Corrupt Treasury blames workers for dud wages

Via The Australian:

Stubborn employees who ­refuse to move into more productive companies are a major cause of the nation’s record-low wages growth, new Treasury research will reveal today.

Workers who stay with unproductive companies instead of switching to more dynamic firms are dragging down pay increases across the economy, with Australia’s top economic advisers urging Scott Morrison to embark on a ­series of wage-boosting reforms.

The nation’s most senior ­bureaucrats — appearing at the Economic Society of Australia’s annual conference in Melbourne — have also urged policymakers for “more honesty” in debates about the limits of economic modelling and to engage voters with “accessible” language that “demonstrates respect for the person you’re talking to”.

Speaking at the conference today, Treasury deputy secretary ­Meghan Quinn will launch the new analysis showing how the broken link between wages growth and company-level productivity could account for as much as a third of the “unexplained” weakness in wages growth over the past decade.

The research finds that, without structural reforms encouraging workers to move between jobs and drive innovation across companies and industries, wages growth will be “unlikely” to ­return to pre-global financial ­crisis levels.

“Treasury work highlights the fact more frequent job switching is associated with higher real wage growth, even for those that stay in their job,” Ms Quinn said.

Seriously, this is the best we can do? Pick a single correlation and assume causation. All this shows is that our institutions are corrupt. Getting ahead within one is about discerning what the executive wants to hear and distorting your research to meet it.

Of course there is a correlation between job switching and wages growth. But why? Because job switching accelerates when a labour market is tight and confidence high. Take the US, for instance, where low unemployment and underemployment has punters confident of finding another job:

Leading to job switchers doing better in wages growth:

In Australia, however, unemployment expectations remained unusually high throughout this cycle:

Quite rightly, because nobody could get enough work with underemployment at records:

Why would you risk switching jobs when there is nothing to switch into? Let’s not even mention the world’s largest mortgage as an overhanging risk for job switching.

The primary question that matters to wages is why is underemployment so stubbornly high and therefore job switching so low? A number of reasons:

  • the mass immigration model makes hiring and firing cheap foreign labour a breeze;
  • the gig economy;
  • declining unionism;
  • rising bullshit jobs in the services economy,
  • and a wages hostile government.

Of these, the first is clearly the most important. It is the macro-economic enabler of all of the other micro-economic drivers. The evidence of this is overwhelming. There was one unprecedented change to Australian macro conditions in this cycle that made wage growth impossible. Australia has never run mass immigration into material economic slack before but that’s what we did this time:

What does macro-economics 101 tell us happens when a perpetual supply shock lands on weak demand? Prices fall.

Piles of micr0-economic evidence also supports the contention that the mass immigration model does not do wage rises:

  • For years we have seen Dominos, Caltex, 7-Eleven, Woolworths and many other fast food franchises busted for rorting migrant labour.
  • The issue culminated in 2016 when the Senate Education and Employment References Committee released a scathing report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, which documented systemic abuses of Australia’s temporary visa system for foreign workers.
  • Mid 2017, ABC’s 7.30 Report ran a disturbing expose on the modern day slavery occurring across Australia.
  • Meanwhile, Fair Work Ombudsman (FWO), Natalie James, told Fairfax that people on visas continue to be exploited at an alarming rate, particularly those with limited English-language skills. It was also revealed that foreign workers are involved in more than three-quarters of legal cases initiated by the FWO against unscrupulous employers.
  • Then The ABC reported that Australia’s horticulture industry is at the centre of yet another migrant slave scandal, according to an Australian Parliamentary Inquiry into the issue.
  • The same Parliamentary Inquiry was told by an undercover Malaysian journalist that foreign workers in Victoria were “brainwashed” and trapped in debt to keep them on farms.
  • UNSW Sydney and UTS survey painted the most damning picture of all, reporting that wages theft is endemic among international students, backpackers and other temporary migrants.
  • A few months ago, Fair Work warned that most of Western Sydney had become a virtual special economic zone in which two-thirds of businesses were underpaying workers, with the worst offenders being high-migrant areas.
  • Dr Bob Birrell from the Australian Population Research Institute latest released a report, based on 2016 Census data, revealed that most recently arrived skilled migrants (i.e. arrived between 2011 and 2016) cannot find professional jobs, with only 24% of skilled migrants from Non-English-Speaking-Countries (who comprise 84% of the total skilled migrant intake) employed as professionals as of 2016, compared with 50% of skilled migrants from Main English-Speaking-Countries and 58% of the same aged Australian-born graduates. These results accord with a survey from the Bankwest Curtin Economics Centre, which found that 53% of skilled migrants in Western Australia said they are working in lower skilled jobs than before they arrived, with underemployment also rife.
  • The Australian Bureau of Statistics (ABS) latest Characteristics of Recent Migrants reportrevealed that migrants have generally worse labour market outcomes than the Australian born population, with recent migrants and temporary residents having an unemployment rate of 7.4% versus 5.4% for the Australian born population, and lower labour force participation (69.8%) than the Australian born population (70.2%).
  • ABC Radio recently highlighted the absurdity of Australia’s ‘skilled’ migration program in which skilled migrants have grown increasingly frustrated at not being able to gain work in Australia despite leaving their homelands to fill so-called ‘skills shortages’. As a result, they are now demanding that taxpayers provide government-sponsored internships to help skilled migrants gain local experience, and a chance to work in their chosen field.
  • In early 2018 the senate launched the”The operation and effectiveness of the Franchising Code of Conduct” owing in part to systematic abuse of migrant labour.
  • Then there is new was research from the University of Sydney documenting the complete corruption of the temporary visas system, and arguing that Australia running a “de-facto low-skilled immigration policy” (also discussed here at the ABC).
  • In late June 2018 the government released new laws to combat modern slavery which, bizarrely, imposed zero punishment for enslaving coolies.
  • Over the following few months we witnessed widespread visa rorting across cafes and restaurants, including among high end establishments like the Rockpool Group.
  • Then Alan Fels, head of the Migrant Workers Taskforce, revealed that international students are systematically exploited particularly by bosses of the same ethnicity.

Academic research also supports it. Below are key excepts from Chapter 13 entitled Temporary migrant workers (TMWs), underpayment and predatory business models, written by Iain Campbell:

This chapter argues that the expansion of temporary labour migration is a significant development in Australia and that it has implications for wage stagnation…

Three main facts about their presence in Australia are relevant to the discussion of wage stagnation. First, there are large numbers of TMWs in Australia, currently around 1.2 million persons. Second, those numbers have increased strongly over the past 15 years. Third, when employed, many TMWs are subject to exploitation, including wage payments that fall below — sometimes well below — the minimum levels specified in employment regulation…

One link to slow wages growth, as highlighted by orthodox economics, stems from the simple fact of increased numbers, which add to labour supply and thereby help to moderate wages growth. This chapter argues, however, that the more salient point concerns the way many TMWs are mistreated within the workplace in industry sectors such as food services, horticulture, construction, personal services and cleaning. TMW underpayments, which appear both widespread in these sectors and systemic, offer insights into labour market dynamics that are also relevant to the general problem of slow wages growth…

Official stock data indicate that the visa programmes for international students, temporary skilled workers and working holiday makers have tripled in numbers since the late 1990s… In all, the total number of TMWs in Australia is around 1.2 million persons. If we include New Zealand citizens and permanent residents, who can enter Australia under a special subclass 444 visa, without time limits on their stay and with unrestricted work rights (though without access to most social security payments), then the total is close to 2 million persons… TMWs now make up around 6% of the total Australian workforce…

Decisions by the federal Coalition government under John Howard to introduce easier pathways to permanent residency for temporary visa holders, especially international students and temporary skilled workers, gave a major impetus to TMW visa programmes.

Most international students and temporary skilled workers, together with many working holiday makers, see themselves as involved in a project of ‘staggered’ or ‘multi-step’ migration, whereby they hope to leap from their present status into a more long-term visa status, ideally permanent residency. One result, as temporary migration expands while the permanent stream remains effectively capped, is a lengthening queue of onshore applicants for permanent residency…

Though standard accounts describe Australian immigration as oriented to skilled labour, this characterisation stands at odds with the abundant evidence on expanding temporary migration and the character of TMW jobs. It is true that many TMWs, like their counterparts in the permanent stream, are highly qualified and in this sense skilled. However, the fact that their work is primarily in lower-skilled jobs suggests that it is more accurate, as several scholars point out, to speak of a shift in Australia towards a de facto low-skilled migration programme

A focus on raw numbers of TMWs may miss the main link to slow wages growth. It is the third point concerning underpayments and predatory business models that seems richest in implications. This point suggests, first and most obviously, added drag on wages growth in sectors where such underpayments and predatory business models have become embedded. If they become more widely practised, underpayments pull down average hourly wages. If a substantial number of firms in a specific labour market intensify strategies of labour cost minimisation by pushing wage rates below the legal floor, it can unleash a dynamic of competition around wage rates that foreshadows wage decline rather than wage growth for employees…

Increases in labour supply allow employers in sectors already oriented to flexible and low-wage employment, such as horticulture and food services, to sustain and extend strategies of labour cost minimisation… The arguments and evidence cited above suggest a spread of predatory business models within low-wage industries.37 They suggest an unfolding process of degradation in these labour markets…

And below are extracts from Chapter 14, entitled Is there a wages crisis facing skilled temporary migrants?, by Joanna Howe:

Scarcely a day goes by without another headline of wage theft involving temporary migrant workers…

In this chapter we explore a largely untold story in relation to temporary migrant workers… it exposes a very real wages crisis facing workers on the Temporary Skill Shortage (TSS) visa (formerly the 457 visa) in Australia. This crisis has been precipitated by the federal government’s decision to freeze the salary floor for temporary skilled migrant workers since 2013… the government has chosen to put downward pressure on real wages for temporary skilled migrants, thereby surreptitiously allowing the TSS visa to be used in lower-paid jobs…

In Australia, these workers are employed via the TSS visa and they must be paid no less than a salary floor. This salary floor is called the Temporary Skilled Migration Income Threshold (TSMIT). TSMIT was introduced in 2009 in response to widespread concerns during the Howard Government years of migrant worker exploitation. This protection was considered important because an independent review found that many 457 visa workers were not receiving wages equivalent to those received by Australian workers…

In effect, TSMIT is intended to act as a proxy for the skill level of a particular occupation. It prevents unscrupulous employers misclassifying an occupation at a higher skill level in order to employ a TSS visa holder at a lower level…

TSMIT’s protective ability is only as strong as the level at which it is set. In its original iteration back in 2009, it was set at A$45 220. This level was determined by reference to average weekly earnings for Australians, with the intention that TSMIT would be pegged to this because the Australian government considered it ‘important that TSMIT keep pace with wage growth across the Australian labour market’. This indexation occurred like clockwork for five years. But since 1 July 2013, TSMIT has been frozen at a level of A$53 900. ..

There is now a gap of more than A$26 000 between the salary floor for temporary skilled migrant workers and annual average salaries for Australian workers. This means that the TSS visa can increasingly be used to employ temporary migrant workers in occupations that attract a far lower salary than that earned by the average Australian worker. This begs the question — is the erosion of TSMIT allowing the TSS visa to morph into a general labour supply visa rather than a visa restricted to filling labour market gaps in skilled, high-wage occupations?..

But why would employers go to all the effort of hiring a temporary migrant worker on a TSS visa over an Australian worker?

Renowned Australian demographer Graeme Hugo observed that employers ‘will always have a “demand” for foreign workers if it results in a lowering of their costs’.  The simplistic notion that employers will only go to the trouble and expense of making a TSS visa application when they want to meet a skill shortage skims over a range of motives an employer may have for using the TSS visa. These could be a reluctance to invest in training for existing or prospective staff, or a desire to move towards a deunionised workforce. Additionally, for some employers, there could be a belief that, despite the requirement that TSS visa workers be employed on equivalent terms to locals, it is easier to avoid paying market salary rates and conditions for temporary migrant workers who have been recognised as being in a vulnerable labour market position. A recent example of this is the massive underpayments of chefs and cooks employed by Australia’s largest high-end restaurant business, Rockpool Dining Group, which found that visa holders were being paid at levels just above TSMIT but well below the award when taking into account the amount of overtime being done…

Put simply, temporary demand for migrant workers often creates a permanent need for them in the labour market. Research shows that in industries where employers have turned to temporary migrants en masse, it erodes wages and conditions in these industries over time, making them less attractive to locals…

A national survey of temporary migrant workers found that 24% of 457 visa holders who responded to the survey were paid less than A$18 an hour.  Not only are these workers not being paid in according with TSMIT, but they are also receiving less than the minimum wage. A number of cases also expose creative attempts by employers to subvert TSMIT. Given the challenges many temporary migrants face in accessing legal remedies, these cases are likely only scratching the surface in terms of employer non-compliance with TSMIT…

Combined, then, with the problems with enforcement and compliance, it is not hard to conclude that the failure to index TSMIT is contributing to a wages crisis for skilled temporary migrant workers… So the failure to index the salary floor for skilled migrant workers is likely to affect wages growth for these workers, as well as to have broader implications for all workers in the Australian labour market.

It’s not just temporary visas. It is the entire mass immigration model:

  • students, visa holders, tourists all work for nothing to gain longer terms visas;
  • their numbers are endless and so is the labour supply shock;
  • and that endless flow has now generated a supply side adjustment to businesses that thrive on cheap foreign labour – basically service economy dross – that holds up empty calorie growth, boosts asset prices and the currency, holds own productivity via capital shallowing, and hollows out tradables in an era of global lowflation.

Thus everybody can get some work, nobody can get enough of it, participation skyrockets but productivity craters. Wages can’t rise and the economy spirals, literally, into a dumbening singularity. See above Treasury idiot.

Blaming workers for this outcome doesn’t even qualify as analysis.

Comments are hidden for Membership Subscribers only.