Immigration robber barons strike back with propaganda

The AFR hit back hard against RBA governor Phil Lowe’s admission last week that Australia’s mass immigration program pushed down wage growth.

The robber baron’s paper of choice published two spruik pieces over the weekend (here and here) ‘debunking’ Lowe’s argument, which were centred largely around former RBA board member Warwick McKibbin’s view that strong levels of immigration lifts the nation’s productivity:

The idea that immigration costs local jobs or depresses Australian wages is an old furphy.

As former Reserve Bank board member Warwick McKibbin tells The Australian Financial Review: “Real wage growth is driven by productivity. Skilled immigrants raise economy-wide productivity.”

Australia’s modern immigration program is mostly skills-based. Skilled immigrants bring expertise, innovation and drive to the economy.

Thankfully, an actual former RBA governor, Bernie Fraser, came out in support of Phil Lowe at Fairfax, acknowledging that mass immigration has lowered wages:

“Immigration is a contributing downward source of pressure [on wages] over the past decade with large numbers of people coming in,” he said. “We have had, until the virus hit, a surplus of labour. There were a lot of people under-employed and it’s very hard to contemplate wage increases in that situation”…

“I’m not sure it’s such an advantage as [it was in] the earlier times. I’m not all that upset about not having a lot of immigrants coming in at this time,” he said.

Mr Fraser said more needed to be done to train local workers to fill the gaps that tend to be in roles such as IT. “We should have more skills being developed here. It doesn’t take Einstein to work out this is an area [of demand].”

Warwick McKibbin’s view that Australia’s mass immigration program has raised “economy-wide productivity” is curious given the ramp-up in immigration into Australia:

Australia's net overseas migration

Australia’s immigration intake accelerated after 2005, coinciding with the collapse in labour productivity.

Coincided with the collapse in the nation’s labour productivity:

Australian labour productivity growth

Australia’s labour productivity has collapsed since 2005.

Australia’s net overseas migration (NOM) jumped from an average of 89,000 between 1991 and 2004 to an average of 215,000 between 2005 and 2020 – an annual average increase in immigration of 140%.

Rather than boosting productivity, this surge in immigration would have caused negative impacts in three main ways.

First, the massive rise in population growth created chronic infrastructure bottlenecks across the capital cities, driving up congestion costs. It also encouraged growth in low productivity people-servicing industries.

The infrastructure investment required to keep pace with population growth was also much more expensive than in the past, due to diseconomies of scale (e.g. tunnelling and land buy-backs) in cities that were already built out.

Second, the migrants that Australia imported are typically less productive, as evidenced by them earning lower than median wages and suffering higher unemployment and underemployment than the Australian-born population (see here).

Third, the downward pressure on wages caused by mass immigration necessarily disincentivises employers from investing in labour-saving technologies and automation to lift productivity (see here and here). After all, why invest in these productivity enhancements when you can simply bring in cheap migrant workers to do the task?

In short, if you want to know why Australia has suffered simultaneously from low wage growth and low productivity growth, look no further than the nation’s mass immigration policy supported by the likes of Warwick McKibbin.

Perhaps the last word on this issue should go to Professor Gary Banks, who headed the Productivity Commission for 15 years from its inception in 1998 until 2013. Professor Banks is one of the nation’s leading experts on public policy formulation, and last month he gave a speech calling for a much lower immigration intake post COVID:

Treasury’s budget forecasts envisage net immigration getting back to its previous annual peak of 235,000 by 2025… One has to question whether, federal budget repair aside, attempts to revive immigration to the extent forecast would be sensible from a national interest perspective. While Treasury is perhaps understandably bullish, the Productivity Commission has provided a more nuanced assessment. This suggests that, under realistic assumptions, immigration does little for either participation or productivity nationally in the long term, with income gains in per capita terms small and largely skewed to migrants themselves.

Moreover, while highly skilled migrants are good for the economy, and sectors like mining in particular, and should be encouraged, the average skill level for the intake as a whole in recent years has not been high.

When externalities such as congestion and housing affordability are taken into account, I’d suggest that the optimal level of net immigration for Australia could be closer to Treasury’s forecast in the first IGR of 90 000 than the latest one. Where it ends up is unclear. But what is clear is that immigration policy is too important to be devised primarily on fiscal grounds or in relative seclusion.

Anybody with a shred of common sense knows that the Intergenerational Report’s projected 13.1 million (~50%) increase in Australia’s population over the next 40 years – equivalent to adding another Sydney, Melbourne plus Brisbane – would destroy living standards. The prior 15 years of mass immigration is all the empirical evidence one needs to know this to be true.

Restoring the mass immigration ‘Big Australia’ policy post-pandemic would repeat the same mistakes and consign the nation to a crush-loaded, low wage, low productivity future.

Unconventional Economist
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Comments

  1. Lord DudleyMEMBER

    Excellent stuff. I’d add (as an aside), that ensuring that the growth that does happen isn’t hyper concentrated in 2 or 3 cities is probably worth pursuing.

    I suspect this is one of the factors that will drive a decade long boom in the US where I live. Things are changing from over concentrated growth to more distributed growth.

    • That vegemite “solution” of simply spreading people over this wide brown land does nothing but raise costs. People still eat and consume no matter where they live. In an increasingly drying climate, adding people to the regions is the “Greens” solution” that is not a solution, but makes us less resilient. Paving over once productive farmland or clearing bushland for more houses, reduced food security and destroys animal habitat.

  2. Says McKibbin, “Australia’s modern immigration program is mostly skills-based.” A big lie that’s been disproved over and over again. Says me, “Australia’s modern economics profession is mostly corruption-based.

    • From Engineers Australia’s Submission for Joint Standing Committee on Migration inquiry in March this year:

      “- In the retail industry, the biggest employer of engineers is the supermarket and grocery stores sector. In
      2016, over 1,100 migrant engineers who arrived in Australia after 2011 worked in this subindustry, but only
      4.9% were employed in engineering occupations.

      – Similarly, over 2,600 migrant engineers who arrived in Australia after 2011 worked in the cafes, restaurants
      and takeaway food industry – a sub-industry of the accommodation and food services industry. Of those,
      only 1.1% worked in engineering occupations.

      – And for administrative and support services, the largest sub-industry is building cleaning, pest control and
      garden services, which employed over 1,200 migrant engineers who arrived after 2011. Only 1.7% of these
      engineers worked in engineering occupations.”

      So, the came as engineers and found work as check out chicks, Uber Eats drivers and cleaners. Must be very skilled.

      • This is why I abandoned my membership of EA. They make huge bank from accrediting foreign engineers, so they constantly spruik to let more of them in. Why would I pay to belong to an organisation that works to replace me with cheap foreigners?

        Meanwhile, manybof these foreigners end up driving Users. Absolute fcking nonsense.

        • LachlanMEMBER

          Sorry I missed your reply Leith. Glad you found the submission. It seemed paper thin to me (but am just dumb engineer). In particular the assertion that we must bring in engineers to service the infrastructure pipeline seemed to be completely unsupported. I thought the fact that supply was quoted in absolute numbers of grads vs demand as an index with an apparently arbitrary starting point of 2006 to be very suspicious. And as LSWCHP mentioned, EA is massively conflicted. It earns its money through competency assessment of prospective immigrants. I am no longer a member for much the same reason: EA does not advocate for its membership. But also, speaking to a colleague who is an immigrant his view is that the only thing EA is proficient at is sending invoices. No assistance offered to actually find an engineering job. If there was a genuine skills shortage you would expect there to be some process to actually place skilled immigrants in jobs. So I hope you can make minced meat of that submission.

    • when he says skilled migrant “bring drive to the economy”, he means they “bring one extra driver into the economy” ! fixed!

    • Wow is this guy really on the ANU’s payroll ? fk me! Credibility of our ANU just declined a few notches over 1 weekend!

    • Can anyone interested in inking an honest letter to Warwick please post it here for all to see? I especially felt the need to point out how he has embarrassed himself and ANU over the weekend, so will share my letter here also. thanks Lachlan for the stats. WTF has happened to our universities?!


      Sent: Monday, 12 July 2021 12:08 PM
      To: [email protected]
      Subject: weekend writing – yours

      Warwick,

      who on earth paid you to write this drivel ?? seriously


      The idea that immigration costs local jobs or depresses Australian wages is an old furphy.

      As former Reserve Bank board member Warwick McKibbin tells The Australian Financial Review: “Real wage growth is driven by productivity. Skilled immigrants raise economy-wide productivity.”

      Australia’s modern immigration program is mostly skills-based. Skilled immigrants bring expertise, innovation and drive to the economy.”

      The only drive they bring to Australia’s economy, is behind the wheel of an uber… and to drive up the demand for housing and uber eats

      From Engineers Australia’s Submission for Joint Standing Committee on Migration inquiry in March this year:

      “- In the retail industry, the biggest employer of engineers is the supermarket and grocery stores sector. In
      2016, over 1,100 migrant engineers who arrived in Australia after 2011 worked in this subindustry, but only
      4.9% were employed in engineering occupations.

      – Similarly, over 2,600 migrant engineers who arrived in Australia after 2011 worked in the cafes, restaurants
      and takeaway food industry – a sub-industry of the accommodation and food services industry. Of those,
      only 1.1% worked in engineering occupations.

      – And for administrative and support services, the largest sub-industry is building cleaning, pest control and
      garden services, which employed over 1,200 migrant engineers who arrived after 2011. Only 1.7% of these
      engineers worked in engineering occupations.”

      So, they arrive as engineers and found work as Uber Eats drivers. Must be very skilled and in hot demand! #skillsShortage !?

      Thankfully you’ve been called out and exposed… https://www.macrobusiness.com.au/2021/07/immigration-robber-barons-strike-back-with-propaganda

      I casually suggest you do a bit more research before you put pen to paper in a newspaper again. You’re bringing down the ANU’s credibility at an astounding rate!

      #Pathetic

      regards, Ben”

  3. the greatest fault with the mass immigration program is the composition of the intake – however this cannot be discussed.
    immigration mistakes grow into greater immigration mistakes.

    until the greatest fault is fixed, the NOM should be 50,000 pa, the PC’s recommendation 90,000 pa is way too high.

  4. So Phil wants us to skill up aussies in IT? Better get new management then. Anecdata: some great offshore skilled persons but majority (when local environmental work factors are considered) are not any improvement on locals. They are sold cheap upfront by aspiring c levels who p*ss off to the next job before those chickens come home to roost with disasterous long term cost implications. Is no one asking why there seem to be few academic and management articles on this decades old practical reality? Our consent to crush labour has been fully incorporated as a feature of the system. No dissent tolerated even if it drives us off a cliff.

  5. “This suggests that, under realistic assumptions, immigration does little for either participation or productivity nationally in the long term, with income gains in per capita terms small and largely skewed to migrants themselves.

    “Moreover, while highly skilled migrants are good for the economy, and sectors like mining in particular, and should be encouraged, the average skill level for the intake as a whole in recent years has not been high.”

    There it is in a nutshell. They’re generally low quality, and their presence here ultimately doesn’t help the country. How can it be said that we’re importing skilled immigrants, when I see all these people stacking shelves and driving Ubers? It’s all bullsh1t.