of LNP visa giveaways.

But why should we seek to boost permanent migration in their place if we already have too much slack in the labour market, as Dr Emerson describes? If the supply of permanents is lifted, the only difference that cutting temporary workers will make to wages is less outright exploitation, but that is only at the margins. The real issue is that employers have an effectively infinite supply of cheap foreign labour so long as all forms of immigration are held at high levels.

It appears this cognitive dissonance is developing into Labor’s version of the immigration ‘bait and switch’, a political lie designed to hide the hard policy truth of shirking productivity reform in favour of the dumb growth of mass immigration.

For instance, Dr Emerson is following the the footsteps of ACTU head, Sally McManus, who appeared on ABC’s Insiders last year to make similar arguments:

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 in 2017:

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:

…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 has also 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 Craig Emerson and Labor taking on the immigration class war but it is very discouraging, and entirely stupid for its second term prospects, that it is creating another immigration fig leaf for poor wages growth.

As well, it is the permanent migrant intake that is crush-loading cities, killing productivity, making houses unaffordable and stressing the multicultural consensus. All things that would benefit workers if they were reversed.

The bottom line is that the Dr Emerson 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.

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  1. kiwikarynMEMBER

    Only have to look at the UK to see how reducing immigration works in real life. When less low skilled immigrants move there (in the UKs case because its leaving the EU so no point going there) unemployment drops and wages rise.

    Wouldnt it be nice, if instead of high minimum wages which keeps youth and the unskilled out of work, or govt handouts like UBI’s – we actually had market wages that you could live on and a choice of jobs to work at? You know, like the old days.

  2. I have always suggested cutting permanent immigration by cutting “temporary” immigration.

    Leith used to think that cutting permanent immigration will cut temporary immigration, but if one is a slum dweller, it is still worth coming here and working illegally for 10 years for $10/hour and then going to NZ for 10 years and then Canada. That is 30 years of getting paid $10/hour. An absolute dream compared to living without running water – even if they eventually get deported when they reach retirement age.

    We need to ban foreigners from working in certain jobs like truck driver and accountant. Update the random breath test to include random driving licence check.

    • Cut both temporary and permanent numbers. And make sure humanitarian arrivals are skilled and strong in English skills, provided with a temporary visa in the first instance, and compete with quarantined permanent visas granted based on a scored system.

  3. kannigetMEMBER

    Damned if they do and damned if they dont. Most medium and small businesses are not making enough to increase wages, mainly due to wages being low compared to expenses…… if we cut the temporary work visas an wages go up, businesses may go under before the wage increases result in higher discretionary spend. If they dont the downward pressure on wages will cut spending resulting in businesses going under….

    We only need wages to increase in proportion to living expenses and not necessarily in real terms. Accommodation and energy being two of the biggest individual components makes them obvious targets for reform.

    Getting the costs of Commercial and Industrial Real estate down will help with commodity prices.

    Getting the costs of residential real estate down will help with discretionary spend.

    Getting the costs of energy in both residential and commercial/industrial will will help with both.

    Get rid of the middle men, increase competition in middle teir market segments. Milk is a classic example. Milk is sold to the processors at 21c/L. Processors play with the milk, add processing costs and add 100% markup. Sold to the Supermarkets etc at 75c/L and they sell it for $1.50 to $3/L depending on the label… If its the watered down “house” version it may sell for $1.1.

    Other industries are worse. T-Shirts get manufactured for $5, sold to distributor for $10, Store for $20. Store puts it out front for $80 so they can sell it at 50% of tag price and still make 100%.

    I remember my father telling me that in his day they used the rule of thirds. A third today, a Third to play and a Third away. Meaning your day to day expenses should not exceed 1/3 of you income and you should put 1/3 away for a rainy day…..

    These days for most people there is almost no room for play and forget about putting any away.

    • John The Third

      You seem to either have a poor understanding of or disregard for, value addition. Milk at 21c/L is entirely of no value to the end consumer. They are not willing to drive hundreds of kms to buy unpasteurised milk from farmers at 21c/L, or they would be doing it. Everyone along the supply chain adds value, and should be paid for.

      Those ‘middle men’ are actually adding value to the end product and cannot be discarded.

      • kannigetMEMBER

        Grew up on a farm, Have a healthy respect for the level of work put in to produce that product. I agree the middle men in this case provide additional value but not in excess of the value of the product itself. The average dairy farmer produces 2000 to 5000L of milk a day depending on conditions. He gets up at 3am, works until 9 in the dairy, has breakfast then goes out and tends to the upkeep of the farm until around 3pm where he repeats the morning milk. 7 days a week, no holidays for a measly 21c/L and often has little money left over after expenses to show for it.
        The Milk processor takes that 2000 to 5000L and ads it to the other output of hundreds of farms. They Pastuerise it, Homogenise it, add water to some, extract fat from others. Yes, this process adds value BUT these processors make huge profits. They have the economy of scale on their side, they are processing many hundreds of thousands of Litres of milk a day but because there are only a few of them left they get away with pushing farm gate prices down and shelf prices up. They could pay the farm 31c/L and still make very healthy profits without effecting the shelf prices.

        And people do drive to farm gates and buy unpasteurised mil, they even pay a few dollars a litre for it but its risky for the farmer to sell it. If he gets caught the processor terminates his contract and he is screwed.

        There is a huge difference between Value Add and profiteering / rent seeking.

  4. I hope Labor reads this blog. I thought they were pro-worker (well they started out that way), and Coalition has really stuffed up this country with too many people and not being able to supply infrastructure quickly enough. As for Wages growth, I work as a Planner/Scheduler in Engineering & Construction, and the wages have not really gone anywhere in 12years, in fact our Clients Woodside and Rio Tinto are relishing companies supplying Engineers and Project Support staff for lower and lower rates (I bet the compaines keep their margins constant by reducing our rates).

  5. Something to consider.

    While the LNP blew dog whistles with an open door policy, the ALP may plan to talk open door and vibrancy while slowing shutting the door on the quiet.

    Category by category

    Temp visa category by temp visa category.

    True story.

    If you are FOB and studying you can marry a graduate, who has scored a temp grad working visa for 2 years, and boom you get an unrestricted 2 year visa as well.

    No need to keep studying either.

    • TailorTrashMEMBER

      Hold that thought …….wouldn’t it be nice if Quiet Bill could be going to do just that ……….get in past the bleeding heart ,open borders and racist calling gatekeepers ……then quietly shut it all down …………the CFMEU might have to reduce its ranks of vibrants though ………..but quality not quantity comes to mind
      Ok …I know ….I’m going to pinch myself and awake from this dream now …..

  6. Sally’s either an idiot or a scumbag acting against the interests of due-paying unionists.

    • She acts for the construction unions that are on a gravy train of infrastructure. (and probably wants one of those sweet industry super gigs in the future). She clearly doesn’t give a rats for anyone else.

  7. Hoiw to make neoliberalism safe despite fundamental antagonisms of it?
    Present those antagonisms as result of something else like immigration or technology.

    Not so long ago (few decades ago) we were running even bigger immigration program (as percentage of labour force) and at the same time fighting high inflation (real wage driven inflation). How’s that possible? What have changed since? Ah yeah we slipped into a neoliberal dream of labour force with no rights and huge debts.
    Change the system and migration levels will not matter anymore when it comes to wage growth.
    Other reasons for cutting immigration like crowding or environment can be discussed but low wage growth is purely result of neoliberal destruction of labour

    • Crushing wages with extreme population growth is part of the neoliberal dream. Just because a small population that is in the middle of selling off all its assets didn’t have an immediate response on wages a few decades ago is hardly evidence. The hideous overdevelopment, the crush-loading of everything, the destruction of our green cities and towns, and the general environmental carnage everywhere from beaches to parks are real and much more problematic now, wages are actually the least of our worries.

      • that was my point. Lets call things for what they are
        immigration definitely causes “The hideous overdevelopment, the crush-loading of everything, the destruction of our green cities and towns, and the general environmental carnage everywhere from beaches to parks are real ”

        but it’s the neoliberalism (with or without immigration) that causes low wage growth, inequality, insecurity, debt slavery, …

        To make this country a nicer place we have to fight both not let neoliberism thrive by blaming immigration on everything

  8. and stressing the multicultural consensus

    Aye, there’s the rub.

    I used to quite a happy supporter of immigration and multiculturalism. Not any more. The current level of mass immigration is destroying our culture and our economy so stuff multiculturalism. I want it to stop.

  9. Hey HNH, mate there seems to be an issue with your Dutton Must Go post. When I click on it an error page appears. Either that or the Chinese don’t like what you are saying…

  10. Uh-oh even socialist daddy is against open borders. Imagine the pearl-clutching as limousine liberals realise that real lefitsts want to raise wages, not touch themselves at night over what “good” people they are for importing brown menial workers.

  11. It seems easy to come here and be a ‘skilled specialist’, looking at what M admitted was the process to come here off the back of being a supposed software engineer:

    CHASE, this is m_l_narasimhan replying to your question here. I could not find a reply link to your question. Here goes —
    I was a graduate (BSc.) in Botany, Zoology and Chemistry and had served 6 years with Glaxo India Limited as Medical representative (what you would call as Pharmaceutical sales person here I think), when I applied in September 1996 (as far as memory serves). This is a run of the mill job (nothing special) albeit with one of the best company in world (Parent company, very old one, in UK). Having said that I left the profession in 1998 (I think May or June) and after that I trained myself in Software engineering via a course in a institute in India. If memory serves me well, I sent a letter to immigration about me and software engineering or some thing like that. I eventually found myself to be good in coding.

    Having said that in May 1999 (still doing the course) my application was picked up for further processing and immigration asked me for work experience proof in different style. I then got that from the personnel department of Glaxo India and sent it to immigration. Then after further processing, PR was granted to me in Sept 1999. Got the stamping in passport done in New Delhi Embassy, later. From this we can conclude that this work experience was taken into consideration (along with other aspects of an application) when processing my PR application.

    After landing in Australia I got a job in software Engineering field. Made enough money (not too rich, enough for myself) in IT, but I think got burnt out. Used to work my backside off in some of these projects. At one point did a thorough re-assessment and in 2012 got off the band wagon. Since then I have worked only for 10 months on a project.
    I also did a Master’s Subject (Programming…) from Uni Melbourne in 2004 while working via the Community access program and passed that subject’s exam
    I am self sufficient, at least for foreseeable future. But you never know about fate I guess.

    • robert2013MEMBER

      What is the context of this quote? It doesn’t really make sense without knowing who it was sent to and why.

    • It’s more about we’ve always had dubious immigration standards. This was posted by someone on Macroeconomics. They were given PR based on being a pharma sales rep, and then end up doing software engineering here. Did we really need more pharma sales reps? And another migrant who claims standards were so much better before, that is, when they went through the process.

      • As an actual Software Engineer (degree, MIEAust) with over 35 years in the game, that makes me want to vomit.

    • I don’t know that the ALP will tighten up work rights while still talking big Australia and vibrancy but it is possible.

      That would keep its virtue signalling guardian reading / abc watching supporters happy and also those parts of the union movement who understand how temporary working visas are being used by the LNP to drive down wages.

      But this may give the ALP too much credit. They may just give us more of what the LNP specialise in.

      The bit about marrying a graduate with the temp grad visa and getting work rights is correct. I interviewed someone in that position recently.

  12. Rolling temporary visas are the same as permanent as a temp takes up the same space & resources as a perm, but has the added advantage that they can be screwed much more than perms. Are they therefore more productive, maybe for their employer back pocket but for GDP maybe not as their skill set incl English likely lower.