Why Phil Lowe is dead wrong on immigration and unemployment


A few weeks back, RBA Governor Phil Lowe told the House of Representatives Standing Committee on Economics that Australia’s closed borders only had a minor impact on the unemployment rate, noting that unemployment rates have also fallen in other advanced economies:

To repeat the point I made earlier, the main reason we have low unemployment in Australia now is that we have had unprecedented monetary and fiscal stimulus working together. Team Australia worked, including with the banks and the regulators. It got us across the bridge we talked about before and it got us on a particular road. That is the main story.

No doubt the closure of the borders has left some labour markets tighter than they would otherwise be but that is not why the national unemployment rate is heading to four per cent and vacancies are at record lows. I note that in many other countries unemployment rates are also quite low. Again, fiscal and monetary policy works. Other countries do not have low unemployment because the borders are closed; they have it because of the success of the policy response.

Over the weekend, the ABC business reporter, Gareth Hutchens, penned his third article in two weeks (others here and here) explaining why Phil Lowe is dead wrong.

Hutchens’ key arguments are that:

  1. The ABS’ labour force data unambiguously shows that Australia’s closed border to immigration has played a “major role” in driving the unemployment rate down. This fact cannot be denied.
  2. Unemployment rates in other advanced economies are an ‘apples-and-pears’ comparison, just like they are with respect to inflation.

Below are key highlights from Hutchens’ article:

The United States

In February 2020, the US unemployment rate was 3.5 per cent…

But it has recovered rapidly, and it currently sits at 4 per cent…

And what about the US participation rate?…

It deteriorated significantly after the GFC and never recovered.

And during the pandemic it fell again, and it’s failed to return to its pre-pandemic level…

So, what are those two numbers telling us?..

On one hand, the US government has kept its economy afloat with trillions of dollars of stimulus, keeping millions of people in work. The stimulus worked wonderfully.

However, nearly a million people have also failed to return to the labour force in the wake of the pandemic.

As of January, the US labour force has 896,000 fewer people in it compared to pre-pandemic levels (seasonally adjusted)…

It has 1.7 million fewer employed people in the economy than it did pre-pandemic. It has 796,000 more officially unemployed people…

How does it compare to Australia?

Well, Australia’s labour force has 136,400 more people in it than it did pre-pandemic. It has 259,600 more employed people in the economy. It has 123,200 fewer unemployed people.

And our closed borders played a major role in producing those numbers.

We’ve had a massive amount of stimulus supporting the economy through the pandemic, and in the recovery phase employers have had little choice but to hire workers from the local pool of unemployed people…

When Australia’s borders were shut, it turned our labour market into a closed economy of sorts, with a short-term consequence being that it’s been much easier to drive the unemployment rate down below where some economists imagined it could go.

We’re not comparing apples with apples…

European unemployment rates

And what about Europe?

According to Eurostat, the statistical office of the European Union, the Eurozone’s unemployment rate hit 7 per cent in December.

It was the lowest level since the data series began in April 1998.

For the 27-member European Union, the unemployment rate fell to 6.4 per cent in December, also the lowest since records began…

However, it is important to note that both unemployment rates were sitting at record lows in March 2020, before the pandemic.

The massive stimulus spending has been very effective at returning the unemployment rates to those record lows quickly, and helping them fall a little further…

Also, the European Central Bank published a paper recently looking at the role changes in migration patterns, during the COVID era, may have played in the region’s labour market outcomes.

It said net immigration had been relatively weak in the COVID era, and that dynamic had contributed to the region’s working age population “flattening out” in the COVID era…

It thinks the strong declines in the Euro area’s population of prime-age cohorts (aged 25 to 54) during the pandemic may reflect changed migration patterns, and could also affect the area’s long-term growth rate…

What about New Zealand?..

It closed its borders and pumped its economy with stimulus.

And its unemployment rate fell to 3.2 per cent in the December quarter, its lowest level since its data series began in 1986…

This is how Bloomberg has reported on the situation: “New Zealand’s closed border has cut the supply of imported labour, creating worker shortages that are driving up wages and contributing to the fastest inflation in more than 31 years”…

Every labour market is different.

Sadly, Phil Lowe is being dishonest on this issue. The ABS labour force data is staring him in the face and shows categorically that the shift from strong immigration pre-pandemic to negative immigration over the pandemic is the primary reason why Australia’s unemployment and underemployment rates have collapsed to near 14-year lows:


While stimulus certainly prevented the economy from falling into a deep recession, it has merely filled the hole left by COVID lockdowns/restrictions and failed to put the economy on a higher trajectory. This is illustrated clearly by the fact that employment growth is tracking well below the pre-COVID trend:


The collapse in the unemployment and underemployment rates have also not been driven by people giving up looking for work, like in the US. To the contrary, Australia’s participation rate in January (63.4%) was higher than in February 2020 before the pandemic commenced (62.5%):

Australia’s employment-to-population ratio has also risen to its highest level on record:


Therefore, the only explanation for why Australia’s unemployment/underemployment rates have fallen so heavily in the face of lackluster jobs growth is because Australia’s labour supply has stopped growing, thanks to the sharp fall in immigration.

As shown in the next chart, Australia’s civilian population aged over 15 has gone from growing strongly (circa 25,000 people a month pre-pandemic) to treading water:


Had immigration continued at its pre-COVID level, Australia’s civilian population aged over 16 would be roughly 480,000 larger than it is currently. In turn, both unemployment and underemployment rates would be significantly higher and the employment-to-population ratio would be much lower (due to an increase in the denominator).

These are basic statistical facts that cannot be refuted by the ‘Big Australia’ lobby nor its captured economists, which sadly includes Phil Lowe.


They need to stop lying and present the data as it is. Because it is irrefutable.

At least Gareth Hutchens, professor Bill Mitchell, Saul Eslake and Greg Jericho are honest enough to acknowledge these facts.

About the author
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.