Population ageing will drive up wages

Professor Charles Goodhart – professor emeritus at the London School of Economics – told a European Central Bank forum that population ageing across the globe will reduce the supply of workers, tighten labour markets and result in higher wage growth:

“In many of the key continental countries, the growth in the working age population is not going to slow, it’s actually going to decline. So all of the factors that have led to an increase in labour, the reduction in bargaining power that went with it, the decline in trade unions etcetera, all of that will now reverse. And we are beginning to see already… a quite rapid shortages of labour in many sectors”…

“It [will make] the availability of labour, from having been coming out your ears, to being hard to find, and people will bid up wages in order to deal with the shortages of workers that they will increasingly be facing, not just temporarily.

“That’s not transitory. It’s here for the long run”.

I’ve used similar arguments surrounding immigration’s impact on wages in Australia.

In a nutshell, the pre-COVID norm of importing 180,000 to 200,000 workers every year rapidly expanded Australia’s labour supply, kept unemployment higher than it otherwise would have been, eroded worker bargaining power, and contributed to the record low wage growth experienced across Australia.

Thus, if policy makers genuinely want to generate higher wage growth in Australia, then immigration should not be rebooted to extreme pre-COVID levels.

Sadly, the federal government has taken the opposite approach and plans to drive net overseas migration to 235,000 people per year ad infinitum, according to the Intergenerational Report:

The inevitable result will be lower wage growth.

Unconventional Economist

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