RBA demands low immigration for higher wages

The most revered economist in Australia, RBA governor Phil Lowe, has become the defacto best union official in the country, arguing for higher wage inflation for quite some time.

In yesterday’s Keynote Address at the Australian Farm Institute Conference, Lowe concluded that “the Board wants to see the recent recovery transition into strong and durable economic growth, with low unemployment and faster growth in wages than we have seen recently”. He also said that the RBA “will not increase the cash rate until inflation is sustainably within the 2–3 per cent target range” . But “for inflation to be sustainably in the 2–3 per cent range, wage increases will need to be materially higher than they have been recently”. 

Therefore, stronger wage growth is central to the RBA meeting its goals.

With this background in mind, it is noteworthy that Phil Lowe explicitly stated in the Q&A to yesterday’s Keynote Address that sustained lower immigration will drive up Australian wage growth (listen from around the 37 minute mark):

“The main effect of the closure of the borders on the labour market is that we can no longer tap the overseas labour market for areas where workers are in short supply.

“So, what used to happen before the pandemic is if there was a shortage in the labour market for a particular skill, firms could go overseas and tap the global labour market. And that meant that if there was very strong demand for workers of a particular skill, the price – the wage – didn’t really move very much because you could go and get workers from overseas.

“You can’t do that at the moment. Or at least it is very hard to bring in workers with skills. It’s not necessarily the level of immigration that’s the main factor here. It’s the ability to tap global labour markets for areas where there is a shortage.

“And we’re starting to hear reports of wages moving for some of those jobs. But other firms are saying ‘look, we don’t want to bid up the cost base now. Because perhaps late in the year there will be some way to get workers to come back in with skills that we really need and that will alleviate some of the pressures’.

“I think if that doesn’t happen, and we’re still in this position in a year’s time where we can’t get workers and skills are in short supply, then we will see more upward pressure on wages and inflation”.

There you have it: Australia’s number one economist has explicitly explained how Australia’s immigration program has been used to hold down wages. This is exactly the same point MB has argued for nearly a decade. There is no longer any debate.

Stopping immigration from returning to turbo-charged pre-COVID levels is now central to achieving the RBA’s goal of higher wage growth. But rebooting mass immigration, as advocated by the Morrison Government and Treasury, would increase the supply of labour, reduce worker bargaining power, keep unemployment elevated, and prevent wages from rising.

Labor should use Phil Lowe’s comments as ammunition to take a lower immigration platform to the upcoming federal election. It now has the authority of the RBA to back such a policy.

Unconventional Economist

Comments

  1. Wait, what? Hey, who switched the old Phil with the new Phil? … I like this one better, though…

    • Anders Andersen

      I think it’s a QAnon shape shifting lizard that has taken over Phil. Was he wearing red RM Williams?

    • I read something this week on (Asbestos) Julie Bishop I didn’t know. Yet another rort received immediately post politics.

      https://insidestory.org.au/bitter-harvest/

      Bitter harvest
      The pandemic has increased the bargaining power of seasonal workers in rural Australia. But how long will that last?

      …The Department of Foreign Affairs and Trade set up a Pacific Labour Facility to administer its Pacific Labour Scheme in October 2018. At some point the facility was outsourced to the international private aid-management company Palladium. Its office in Brisbane refers media queries to the department. Former foreign minister Julie Bishop, who supervised the disbanding of the widely admired AusAID agency within her portfolio and a huge reduction in Australia’s foreign aid program, joined Palladium’s board soon after she left politics in 2019.

  2. To be fair, I inferred from his comments he was asking for immigration – look at the conference he was at!

    • Exactly. The RBA governor’s talk of higher wages is completely disingenuous.

      And here he is, caught out lobbying for the reopening of the international border to crush wage inflation so he can keep interest rates at rock bottom

    • Spot on. He basically said, unless the floodgates get open soon you lot will have no choice but to start paying people more.

      Australian business elite is about to rediscover the love for multiculturalism.

  3. Display NameMEMBER

    For years he has dared not speak this clearly obvious solution. Better late than never.

    Did he make an argument around productivity improvement as well as wage gains?

  4. reusachtigeMEMBER

    Thankfully Treasury and special interests are way more powerful and will help to keep wages lower so as to rightly increase profits!

  5. He knows that without wage inflation this incredible debt bubble he has helped create will be the undoing of the country, and more importantly his place in history. Because he is a poor communicator, he has to speak in whataboutism’s instead of saying ‘we need less migrants to drive wages higher’.

  6. The Travelling Phantom

    I think you guys reading it the other way around.
    He’s warning from the consequences of no immigration

      • The Travelling Phantom

        I hope so, I’ve always found these people say something and mean otherwise

      • Isn’t the real question here the quandary vested interests face between short-term and longer term outcomes? ramp up immigration ponzi and you will break the system in a decade or less and wealth that rose like steam evaporates. Control the Ponzi and stabilise the economy to extract optimum rent at a balanced point of risk. For those guzzling the koolaid there is no turning back, but generationally minded wealth owners like status quo returns.

        • Anders Andersen

          I would back short term gain over the longer term as they’ll likely not need to concern themselves over a bad longterm outcome.

    • Awwww…. Took you guys (not just you TTP) long enough to read Pravda news correctly…

      Ol’ Gunna (wherever he is now – no, this is not an invitation to doxing him if he’s still lurking) can confirm the correct way of reading Pravda is to discard the obvious meaning of what is said, and in fact, read it as the complete contrary of it.

  7. I’m not against higher wages but higher wages only makes any sense if the AUD falls like a brick.
    With the AUD stableish in the 70’s for over a year now there doesn’t seem to be much hope left for the exchange rate to do most of the heavy lifting in labour reorganization towards export focused industries.
    Higher wages without exchange rate adjustment equals more service focused jobs catering only for local needs and this at a time when Australian industry needs stable labour prices to create advantage in its few remaining export focused enterprises.
    Unfortunately if we shut down what little industry is left then we truly will become just another South seas Banana Republic.
    As someone pointed out the other day we are absolutely morphing into a Cargo Cult nation, we don’t make stuff, heck we don’t even understand how things get produced.
    Last Sunday I had an “enlightening” conversation with a niece of mine about Android phones, she honestly seems to believe that alien’s gave us this technology. For her there was no other possible explanation, initially I thought she was joking but I was the one left with no doubt that she was serious, she honestly believes this.
    All I could mutter as I left was F’me sideways, Australian Education has fallen on hard times.
    btw she is in her late 20’s

    • Did you ask if by any chance they might have been illegal aliens? Certainly, since none came forwards as to having done that, you can only guess they wanted to stay hidden because they were illegally here!

    • Arthur Schopenhauer

      Not only has the country forgotten what it takes to make stuff, there is so little respect for the people who do, that people don’t believe the people who do make stuff, can make stuff.

      • Well that’s sort of how we got on to this conversation.
        She made some wild claims about how all this was impossible without alien’s telling us how to make these things, naturally I called BS. I backed up my BS claim by adding that I believed I could explain (and have them understand) any aspect of the workings of a modern day cell phone to anyone with a decent High school education.
        Apparently she got an 85 atar, but in short order she proved me wrong (as in I couldn’t explain any of the functions to her), I thought my explanations were really good, she thought I completely proved her point when I needed to include some year 10 level math.
        F’me it was embarrassing.

        • gee, not just embarrassing but also painful. I know quite of few of that cohort and her view is, thankfully, a tiny minority.

          • No not in finance, but believe it or not, she actually has a degree in Occupational Therapy
            and the “weird math” I was trying to use is something called “Trigonometry”
            I started out with an explanation that involved the Dirac delta function but when it was clear that that approach was doomed I resorted to a simpler explanation using basic Trig functions…I gave up when all I got was blank stares.
            The topic at the time was “Capitative touch screen displays”…it’s actually a really interesting topic because of all the heuristic corrections you need to do, especially on small screens with Fat Fingers but alas we never got that far.
            So I simple agreed that it must be all Alien Magic, impossible for any normal person to understand.

  8. He still couldn’t help but use the word “skills” multiple times. Dare he suggest that the primary “skill” in short supply was the ability to work for lower wages and conditions than a local worker!

  9. Can’t wait to see the ABC and SBS report on this one. Reckon they’ll dismantle it on The Drum?

    • BubbleyMEMBER

      Well there’s a good reason…. but I live 1 1/2 hours away from Bali and used to enjoy popping over for a frivolous weekend…. now I feel guilty.

          • boomengineeringMEMBER

            Don’t feel guilty, it’s just part of the learning curve of life and all party’s concerned may have enjoyed the ride.

  10. BradleyMEMBER

    Simple. Don’t get the vaccine and delay the return to business as usual with importing workers.

  11. The Wizz of Ozz

    Have you heard the story of the 2 Jimmys and mind control but that’s story skip can unfold Ahem if allowed lololol

  12. The Traveling Wilbur

    Frankly, this was the headline miss of the year btw.

    Lowe demand for higher Australian wages

    (crime against humanity missing that one)

    • The Traveling Wilbur

      I’m just stunned.
      I had no idea all those past date of sale unsold Pie Face pies really were actually turfed like they’re supposed to be. Amazing. We are a lucky country indeed.