The mass immigration economy does not do wages growth

If the definition of insanity is doing the same thing over and again and expecting a different result, then Aussie economists are bonkers, at Domain:

BIS Oxford chief economist Sarah Hunter said the wage figures were dismal, adding they meant the RBA would have to take official interest rates down to 0.5 per cent next year.

…NAB chief economist Alan Oster said the RBA rate cut would come with the bank outlining plans for “unconventional” monetary policies including the purchase of government debt.

Senior research fellow David Richardson [at TAI] said GDP would lift by $10 billion for every percentage point reduction in the jobless rate. Such a reduction would see about 134,000 people get full-time work who would also put upward pressure on wages.

The business dailies don’t even cover it. Why would they? They love it. At least useful idiot Greg Jericho offers some nice charts:

The latest wages growth figures released on Wednesday by the bureau of statics show that growth has distinctly slowed, with the worst results since the middle of last year. The results confirm that, for yet another year, the government will be forced to revise down its overly optimistic predictions for wages growth that were made in the budget.

…And that is bad news all round. Already this week a report by Deloitte has revealed that retailers are expecting one of the worst Christmas shopping periods for some time.

…The lack of energy in the economy is highlighted by the fact that half of the 18 industries tracked by the ABS have lower wages growth now than they did this time last year:

It very much suggests a stagnation that puts absolute lie to the government’s own wages projections.

In the April budget, the government predicted that by June next year wages would be growing annually at a rate of 2.75%, and 3.25% 12 months after that:

…In order to get wages growth up to 3.25% the underemployment rate would need to fall from the current level of 8.4% to 7% – the equivalent of nearly 200,000 fewer workers underemployed than are currently.

During the mining boom it took four years for the underemployment rate to fall 1%pt. The government predicts it will fall by more than that in little over 18 months in order to produce 3.25% wage growth:

Were that to happen it would be more than double the previous biggest fall in the underemployment rate over such a time frame.

Of course it’s not going to happen. Wage growth is going to keep falling next year as the growing terms of trade shock is automatically passed though to the labour market owing to mass immigration. As I wrote yesterday, the macro-economic evidence is clear:

Australia has carried a massive output gap – that is, too much supply – ever since the GFC but much more so since 2011 as the twin growth drivers of mining and houshold debt-funded consumption both stalled.

As you can see, before 2008, as a nation we always allowed immigration to fall when the output gap appeared, to prevent too much competition in the labour market. But afterwards, we did the opposite and ramped up immigration. Worse, the sources of immigration deteriorated radically from highly paid, skilled workers into desperate and cheap warm bodies from anywhere in the Third World.

Under this macroeconomic regime, any and every time that economic slack appears it will always land on the labour market in the form of weak wages. The rest is history: a permanent income depression for workers as every time the output gap closes, more cheap foreign labour floods in to widen it again, despite the demand that they also bring.

So, what began as an external shock under Labor, which was too idiotic to cut immigration lest it be labelled racist, has since morphed into a worker-devouring Kracken of permanent Coalition policy that today has Australia rivaling Great Depression USA for falling living standards.

Don’t be fooled into thinking that it had to be this way. It didn’t. Although there was always going to be some adjustment after the mining boom as national competitinvess was repaired, the use of mass immigration to hide the correction has ensured that certrain sectors are protected while other suffer more than they should. Households and tradable sectors have born the brunt of the adjustment while property, banking and retail (until recently) were protected. This happened instead of the far better national interest policies of productivity reform, competitiveness reform and crashing one’s own currency.

Alas, the same policy bastardry it is still happening and the income depression is therefore not over. Ahead, the Chinese economy is going to slow to a virtual standstill and the second leg in the falling commosity price story will transpire, denuding the nation of huge slabs of income once again.

With the Coalition determined to pump in cheap foreign labour to support capital, while Labor inexplicably cheers it on, that will again direct all of the adjustment onto labor as Australia’s Great Income Depression runs for another lost decade.

So is the micro-economic evidence:

• For years we have seen Dominos, Caltex, 7-Eleven, Woolworths and many other fast food franchises busted for rorting migrant labour.
• The issue culminated in 2016 when the Senate Education and Employment References Committee released a scathing report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, which documented systemic abuses of Australia’s temporary visa system for foreign workers.
• Mid 2017, ABC’s 7.30 Report ran a disturbing expose on the modern day slavery occurring across Australia.
• Meanwhile, Fair Work Ombudsman (FWO), Natalie James, told Fairfax that people on visas continue to be exploited at an alarming rate, particularly those with limited English-language skills. It was also revealed that foreign workers are involved in more than three-quarters of legal cases initiated by the FWO against unscrupulous employers.
• Then The ABC reported that Australia’s horticulture industry is at the centre of yet another migrant slave scandal, according to an Australian Parliamentary Inquiry into the issue.
• The same Parliamentary Inquiry was told by an undercover Malaysian journalist that foreign workers in Victoria were “brainwashed” and trapped in debt to keep them on farms.
• A UNSW Sydney and UTS survey painted the most damning picture of all, reporting that wages theft is endemic among international students, backpackers and other temporary migrants.
• A few months ago, Fair Work warned that most of Western Sydney had become a virtual special economic zone in which two-thirds of businesses were underpaying workers, with the worst offenders being high-migrant areas.
• Dr Bob Birrell from the Australian Population Research Institute latest released a report, based on 2016 Census data, revealed that most recently arrived skilled migrants (i.e. arrived between 2011 and 2016) cannot find professional jobs, with only 24% of skilled migrants from Non-English-Speaking-Countries (who comprise 84% of the total skilled migrant intake) employed as professionals as of 2016, compared with 50% of skilled migrants from Main English-Speaking-Countries and 58% of the same aged Australian-born graduates. These results accord with a survey from the Bankwest Curtin Economics Centre, which found that 53% of skilled migrants in Western Australia said they are working in lower skilled jobs than before they arrived, with underemployment also rife.
• The Australian Bureau of Statistics (ABS) latest Characteristics of Recent Migrants report, revealed that migrants have generally worse labour market outcomes than the Australian born population, with recent migrants and temporary residents having an unemployment rate of 7.4% versus 5.4% for the Australian born population, and lower labour force participation (69.8%) than the Australian born population (70.2%).
• ABC Radio recently highlighted the absurdity of Australia’s ‘skilled’ migration program in which skilled migrants have grown increasingly frustrated at not being able to gain work in Australia despite leaving their homelands to fill so-called ‘skills shortages’. As a result, they are now demanding that taxpayers provide government-sponsored internships to help skilled migrants gain local experience, and a chance to work in their chosen field.
• In early 2018 the senate launched the”The operation and effectiveness of the Franchising Code of Conduct” owing in part to systematic abuse of migrant labour.
• Then there is new was research from the University of Sydney documenting the complete corruption of the temporary visas system, and arguing that Australia running a “de-facto low-skilled immigration policy” (also discussed here at the ABC).
• In late June 2018 the government released new laws to combat modern slavery which, bizarrely, imposed zero punishment for enslaving coolies.
• Over the following few months we witnessed widespread visa rorting across cafes and restaurants, including among high end establishments like the Rockpool Group.
• Then Alan Fels, head of the Migrant Workers Taskforce, revealed that international students are systematically exploited particularly by bosses of the same ethnicity.

Academic research also supports it. Below are key excepts from Chapter 13 entitled Temporary migrant workers (TMWs), underpayment and predatory business models, written by Iain Campbell:

This chapter argues that the expansion of temporary labour migration is a significant development in Australia and that it has implications for wage stagnation…

Three main facts about their presence in Australia are relevant to the discussion of wage stagnation. First, there are large numbers of TMWs in Australia, currently around 1.2 million persons. Second, those numbers have increased strongly over the past 15 years. Third, when employed, many TMWs are subject to exploitation, including wage payments that fall below — sometimes well below — the minimum levels specified in employment regulation…

One link to slow wages growth, as highlighted by orthodox economics, stems from the simple fact of increased numbers, which add to labour supply and thereby help to moderate wages growth. This chapter argues, however, that the more salient point concerns the way many TMWs are mistreated within the workplace in industry sectors such as food services, horticulture, construction, personal services and cleaning. TMW underpayments, which appear both widespread in these sectors and systemic, offer insights into labour market dynamics that are also relevant to the general problem of slow wages growth…

Official stock data indicate that the visa programmes for international students, temporary skilled workers and working holiday makers have tripled in numbers since the late 1990s… In all, the total number of TMWs in Australia is around 1.2 million persons. If we include New Zealand citizens and permanent residents, who can enter Australia under a special subclass 444 visa, without time limits on their stay and with unrestricted work rights (though without access to most social security payments), then the total is close to 2 million persons… TMWs now make up around 6% of the total Australian workforce…

Decisions by the federal Coalition government under John Howard to introduce easier pathways to permanent residency for temporary visa holders, especially international students and temporary skilled workers, gave a major impetus to TMW visa programmes.

Most international students and temporary skilled workers, together with many working holiday makers, see themselves as involved in a project of ‘staggered’ or ‘multi-step’ migration, whereby they hope to leap from their present status into a more long-term visa status, ideally permanent residency. One result, as temporary migration expands while the permanent stream remains effectively capped, is a lengthening queue of onshore applicants for permanent residency…

Though standard accounts describe Australian immigration as oriented to skilled labour, this characterisation stands at odds with the abundant evidence on expanding temporary migration and the character of TMW jobs. It is true that many TMWs, like their counterparts in the permanent stream, are highly qualified and in this sense skilled. However, the fact that their work is primarily in lower-skilled jobs suggests that it is more accurate, as several scholars point out, to speak of a shift in Australia towards a de facto low-skilled migration programme…

A focus on raw numbers of TMWs may miss the main link to slow wages growth. It is the third point concerning underpayments and predatory business models that seems richest in implications. This point suggests, first and most obviously, added drag on wages growth in sectors where such underpayments and predatory business models have become embedded. If they become more widely practised, underpayments pull down average hourly wages. If a substantial number of firms in a specific labour market intensify strategies of labour cost minimisation by pushing wage rates below the legal floor, it can unleash a dynamic of competition around wage rates that foreshadows wage decline rather than wage growth for employees…

Increases in labour supply allow employers in sectors already oriented to flexible and low-wage employment, such as horticulture and food services, to sustain and extend strategies of labour cost minimisation… The arguments and evidence cited above suggest a spread of predatory business models within low-wage industries.37 They suggest an unfolding process of degradation in these labour markets…

And below are extracts from Chapter 14, entitled Is there a wages crisis facing skilled temporary migrants?, by Joanna Howe:

Scarcely a day goes by without another headline of wage theft involving temporary migrant workers…

In this chapter we explore a largely untold story in relation to temporary migrant workers… it exposes a very real wages crisis facing workers on the Temporary Skill Shortage (TSS) visa (formerly the 457 visa) in Australia. This crisis has been precipitated by the federal government’s decision to freeze the salary floor for temporary skilled migrant workers since 2013… the government has chosen to put downward pressure on real wages for temporary skilled migrants, thereby surreptitiously allowing the TSS visa to be used in lower-paid jobs…

In Australia, these workers are employed via the TSS visa and they must be paid no less than a salary floor. This salary floor is called the Temporary Skilled Migration Income Threshold (TSMIT). TSMIT was introduced in 2009 in response to widespread concerns during the Howard Government years of migrant worker exploitation. This protection was considered important because an independent review found that many 457 visa workers were not receiving wages equivalent to those received by Australian workers…

In effect, TSMIT is intended to act as a proxy for the skill level of a particular occupation. It prevents unscrupulous employers misclassifying an occupation at a higher skill level in order to employ a TSS visa holder at a lower level…

TSMIT’s protective ability is only as strong as the level at which it is set. In its original iteration back in 2009, it was set at A$45 220. This level was determined by reference to average weekly earnings for Australians, with the intention that TSMIT would be pegged to this because the Australian government considered it ‘important that TSMIT keep pace with wage growth across the Australian labour market’. This indexation occurred like clockwork for five years. But since 1 July 2013, TSMIT has been frozen at a level of A$53 900. ..

There is now a gap of more than A$26 000 between the salary floor for temporary skilled migrant workers and annual average salaries for Australian workers. This means that the TSS visa can increasingly be used to employ temporary migrant workers in occupations that attract a far lower salary than that earned by the average Australian worker. This begs the question — is the erosion of TSMIT allowing the TSS visa to morph into a general labour supply visa rather than a visa restricted to filling labour market gaps in skilled, high-wage occupations?..

But why would employers go to all the effort of hiring a temporary migrant worker on a TSS visa over an Australian worker?

Renowned Australian demographer Graeme Hugo observed that employers ‘will always have a “demand” for foreign workers if it results in a lowering of their costs’. The simplistic notion that employers will only go to the trouble and expense of making a TSS visa application when they want to meet a skill shortage skims over a range of motives an employer may have for using the TSS visa. These could be a reluctance to invest in training for existing or prospective staff, or a desire to move towards a deunionised workforce. Additionally, for some employers, there could be a belief that, despite the requirement that TSS visa workers be employed on equivalent terms to locals, it is easier to avoid paying market salary rates and conditions for temporary migrant workers who have been recognised as being in a vulnerable labour market position. A recent example of this is the massive underpayments of chefs and cooks employed by Australia’s largest high-end restaurant business, Rockpool Dining Group, which found that visa holders were being paid at levels just above TSMIT but well below the award when taking into account the amount of overtime being done…

Put simply, temporary demand for migrant workers often creates a permanent need for them in the labour market. Research shows that in industries where employers have turned to temporary migrants en masse, it erodes wages and conditions in these industries over time, making them less attractive to locals…

A national survey of temporary migrant workers found that 24% of 457 visa holders who responded to the survey were paid less than A$18 an hour. Not only are these workers not being paid in according with TSMIT, but they are also receiving less than the minimum wage. A number of cases also expose creative attempts by employers to subvert TSMIT. Given the challenges many temporary migrants face in accessing legal remedies, these cases are likely only scratching the surface in terms of employer non-compliance with TSMIT…

Combined, then, with the problems with enforcement and compliance, it is not hard to conclude that the failure to index TSMIT is contributing to a wages crisis for skilled temporary migrant workers… So the failure to index the salary floor for skilled migrant workers is likely to affect wages growth for these workers, as well as to have broader implications for all workers in the Australian labour market.

It’s not just temporary visas. It is the entire mass immigration model:

• students, visa holders, tourists all work for nothing to gain longer terms visas;
• their numbers are endless and so is the labour supply shock;
• and that endless flow has now generated a supply side adjustment to businesses that thrive on cheap foreign labour – basically service economy dross – that holds up empty calorie growth, boosts asset prices and the currency, holds own productivity via capital shallowing, and hollows out tradables in an era of global lowflation.

But, of coure, we can’t talk about that because “racism”. Previously from Jericho:

Immigration – because there are many desperate to hate – must be treated with extreme care by politicians and journalists, and certainly with more care than Abbott seems capable. The inherently racist parties will seek to use any discussion and any seeming evidence of the negative impact of migrants as fuel to burn their fires of hate.

Why it’s OK to hate Aussie workers is not made clear.