RBA blames oldies for crushing wages. Ignores visa system.

The SMH’s Clancy Yates has parroted the RBA’s claim that the rise in older people in the workforce is behind the anaemic growth in Australian wages:

Whatever the social impacts, one thing that is pretty clear from the greying of the workforce is that it has added to the “spare capacity” in the labour market.

RBA governor Philip Lowe said in a speech last week that the surge in participation was a “positive development,” but it also meant it had become “quite difficult to generate a tight labour market with the flow-on consequence that wage increases remain subdued.”

For example, the higher number of people in the workforce has meant that even though the economy has created about 600,000 new jobs in the past two years, the unemployment rate has more recently been edging up, in part because of all the extra available workers.

NAB’s Davies also points to overseas research suggesting older workers are less likely to quit their jobs, and they may put a higher priority on non-wage arrangements with employers, such as the ability to work flexibly. These traits would also suggest unemployment needs to fall even further than previously thought to result in a labour market that’s tight enough to spark strong wage growth.

There is a kernel of truth in Yates’s and the RBA’s analysis. As shown in the next chart, the labour force participation rate of over-65s has more than doubled since 2000, and there is obviously much further scope for participation to lift given the legislated increase the Aged Pension eligibility age to 67 from 2023, as well as people living heathier for longer.

But Yates has conveniently chosen to ignore the biggest driver of Australia’s rising labour supply: mass immigration.

As we already know, net overseas migration (NOM) into Australia has surged over recent years, as illustrated by the next chart:

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 age and, therefore, have high labour force participation.

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 wage growth remains anaemic, especially among younger Australians.

Clancy Yates has also 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.

The impact is most pernicious on younger Australians, as explained recently by the Grattan Institute:

As the Productivity Commission noted, where migration does displace existing populations, it tends to affect people with low skills and youth most. That seems to be happening in Australia. And because international students and backpackers are primarily looking for part-time work, they may affect under-employment more than unemployment…

Low-skill migrants might also put downward pressure on wages (if accurately measured). The measured wages of those aged 20 to 34 have not risen as fast as the wages of older workers for some time (Figure 7)…

Australia is now running a predominantly low-skill migration system. People from this system form a material proportion of the younger workforce. Because of visa conditions, many of these migrants have incentives to work for less than minimum wages, and there is anecdotal evidence that many do. It is impossible for data sources on the Australian labour force to pick up all of this phenomenon. It is possible that the scale of this influx to the labour market is depressing wages and increasing under-employment specifically for low-skill younger workers.

If anything, the rise of 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, commentators need to examine the issue honestly and admit that the mass immigration ‘Big Australia’ policy is a key driver of Australia’s wage crisis.