The Conversation descends to codswallop on immigration and wages

Advertisement

The Conversation teed off over the weekend with a piece by long term Population Ponzi spruiker Peter Martin, again touting rebuttal of the idea that Australian immigration volumes and income increases are related – Top economists say cutting immigration is no way to boost wages.

That would be all good and well – insofar as it goes – if that actually was what the 56 economists actually said. But they didn’t, and in headlining a piece touting immigration as opposed to a load of other factors the economists far more obviously commented about, the piece provides a classic example of just how opinion and viewpoint becomes manipulated in the contemporary media space. More pertinently the Martin piece is testament to just how paranoid Australia’s media and academic worlds are about seriously questioning Australia’s immigration intake, and just how far they would go to deprive the Australian public – for whom the subject is fairly obvious – any chance to look at the issue squarely.

Let’s start with the opening stanza…….

Australia’s top economists have overwhelmingly rejected cuts to either permanent or temporary migration as a means of restoring lost wage growth.

The 56 leading economists polled by the Economic Society and The Conversation include a former head of the Fair Pay Commission and a former expert member of the Fair Work Commission’s minimum wage panel.

Among the experts, selected by their peers, are specialists in economic modelling and the economics of labour markets from both the private and public sectors.

All but five rejected cuts in temporary migration as a means of boosting wage growth. All but three rejected cuts in permanent migration. 

Anybody looking at the headline, and following up with the opening few stanzas would be thinking that maybe 50 of Australia’s leading economists have specifically pooh-poohed the very notion of immigration having anything to do with wages outcomes. But they didn’t…..and we can take a look at what they said and how they said it. It’s just that the Conversation is relying on people not actually reading any further than the intro.

Advertisement

Apart from conveying that impression the opening salvo is mainly about fluffing up the credentials of the economists to create a ‘you can’t question these guys’ kind of mindset. Plenty of them will be disappointed with the tenor of the piece.

The results put the economists at odds with Reserve Bank Governor Philip Lowe, who last month drew a link between temporary migration and weak wage growth saying employers had been using overseas hires to fill gaps that would have been filled by locals, diluting “upward pressure on wages in these hotspots”. He said this might have spilled over to rest of the labour market.

Cutting temporary and cutting permanent migration were the first two of ten options for boosting wage growth presented to the panel of economists. The panel rated them third last and second last. Only “holding back growth in female and older worker participation” was marked down more.

That’s right. Peter Martin is running the line that where a group of people are given a choice of ten different factors which may have an effect on incomes growth, then those not selecting ‘Immigration’ are ‘rejecting’ the idea.

Advertisement

What happened was this. The Economists were asked for ‘Measures that would best deliver higher wages growth‘ and asked to select 3 from a menu of 10.

Peter, what if they thought Immigration was a factor but just thought there were other more significant factors? Are they rejecting it? What if their preferred course for increase wages involved the address of other factors in income dynamics in Australia, but those other factors wouldn’t be addressed for reasons such as politics. Would they recommend we do nothing about immigration if achieving higher incomes was the priority?

Are Australian Universities not promoting any complexity in issue consideration these days, or is it just that some ‘journalists’ working on their behalf have become too lazy to do the hard analysis, or too frightened of what the analysis may come to?

Advertisement

Peter carefully chose the statements for the next stanza….

Michael Keane of The University of NSW said the idea that population growth and increased labour supply were constraining wage growth was “so naive as to not really be worthy of comment”.

Consultant Rana Roy said only a “cultivated amnesia” could ignore the near-uninterrupted growth in real wages in US, industrialised Europe and Australia amid record inbound immigration in the decades after the second world war.

Gabriela D’Souza of the Committee for Economic Development of Australia said the idea owed much to a “one dimensional view of the world” that took account of only the direct impact of immigrants on particular wages and not the impact of their demand for goods and services on a broader range of wages.

Dozens of studies had identified the overall impact as “near zero”.

In telling us we are naïve Michael Keane hasn’t actually got around to telling us why Phil Lowe – and a large number of Australians – are wrong. They are thinking that heavy immigration volumes which have been in place since the near trebling of Net Overseas Migration in 2005, from an average of about 80k per annum in the 30 years beforehand to an average of more than 220k per annum in the years since, are directly related to the lack of income growth in the last decade. His frame of reference of the post WW2 era doesn’t help all that much given the demise of the AIRC and the effective end of Industry protection sheltering large numbers of Australian employees.

Rana Roy brings in the concept of ‘cultivated amnesia’ as something from which we (questioning immigration volumes) may be suffering, but offering the possibility (as with Keane before him) that cultivated amnesia might also lead to forgetting about an entire manufacturing sector which was protected up until the 1980s or of an Industrial Relations Commission which had inspectors who could stroll into employers and ask to see pay slips and work permits up until the 1990s? Would he laugh at people proposing we had workplace inspectors or industry protection and tariffs back? And if we aren’t going to have them back then why do we need the immigrants again? To divvy up the selling off of our national bequest between ever increasing numbers of people?

Advertisement

Gabriela D’Souza burdens our Naïve Cultivated Amnesiac way of seeing things with a ‘One Dimensional View’. That is possible, but someone might care to inform Gabriela that if people are thinking that all the extra people is a factor in their incomes not going up by much, then noting all the extra people buying things – to effectively help keep prices higher – isn’t likely to soften their thoughts all that much. That of course is well before considering if all immigration has the same positive effect, or if some immigration – say, where workplace protections have gone, or where immigrations are heavy, can’t tilt the balance to the negative.

And dozens of studies – particularly those emanating from Australia’s seriously compromised academic (reliant on foreign students to pay vice chancellors their world beating incomes) or bubble loving corporate sectors (seeing some upside in incomes growth nailed to the floor while margins on products remain solid in the face of additional demand) may not cut much ice with the lived experience.

From this nadir the piece does at least get around to factors determining income increases, although this seems a secondary consideration to ensuring that plenty of eminent Australian economists crack it for a mention.

Advertisement

Thankfully what the 56 Economists did actually come up with wasn’t bad at all. If you think the above responses can be condensed to ‘boost demand’ (the top 3), ‘reform industrial relations’ (the next 3) ‘cut taxes or immigration’ (the last 3 before the idiocy of restricting female or aged employment) which in linking tax cuts with immigration cuts may be getting close to how the Australian public see the deliverables from policy reform as far as they are concerned.

That boils down to ‘boost demand’ ‘reform IR’ and then into ‘cut taxes’ or ‘cut immigration’ – which leads straight to the question of ‘if you don’t think the first 2 are all that plausible then ‘what is the best outcome?’ and ‘is cutting immigration worth considering?’ ‘

Advertisement

In general the economists questioned make valid points – just not particularly the one Martin claims they make about immigration. If Australia can boost productivity, or can boost business investment then for sure this will help demand and incomes. But Australian productivity growth has collapsed alongside rampant immigration growth, and the ‘golden era’ of iron ore exports will presumably give way to some form of belt tightening rather than never ending stimulus, and that is before considering ‘where would the products of all that productivity actually go?’ To a load of other nations trying to boost their domestic production in the wake of Covid? To a nation of the most heavily privately indebted people on the planet struggling to pay mortgages at home?

Lets take a look at where they went….

Productivity ‘almost everything’

Robert Breunig of the Australian National University said immigrants appeared to add to productivity rather than detract from it, meaning slowing down immigration could slow down rather than add to productivity and growth.

Three quarters of the panel nominated productivity growth as the most important precondition for higher wages growth, endorsing the conclusion of Nobel Prize winning economist Paul Krugman that “productivity isn’t everything, but in the long run it is almost everything.”

Krugman famously added that a country’s ability to improve its standard of living over time depended “almost entirely on its ability to raise its output per worker”.

Ian Harper, a former head of the Howard government’s Fair Pay Commission and a current member of the Reserve Bank board, said that without productivity growth, any boost in wages growth that was delivered was likely to be nominal — matched by inflation — rather than real, delivering higher living standards.

One of the best tools for lifting production per worker was business investment.

One of the five economists who thought immigration hurt wages growth, Macquarie University’s Geoffrey Kingston, said it seemed to do it by thinning investment per worker. In the 1980s, under Prime Minister Bob Hawke, increased immigration helped push down real wages for five years in a row.

Several of those surveyed said wage growth needed investment in more than machines. Griffith University’s Fabrizio Carmignani said what also mattered was investment in “human capital” via education and research and development.

Adrian Blundell-Wignall, a former division chief at the Organisation for Economic Co-operation and Development, said reforming the education system and getting rid of elitism had to be part of the plan.

“That the best predictor of how well you do at school is how rich your parents are and where they went to school is a national tragedy,” he said. “The entitlement and club economy that comes with this permeates politics, business, and who gets the best jobs after completing school.”

Former Rudd and Gillard government minister Craig Emerson said while measures to boost productivity growth were essential, even if implemented soon, they would take years to flow through into higher wages.

There isn’t much to disagree with there. Krugman’s is the overarching key point – productivity is everything – and Emmerson, Blundell-Wignall, Carmignani & Harper all serve up perfectly valid points around that. Even Breunig and Kingston are valid enough, with productivity per capita (rather than overall productivity) the bridge between the points they make, after accepting that a policy measure which had an effect in the 1980s, would be taken on by a radically different economy if adopted now, and that Peter Martin has couched Breunig with ‘appeared’ and ‘could’ in order to hide Breunig’s straightforward observation that ‘Short term wage growth can be created by cutting immigration.

Advertisement

The second stanza closes out with more common sense, but nary a word more on immigration, which brings into question the title of the piece, the opening stanza and the assertion it somehow rebuts anything suggested by the RBA chief.

It’s how you divide the pie

Saul Eslake said whether or not higher productivity growth actually delivered higher real wages would depend on the division of the fruits of that growth between wages and profits.

John Quiggin said nearly every reform of Australia’s industrial relations system since 1975 had acted to reduce the bargaining power of unions. All ought to be reviewed with a “presumption in favour of repeal”.

Mala Raghavan of the University of Tasmania said wage growth had become uneven. Wages for a small number of managers had soared while wages for others — especially casual workers — had barely moved.

The Australian National University’s Emily Lancsar saw a triple benefit from reforming the industrial relations system to boost union bargaining power: it would increase wages directly, it would put money that would have been paid out as profits in the hands of people likely to spend it, and the increases would flow through to workers not on awards and not represented by unions.

Labour market specialist Jeff Borland added that there was a case for strengthening the ability of unions to obtain gender pay equity in female-dominated occupations.

None of those surveyed were optimistic about the prospect of quickly lifting wages growth. The Reserve Bank said in July it wasn’t planning to lift interest rates until aggregate growth exceeded 3%.

This time its Saul Eslake who delivers the intellectual key point, with the others all flagging a need to bring government back into employment conditions after nearly 30 years of us being told they should be out. Plenty to consider and argue about either way – but it is saying nothing about immigration.

Advertisement

The real value of the piece stems from the comments by the 56 at the bottom of the article. Take a look at all of them. Ask yourself. Were these people more strident about productivity growth than immigration?

Every last comment which actually refers to immigration is below so readers can make the call on whether Peter Martin has completely misrepresented the sum of what has been said. More disturbingly from a journalist’s point of view Martin has epitomised the failing of much contemporary Australian media work by completely blowing the real story – ‘what will generate wages growth?’ which would have been a good piece to write – to sell the unwary reader an ideological line of ‘they said cutting immigration wasn’t the answer’

COMMENTS REFERRING TO IMMIGRATION

Advertisement

Robert Breunig, Crawford School of Public Policy, ANU: ‘Short term wage growth can be created by cutting immigration, but overall immigrants appear to add to productivity rather than detract from it, so this seems like a bad policy for generating sustained productivity growth.’

Lisa Cameron, The University of Melbourne: ‘I would support an examination of the role of temporary migration but have not selected this option as it is worded to include international students and I do not agree that we should be cutting international student numbers.’

Gabriela D’Souza, Committee for Economic Development of Australia: ‘Trying to bring about wage growth by slowing migration would not be wise in my view. Dozens of studies have shown that the effects of migration on aggregate wages growth is near zero. This might seem counterintuitive but it is because migrants supply labour and consume goods and services.

It’s also a very one dimensional view of the world – a partial equilibrium lens if you will – and doesn’t take into account the knock-on effects this will have on different parts of our economy, and on some of our key industries.’

Advertisement

Brian Dollery, University of New England: ‘Restraining growth in labour supply by cutting temporary migration (including international students)

Restraining growth in labour supply by cutting permanent migration

Measures to boost productivity growth’

Uwe Dulleck, Queensland University of Technology: ‘Where I am certain that we may get only a very limited and, if at all, short lived effect is by reducing labour supply in any way. I am quite certain that new migrants increase wages for Australians – for the simple reason of their demand increasing aggregate demand, and their willingness to seek employment, creates jobs (and many for people with higher qualification levels).’

Chris Edmond, The University of Melbourne: ‘The evidence on immigration and wages provides no reason to think lower migration would sustainably increase economy-wide wages. Lower migration reduces labour supply *and* labour demand.’

Advertisement

Craig Emerson, Craig Emmerson Economics: ‘The Pacific Islander program of temporary migration should be retained but Australia should not resume the high pre-pandemic levels of temporary, low-skilled migration through the working holiday visa and related programs.

The questionnaire included international students, but I would separate them (as long as they are engaged in genuine higher education programs) from temporary, low-skilled migration and do not agree their numbers should be cut.’

Allan Fels, The University of Melbourne: ‘Restraining growth in labour supply by cutting temporary migration (including international students)

Advertisement

Restraining growth in labour supply by cutting permanent migration

Maintaining high government spending in order to boost aggregate demand’

John Freebairn, The University of Melbourne: ‘Restricting labour supply, including immigration and female and mature age participation, has minimal net effects on wages with reductions in supply roughly offset with reductions in demand.’

Paul Frijters, The University of Queensland: ‘Restricting migration is clearly bad for long-run wage growth because foreign migrants have complementary skills to those educated in Australia, so restricting their inflow reduces the productivity of those living here.’

John Hewson, Crawford School of Public Policy, ANU: ‘While the measures to restrict labour supply would work directly to raise wages I can’t support them for a host of other economic and social reasons.’

Advertisement

Richard Holden, The University of NSW: ‘Immigration affects both labor supply and labor demand.

And arguments that immigration of the composition in Australia’s recent pre-pandemic years systematically reduces wages is contrary to the best available evidence, and basic economic theory.’

Michael Keane, The University of NSW: ‘Finally, the idea that population growth and increased labour supply are what is constraining wage growth is so naive as to not really be worthy of comment. For instance, wage growth was robust in the post-WWII era despite a booming population and a high rate of immigration.’

Advertisement

Geoffrey Kingston, Macquarie University: ‘The Hawke era (1983-90) saw a big rise in migration to Australia (discussions of the Hawke era tend to neglect this policy shift while overestimating the influence of the Accords on wages).’

And

‘We can’t do much about our terms of trade but we can cut both immigration and company tax.

Immigration has been high recently (at least before the virus) and our current tax rate of 30 percent for large companies has become increasingly uncompetitive by world standards.’

Elisabetta Magnani, Macquarie University: ‘Labour supply measures such as those involving restraints on migration are not appropriate to support wage growth. As pointed out by numerous economists in Australia and overseas, migration operates at two levels, namely labour supply and aggregate demand. These two channels have divergent effects on the potential for wage growth, one negative and one positive. Economists tend to agree that in the aggregate the net effect of migration on a recipient economy is positive.

Advertisement

Temporary migration, for example by international students, may affect the wage growth for specific groups, for example young people, females or senior labour market participants.

However, these effects are likely to be small, as recently argued by Brell and Dustmann (2019). Furthermore, international students contribute to funding the university system, which is central to Australia’s research and innovation strategy. Given the labour market effects of temporary migration are likely to be small and limited to some groups, and recognising the importance of this type of migration for aggregate demand and for specific sectors such as tertiary education, the overall effect of temporary migration is large and positive.

Wage growth measures that rely on restraining growth in labour supply by holding back growth in female and older worker participation would contradict the large and beneficial economic effects of female employment that have been experienced in the OECD. These measures would also run the risk of engendering discrimination in our labour markets and betray our commitments to workplace inclusion and diversity.’

Advertisement

Tony Makin, Griffith University: ‘Meanwhile, measures that restrict labour force growth via reduced immigration or workforce participation may also drive up nominal wages in the short term.

But if highly skilled workers are precluded from potential output generation, this would dampen long term economic growth.’

Leonora Risse, RMIT: ‘Proposing that migration numbers should be manipulated for the purpose of domestic wage growth is also insensitive to the rich evidence on the economic, cultural and society-wide gains of migration (https://www.pc.gov.au/inquiries/completed/migrant-intake/report).’

Advertisement

Rana Roy: ‘In contrast, consider the later, lengthy period of more or less uninterrupted growth in real wages: from 1940 to the mid-1970s in the United States, from 1945 to the end of the century in much of industrialised Europe and Australasia, and from the 1970s onward, successively, in newly industrialising countries across the world. In almost every case, this was accompanied by an expansion of the labour supply: through large-scale immigration (into the United States, Australasia, and from the European periphery to the European core)

 through an internal movement from family-owned farms to waged work in towns and cities

 through increasing female participation in waged work

 and so on.

More recently, from the mid-1970s onward in the United States, and from the start of the twenty-first century in much of the rest of the old industrialised world, including Australia, we have witnessed a lengthy period of wage stagnation – alongside an increasing labour supply resulting from immigration. But it is only by combining this datum with a cultivated amnesia regarding all the rest of the data for the century since 1920 that one can arrive at the false conclusion that restricting labour supply will deliver rising wages.’

Stefanie Schurer, The University of Sydney: ‘Given longer term trends in productivity and demographic change (with a declining population), we need more migration (both temporary and permanent), not less.

Advertisement

Our own research – with Maryam Nagsh Nejad (UTS) – has shown that Australia’s migrants have brought a high level of skills – both cognitive and non-cognitive – to Australia, skills that have also been passed on to the children of migrants.

High levels of skills are needed for generating productivity growth. Links to this research can be found on my homepage: https://www.stefanie-schurer.com/publications

Rachel Ong ViforJ, Curtin University: ‘I doubt that restricting labour supply through reduced immigration will have meaningful impacts at this time, given already historically low immigration levels during the past year.

Advertisement

Perhaps if immigration levels were currently high, there would be scope to look at reducing immigration.

Reducing the international students intake will only further harm a large export sector (international education) which will in turn depress aggregate demand (and wages).’