MSM economist , Jason Murphy, yesterday penned an hand-wringing article lamenting Australia’s poor wage growth:
So, why are wages so low?
The fall in wages isn’t just an Australian phenomenon. It has been global among advanced economies. And we still don’t know exactly why it has happened. This is one of the things economists have to admit sometimes. The economy is complex, we don’t understand it fully.
There are a lot of theories why wages have fallen. It might be the decline of unions. It might be the rise of international trade. It might be underemployment, the rise of technology, the power of big business to pay lower wages or lower labour productivity growth…
But the best economists have fallen on the data and tried to analyse it to determine which of the above is to blame. They tend to come up saying, it’s a little bit of everything, but even when you take these things into account, we still can’t fully explain how low wages growth is.
That leaves a mystery factor.
“It appears that some, as yet unidentified, common factor, or factors, have weighed on wage growth in recent years,” the RBA says…
The good news about the mystery factor is it seems to be on the wane. In the US and the UK, where wages growth was, like Australia’s, depressed for a long time, growth has recently jumped up to 4 per cent per year. This week, UK wages growth hit its highest level in 10 years.
What those countries have done is drive unemployment way down — below 4 per cent. That needs to be a priority here too, and all arms of government — RBA, treasurer, and state treasurers too — should be working to achieve it.
There’s a reason why Australia’s policy-makers have failed to “drive unemployment way down”: the endless strong influx of migrant workers has meant the labour market is forever in a state of overcapacity:
The lion’s share of recent migrants are of prime working age and, therefore, have high labour force participation.
In fact, a recent paper by Melbourne University Professor Peter McDonald, found that around three quarters of employment growth in Australia between 2011 and 2016 was attributed to immigration:
The permanent and temporary skilled migration policies established by the Australian Government from 1995 played an important role in meeting that labour demand, especially in the boom years of the first decade of the 21st century…
From July 2011 to July 2016, employment in Australia increased by 738,800. Immigrants accounted for 613,400 of the total increase…
Migration has had a very large effect on the age structure of employment with most new immigrant workers (595,300) being under 55 years.
Hence, the ongoing supply shock from immigration is unambiguously the primary reason why labour supply continues to outrun demand and why wage growth remains weak, especially among younger Australians.
Related to the above is the systemic wage theft from temporary migrants, which has become entrenched across the entire Australian economy:
Entire industries have become heavily reliant on migrant workers to perform low-skilled work in the labour market for below award rates, which is unambiguously undercutting local workers and lowering overall wage growth.
The impact is most pernicious on younger Australians, as explained recently by the Grattan Institute:
As the Productivity Commission noted, where migration does displace existing populations, it tends to affect people with low skills and youth most. That seems to be happening in Australia. And because international students and backpackers are primarily looking for part-time work, they may affect under-employment more than unemployment…
Low-skill migrants might also put downward pressure on wages (if accurately measured). The measured wages of those aged 20 to 34 have not risen as fast as the wages of older workers for some time (Figure 7)…
Australia is now running a predominantly low-skill migration system. People from this system form a material proportion of the younger workforce. Because of visa conditions, many of these migrants have incentives to work for less than minimum wages, and there is anecdotal evidence that many do. It is impossible for data sources on the Australian labour force to pick up all of this phenomenon. It is possible that the scale of this inﬂux to the labour market is depressing wages and increasing under-employment speciﬁcally for low-skill younger workers.
Commentators like Jason Murphy need to examine the issue honestly and admit that the mass immigration ‘Big Australia’ policy is a key driver of Australia’s wage crisis.
Thankfully, commenters on his article seem to have a greater grasp on the issue:
Economics can be complicated but there is one principle that is simple: supply and demand. If there are too many people competing for jobs, then wages will stay low. To increase wages you need to reduce the number of people available for work. One way to do that is to reduce immigration levels.
This is why the Howard Government introduced 457 visas. It has worked just as intended, along with allowing international students to work here, driving up unemployment and driving wages down so the Liberal’s business mates can maximise their profits.
What the US and UK also did was heavily reduced immigration and created tariffs on anything created outside of their country. While this was massively unpopular by those with the loudest voices, it seems to have had the desired effect in the long run. To improve the lives of those living within the country closing it’s borders. If we want wage growth to trend upward here, we need to stop the influx of cheap labor and often cheap highly skilled labor.
Wouldn’t be due to the influx of cheap foreign labour into the country due to fake ‘shortages’ now would it? It’s so obvious, and yet nothing is done to stop it.
There are and have never been shortages of workers, just shortages of employers willing to train employees on the job and pay them a fair wage. Some of the categories included in the 457 schedule are a joke.