Macrobated RBA fires immigration cannon at Canberra

Earlier this week we argued that the Reserve Bank of Australia (RBA) was fighting the Morrison Government on wages, given recent comments from governor Phil Lowe that low immigration is required to achieve the Bank’s goal of lowering unemployment and lifting wage growth.

Yesterday, Governor Phil Lowe took his wages jawboning to another level in a speech to Economic Society of Australia. In this speech, Lowe explicitly noted that lifting immigration will unambiguously hurt wage growth [my emphasis]:

This combination of surprisingly positive employment growth and subdued wages growth had become a familiar pattern before the pandemic. This is evident in the next couple of graphs. The first shows the RBA’s successive forecasts for growth in the WPI from 2014 (Graph 3). The picture is very clear: wages growth was persistently lower than forecast.

The next graph is similar, but shows successive forecasts for the level of employment (Graph 4). The picture here is not quite as clear, but employment growth has mostly been in line with, or exceeded, expectations, with the obvious exception of last year…

Strong growth in labour demand was closely matched by a strong increase in labour supply. With both demand and supply rising, there was little need for the price – that is wages – to move…

[One] supply side factor is the ability that firms have had to draw on overseas workers when skills or workers were in short supply in Australia… This hiring dilutes the upward pressure on wages in these hotspots and it is possible that there are spillovers to the rest of the labour market. This hiring can also dilute the incentive for businesses to train workers to do the required job

In conceptual terms, one can think of this ability to tap into the global labour market for workers that are in short supply as flattening the supply curve for these workers. A flat supply curve means that a shift in demand has only a small effect on prices, or in this case wages. In my view, this is one of the factors that has contributed to wages being less sensitive to shifts in demand than was once the case…

Strong labour demand was met with a strong supply response. The result was that the price of labour did not move much…

So what does this all mean for the future?

The big change on the supply side has been the closure of our international borders. This has contributed to labour shortages in some areas given the strong pick-up in labour demand. In turn, some workers have received sizeable wage increases…

Given this experience, an important consideration for the outlook is how long the borders remain closed.

One plausible scenario is that they open gradually over the period ahead, especially for workers with skills that are in short supply. This would relieve some of the current pressure points in the labour market. Alternatively, it is also possible that the borders remain closed for an extended period and that the pressure points build further. If so, aggregate wages growth would pick up more quickly than currently expected, but production and investment would be also be constrained…

While it is hard to be sure, it is likely that the unemployment rate will need to be sustained in the low 4s for the Australian economy to be considered to be operating at full employment. Underemployment will also need to decline further. To achieve this, a further period of strong employment growth will be required…

These are important conclusions from a policy perspective, especially given the RBA’s strategy is to get the unemployment rate down so that wages growth picks up and inflation returns in a sustainable way to the target range.

Phil Lowe expanded on these comments further in the Q&A section:

“The last time that wages growth in Australia was above 3% was a decade ago. It took a decade to go from 3% to 1.5%… I don’t see those factors going away quickly. They were there for a decade… The grind higher in wages will be slow…  If wages growth is going to have a s in front of it, it is going to be very difficult for us to deliver inflation…

“The reason why the private sector has stronger wage growth forecasts is that the closure in the borders will lead to a hot house environment and wages will rise more quickly. That’s possible. But I think it is more plausible that eventually the borders open again and some of the hot house pressures in the labour market dissipate…

So according to Phil Lowe:

  1. Australia’s high levels of immigration has contributed to the nation’s low wages growth of recent years; and
  2. High immigration has given businesses an incentive not to train their workers.

This helps explain why business groups lobby so hard for immigration, since it holds their wage costs down, abrogates their need to provide training, and expands the number of people to sell goods and services to.

Basically, Australia has run a Work Choices immigration system – designed specifically to neuter Australian workers and fatten company profits.

As far as we are aware, Phil Lowe is the first RBA governor to have directly linked Australia’s high immigration program with the country’s weak wage growth. In doing so, he has fired a direct shot at the federal government’s and Australian Treasury’s desire to reboot immigration back to pre-COVID levels at the earliest opportunity. He has also successfully lit a fuse under the Big Australia debate.

The Labor Opposition should (but probably won’t) stand up and take a lower immigration policy to the upcoming federal election. Not only is it the right thing to do for Australian workers, but it also has the backing of the RBA.

Finally, this moment cannot pass without a brief recognition that the RBA’s new regime is exactly the same as the arguments prosecuted by MacroBusiness for nearly a decade (including regularly schooling the RBA – e.g. here, here, here, here, here and here). In particular, Leith van Onselen, who for his trouble has received very little public recognition, and a whole lot of abuse from the racially obsessed pork chops of the left.

A memo to the lot you. Interpreting data and facts with fierce objectivity is what public intellectualism is all about.

Houses and Holes
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    • haroldusMEMBER

      ermo no visits this weekend. I’m in the middle of a few barrels of homebrew so we can try them when we are released

      • ErmingtonPlumbingMEMBER

        Well considering your in South Western Sydney I wasn’t coming to “Change your tap washers” anyway.
        No going South of the Parramatta River or West of Rydalmere for me until this thing finishes ripping through you dirty, Covid-19 infected people down there.
        Same goes for the Mate in Sydenham.

    • C'est de la folieMEMBER

      This Brilliantined hair guy

      He’s a mate of Chodley Wontok, and a guy who used to hang around here when not at a Mornington Peninsula ocean beach

      Also worth noting that the Kouk seems to have come around. He too has slagged off MB in the past

      • reusachtigeMEMBER

        Bloke is on a bit of a crusade now by the look of his feed. But his commie Labor masters are still saying in the papers lots of v1brants are good just as long as we make them all permanent. That’s awesome, Labor are fckt!

        • ErmingtonPlumbingMEMBER

          Is life really just all about having more choice and variety at the local massage parlours for you Reusa?
          What about job security through seniority?
          Higher wages?
          Better working conditions!
          No you don’t care about any of that on your daily crawling for something new”

          Yours is a sad prism to view life through buddy.

          • What about job security through seniority? (?!?!?) Morons who’ve atrophied their skills and intelligence by sticking around and getting comfortable for 15yrs should be more secure? How about job security through performance?

          • ErmingtonPlumbingMEMBER

            Initially I was just going to go with job security but added “through seniority” to get a rise outa Reusa and hopefully see him make some unsavoury and funny comment about not wanting to spend time with seniors at his preferred establishments.
            I feel like I have failed.

  1. Maybe he’s firing blanks. This is all conveniently being raised now given their earlier comms on targets and goals set which they know likely won’t be achieved given past performance. It would give the RBA an escape from being blamed once they don’t meet those and rates have to stay low with the control they have. Or maybe it’s genuine. But hat off to you guys and your work.

  2. C'est de la folieMEMBER

    LvO and DLS ran virtually solo on this issue for most of a decade, regularly facing claims of racism

    The simple existence of Macrobusiness kept this issue alive and somehow in the public domain when no mainstream media outlet would touch it. For sure, sometimes the discussion here gets pretty outdoorsy and there are times it has a good healthy saloon bar brawl kind of vibe. But just about everyone at Macrobusiness – Members and Commenters as well as David and Leith – who have managed to keep the racism toned down while keeping the issue at least obviously front and square in the thinking of many people – should take a bow.

    We are part of why the RBA can come out pretty openly and state what we have been discussing for a long long time.

    Immigration levels a factor in sluggish wages growth: RBA Governor

    • NoodlesRomanovMEMBER

      ‘Can lead to..’

      ‘Is a factor in sluggish..’

      Not exactly strong language though is it?

      • “If you rub it a little bit…”

        You’ve got to start somewhere ol’ boy. In those circles, one does not simply go straight to the money shot.

    • “We are part of why the RBA can come out pretty openly and state what we have been discussing for a long long time.”
      The reason the rba can talk about it is because they have been slapped in the face with a wet fish of the reality right before their eyes.

  3. It’s still polite “conceptual” stuff. Phil knows, if he says it in plain English, the Menacing Controlling Wallpaper will have him taken out. As for the Lisping Ineffectual Chenille, he simply wouldn’t dare say a word, that would still be too racist.

    • Even what he politely said, it was enough to draw a pointed rebuke. See AFR page 3, “Government [i.e, Home Affairs] rejects migration-wages link.” Go, you good thing, Phil. You n Gareth Aird, vive la resistance.

  4. Fishing72MEMBER

    In an article today in the SMH discussing this issue the ALP and unions have once more come out arguing against Australian workers with the claim that it’s only temporary workers and not mass immigration which is affecting wages.


    • reusachtigeMEMBER

      Gotta love Labor, they know how to constantly back the losing horse! I’m thankful.

  5. My, it sounds awfully a lot like you are advocating for an Australia First immigration policy!

    • Make Australia Pretty Good (but not too much, no one likes a tall poppy show pony) Again!

  6. I don’t trust Phil Lowe and I don’t know what his game is here. Perhaps we should give him the benefit of the doubt.

    He knows that immgrations crushes wages and prevent training.

    The RBA mandate is:
    Stability of the currency
    Maintenance of full employment in Australia
    Economic prosperity and welfare of the people of Australia

    So to do his job he should now state openly that if immigration goes above 50,000 per year he will aggressively raise interest rates. The chickens running the country will be scared of this threat and will then keep immigration down, and Phil Lowe can meet the RBA mandate.

    • yeah, but if he ACTUALLY raises the rates then he fails to meet his mandate.
      So it’s just a massive game of chicken, and that ends in tears if you play long enough.


      All the above wrt hyper- immigration.Everything we have enjoyed economically for the past 25 y has resulted from the artificial wealth being artificially generated by jamming more and more folks into the bank lobbies where nearly instaneous cap gains are then leveraged into consumption. It all looks pretty swish from a consumer angle and the vernier from the RBA but even better from a banker perspective. It *all” is hinged upon the increasing flow of borrowers which are currently setting Strayan records.

      And just like my Stihl Wood Boss chainsaw, right before the tank empties, the rpms increase as the fuel mixture goes lean letting me know there’s no more fuel available for the combustion process.