Economist Gerard Minack has written a note warning that rebooting Australia’s mass immigration program will crush wage growth and prevent the RBA from achieving its wage targets, which will keep inflation lower for longer:
Stagnant incomes and below-target inflation [over the last decade] were due to low wage growth. Wage growth was low because there was slack in the labour market…
Arguably the single most important reason for persistent labour market slack was high levels of migration…
To the surprise only of a few professors of economics, reducing the supply of labour seems to be putting upward pressure on its price…
Wage growth is now central to RBA policy. The Bank says it will not tighten until actual inflation is sustainably within its 2-3% target range, and that will require materially higher wage growth than current levels…
Markets have significantly lifted their expectations for the RBA cash rate target over the past month… That’s daft. There is no reason for the RBA to tighten simply because the Fed tightens. The key to the RBA is domestic wage growth. The tricky point is that wage growth is likely to be a function of how reopening the international border affects labour supply. The longer supply is crimped, the more likely it is the wage growth may increase to the point where the RBA will need to tighten before 2024. But if migration flows revert to pre-pandemic levels, then it’s likely that wage growth reverts to pre-pandemic levels. If that happens the RBA may be able to go another 11 years without tightening.
Recall that Australia’s number one economist, RBA Governor Phil Lowe, has repeatedly argued for higher wage inflation. Lowe has also explicitly acknowledged that high immigration pre-COVID was used to hold down wages.
Therefore, stopping immigration from returning to turbo-charged pre-COVID levels is now central to achieving the RBA’s goal of higher wage growth. But rebooting mass immigration, as advocated by the Morrison Government, the Treasury, the NSW Government, and business and edu-migration lobbies, would increase the supply of labour, reduce worker bargaining power, keep unemployment elevated, and prevent wages from rising.
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It’s perverse isn’t it? Crush wage growth to ensure lower interest rates and higher house prices: win-win for the elites.
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.
