Last week, the Guardian’s Greg Jericho attacked Reserve Bank Governor Phil Lowe for daring to suggest that 15 years of mass immigration has harmed Australian workers:
Last week the head of the Reserve Bank suggested migration could have caused lower wages growth. It was an unfortunate statement that goes against evidence and ignores the many other factors at play.
Blaming migrants for our economic woes is not new…
[Lowe] suggested the hiring of migrants brought in to deal with “specific gaps where workers are in short supply … dilutes the upward pressure on wages in these hotspots”…
The problem is, as Lowe noted earlier in his speech, “immigration adds to both the supply of, and demand for, labour”.
Essentially migrants increase the supply of people looking for work, but also the demand of things that need people to work to provide. In effect – both taking away and adding to the pressures on wages.
Nothing in Lowe’s speech suggested that migration had a stronger impact on wages growth going down than up…
Most studies suggest migration has a positive impact on wages growth…
Blaming migrants for lower wages growth is easy but absurdly simplistic.
Strangely, today Jericho admits that the collapse in immigration is a key reason why Australia’s unemployment rate has fallen to only 4.9%:
One problem with the unemployment rate is that it is a rate – ie there is a numerator and a denominator.
It is the number of unemployed divided by the number in the labour force (those people who are unemployed and employed). If the number of employed stays the same but some unemployed people leave the labour force, then the unemployment rate itself will go down despite not one extra person getting a job.
And in a sense that is what has happened during the pandemic.
The number of unemployed obviously did grow, but a massive number of people left the labour force… a mass of people who would normally have come to the country did not because our borders were closed.
As a result the annual growth of working age people plunged from around 1.6% to below 0.2%:
…Had the labour force kept growing at around its usual 2% each year, in June there would have been nearly 200,000 more people in the labour force.
Now, if we assume all of those extra people were unemployed, the unemployment rate in June would have been 6.2% instead of the very impressive 4.9%:
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So Greg Jericho has flat out admitted that because the flow of migrants has been restricted, the labour market has tightened. The next logical result of this labour market tightening is increased worker bargaining power and higher wage growth.
Obviously, rebooting immigration back to pre-COVID levels will unwind these positive impacts. Going back to importing 180,000 to 200,000 additional workers every year will necessarily drive unemployment back up and crater wage growth.
It’s economics 101, Greg. But you seem to suffer from an acute case of cognitive dissonance.
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.
