Citi: Lower immigration will lift Aussie wages

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A few weeks back, CBA’s economics team released a detailed report explaining why lower levels of immigration will lift Australian wages growth by reducing labour supply and increasing worker bargaining power:

The capacity of employees to negotiate pay rises is impacted by the level of slack in the economy. But it is also influenced by the rate of growth in labour market supply. Pre-COVID Australia had for many years run a very high immigration intake by OECD standards and this meant strong population growth…

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…

Things are very different right now with the international borders closed… As a result, employees in many industries have had a lift in their bargaining power… Essentially talent is scarce because firms can’t hire from a global pool of labour…

Today, Citi analyst Craig Woolford has entered the fold explaining that lower levels of immigration means higher wage growth for Australian workers:

Costa Group, Baby Bunting and Coles Group are “most susceptible” to higher wage rates that may be caused by lower immigration due to international border closures, according to Citi analyst, Craig Woolford…

He notes that one negative argument made about the Australian retail outlook is the impact of lower migration on demand, but it is only likely to take 1pc off sales growth.

He thinks the “more important issue we think may cause some financial pain” is shortages of labour…

“Companies we estimate are most susceptible to higher wage rates are Costa Group, Baby Bunting and Coles”.

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Many notable economists, including Reserve Bank Governor Phil Lowe, have warned that persistent low wage growth is a key threat to Australia’s economic recovery.

Therefore, rebooting mass immigration – as championed by the Morrison Government and some business groups – is self-defeating policy since it would merely add to Australia’s labour supply more than it adds to demand, in turn eroding workers’ bargaining power and further crushing wage growth.

The sensible policy is to keep immigration low, provide workers with proper training, and let local wages rise. Doing so would lift workers’ incomes and purchasing power, in addition to boosting productivity by rewarding business investment in labour-saving technologies and automation.

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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.