Reserve Bank of Australia (RBA) governor Philip Lowe sparked a debate over immigration when he claimed in a July speech that high immigration levels were in part to blame for years of low wages growth.
Documents obtained under freedom of information (FOI) laws reveal that the RBA’s economics research department had been doing research on the issue prior to Lowe’s speech. They found that people on student and holiday visas, in particular, had contributed to low wage growth prior to the pandemic, as had the partners of people brought into Australia on skilled visas:
EA estimates that there has been persistent spare capacity in the labour market for at least the past decade. This has coincided with declining wages growth across all sectors of the economy…
The medium and long-term structural factors most likely contributing to persistent spare capacity and subsequently low wages growth at present are changes in Australian immigration policies and the composition of the immigrant pool…
Over the past two decades, Australian immigration policy has supported high levels of migration of both skilled and unskilled working-age persons. This has expanded the labour supply. The impact on spare capacity and wages is different for skilled and unskilled workers.
The largest growth in migration by far has been for unskilled migrants, primarily students, working holiday makers and family visa holders. These migrants have partial or full work rights and tend to work in the lowest paid jobs, for which domestic labour is relatively easily substitutable.
Skilled migration has become increasingly targeted to filling jobs for which there is not an immediately available domestic substitute. Occupations open to skilled immigration have wages significantly above the national median. Immigration of the primary skilled visa holder is likely to lessen wage growth pressures in these occupations, while having a marginal impact on spare capacity; in particular, it might marginally increase spare capacity by reducing incentives for employers to invest in available but poorly matched domestic labour supply.
A significant part of the permanent migration stream is comprised of the partners of skilled migrants, for which there are no skill requirements but full work rights. This increases spare capacity, as these secondary migrants do tend to participate in the labour market and have characteristics similar to incumbent workers.
This supports everything MB has argued regarding immigration and wages over the past decade.
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When will Australia’s cabal of captured economists acknowledge these basic facts? I’m looking at you Greg Jericho, Peter Martin, Richard Holden and Gabriela D’Souza.
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.
