In testimony on Friday to the House of Representatives Standing Committee on Economics, Reserve Bank of Australia (RBA) governor, Phil Lowe, blamed increasing labour supply from females and older Australians for holding down Australian wages:
What’s happened is that increased demand for labour has been met with more labour supply, especially by women and older Australians. Reflecting this, a higher share of the Australian adult population is participating in the labour market than has ever been the case before. I want to be clear: this is very good news. But one of the side-effects of this flexibility of labour supply is that it’s proving harder to generate a tighter labour market and so, in turn, it’s been hard to generate a material lift in aggregate wages growth.
Looking forward, while some slowing in employment growth is expected, the central scenario is for the unemployment rate to move lower to reach five per cent again in 2021. If things evolve in line with this central scenario, it’s probable that we will still have some spare capacity in the labour market for a while yet, especially taking into account underemployment. This means that the upward pressure on wages growth over the next couple of years is likely to be only quite modest and less than we were earlier expecting.
One can only wonder why Phil Lowe chose to ignore the biggest driver of Australia’s rising labour supply: immigration.
As we already know, net overseas migration (NOM) into Australia has surged over recent years, as illustrated by the next chart:
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NOM is also directly responsible for more than 60% of Australia’s population growth.
The lion’s share of recent migrants are of prime working and, therefore, have high labour force participation. This necessarily means that they are the key driver of labour supply and the primary reason why “demand for labour has been met with more labour supply” and why “it’s proving harder to generate a tighter labour market and so, in turn, it’s been hard to generate a material lift in aggregate wages growth”.
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Indeed, a recent paper by Melbourne University Professor, Peter McDonald, found that around three quarters of employment growth in Australia between 2011 and 2016 was attributed to immigration:
The permanent and temporary skilled migration policies established by the Australian Government from 1995 played an important role in meeting that labour demand, especially in the boom years of the first decade of the 21st century…
From July 2011 to July 2016, employment in Australia increased by 738,800. Immigrants accounted for 613,400 of the total increase…
Migration has had a very large effect on the age structure of employment with most new immigrant workers (595,300) being under 55 years.
Clearly, then, the ongoing supply shock from immigration is unambiguously the primary reason why labour supply continues to outrun demand and why Australian wage growth remains anaemic.
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The RBA has also conveniently ignored the systemic wage theft from temporary migrants, which has become entrenched across the entire Australian economy:
Entire industries have become heavily reliant on migrant workers to perform low-skilled work in the labour market for below award rates, which is unambiguously undercutting local workers and lowering overall wage growth.
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If anything, the rise of female and elderly participation is a response to the failing wages growth arising from the mass immigration model as it destroys industrial relations, leaving households no choice but to work harder and longer.
In short, the RBA needs to examine the issue honestly and admit that the mass immigration ‘Big Australia’ policy is a key driver of Australia’s wage crisis.
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.
