Labor erupts into civil war over immigration

The Australian Labor Party (ALP) has erupted into civil war over immigration.

Last week, Labor’s multicultural affairs spokesperson, Andrew Giles, demanded that welfare payments be extended to millions of temporary migrants living in Australia:

“We can’t allow people to fall through the cracks and become destitute,” he told Guardian Australia.

“The Morrison government can fix this situation with a stroke of a pen by expanding the eligibility of the jobkeeper payment. Scott Morrison must fix the gaping holes in his wage subsidy scheme, now.”

Over the weekend, Labor’s immigration spokesperson, Kristina Keneally, called for Australia’s immigration program to be cut post COVID-19 in order to give Australian workers a “first go” at jobs:

Our economic recovery must help all Australians get back on their feet, and to do that we need a migration program that puts Australian workers first.

Governments of all stripes have relied on high levels of migration to boost population to fuel economic growth. Arguably, at times this has been a lazy approach. Letting lots of migrants come to Australia is an easier way to drive economic growth than increasing productivity or investing in skills and training…

“The post-COVID-19 question we must ask now is this: when we restart our migration program, do we want migrants to return to Australia in the same numbers and in the same composition as before the crisis? Our answer should be no”…

The open borders brigade within the ALP have been quick to hit back:

Several of Senator Keneally’s colleagues privately voiced frustrations on Sunday about her decision to write an opinion piece arguing against the “lazy approach” used by governments to prop up economic growth through immigration and suggested that the overall migrant intake could be less under Labor…

One Labor MP from the Left faction, which tends to support a more-open approach to migrants and refugees, said they were concerned about being accused of “dog-whistling”.

“We don’t have a problem with the call to look at temporary migration, but we don’t have to sound like Peter Dutton while doing it,” he said…

Let’s hope that Kristina Keneally’s sentiments win out within the ALP.

A key reason why Australian wage growth remains in the gutter is because labour supply via immigration is running well beyond labour demand. This has kept Australia’s unemployment and underemployment rates elevated, reduced worker bargaining power, and removed the need for employers to lift wages to attract talent.

Indeed, Labor-aligned think tank, Per Capita, last month admitted that Australia’s persistently high labour market slack has contributed to lower investment, lower wages, as well as reduced innovation and productivity:

Over the past few decades the Australian economy has seen a significant drop off in private sector productivity investment…

Measures of Research and Development (R&D) spending by corporations, an important precursor to increasing productivity, have been very low in Australia for some time… our national gross R&D level is now among the lowest in the developed world. The private sector in Australia has consistently failed to adequately engage in R&D and capital investment…

This may partly be a result of long-term slackness in the Australian labour market: even before the current crisis, unemployment in Australia was stuck at 5.1%, considerably higher than in comparable advanced economies, and the underutilization rate was 13.7%, meaning that almost one in five Australians was seeking more hours of work. There is growing evidence that a tight labour market promotes innovation and productivity enhancements as employers are motivated to reduce labour costs, so a full employment economy is a means to encourage business investment in productivity gains.

Moreover, 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.

Therefore, the ongoing supply shock from immigration is the primary reason why labour supply has outrun demand and why wage growth has been anaemic.

The sad reality is that 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.

High immigration is also very damaging to productivity.

This is because allowing employers to pluck cheap migrants in lieu of paying higher wages to local workers discourages companies from innovating and adopting labour saving technologies, which would boost the economy’s overall productivity. It also prevents creative destruction by enabling low productivity companies to remain in business.

Growing the population via high immigration without commensurately increasing the stock of household, business and public capital to support the larger population also necessarily ‘dilutes’ the economy’s capital base. This leaves less capital per person and lowers overall productivity, resulting in ‘capital shallowing’

Finally, high immigration unambiguously increases infrastructure bottlenecks and traffic congestion, increases land prices and worsens housing affordability, erodes the natural environment, and in already built-out cities requires new infrastructure to be built that is much higher cost than in the past due to diseconomies of scale (e.g. requires tunneling and land buy-backs). These necessarily also reduce an economy’s productivity.

With Australia now facing mass unemployment, alongside falling incomes, the absolute last thing workers need is for so many temporary migrants to remain in Australia competing with locals for scarce jobs. This will not only keep unemployment and underemployment high, but also place additional downward pressure on wages.

The same applies for the permanent migrant intake, which has set aside 108,000 places for so-called ‘skilled’ workers:

With skills shortages virtually non existent across the economy, and mass unemployment looming, there is also zero rationale in maintaining such a strong permanent migrant program.

Running on a lower immigration platform is a no-brainer for Labor.

Not only does this policy make perfect sense economically, but it would be very popular politically, given most opinion polls show a strong preference for lower levels of immigration and a stabilising population.

All Labor needs to argue is that it will slash immigration because:

• an excessive flow of migrant workers are displacing locals, reducing employment opportunities and lowering wage growth;
• excessive immigration is driving up demand for housing, pushing prices beyond the reach of locals, especially in Sydney and Melbourne; and
• excessive immigration is overrunning infrastructure, reducing amenity and liveability, and pushing up the cost of living.

Most Australians know these to be true and would resonate with these common-sense arguments.

Moreover, Labor could argue that it is merely seeking to lower immigration back toward the historical (pre-2004) average, and that the new lower intake would still be at the higher end of developed nations:

If Labor wants to have any chance of winning the next election, it must return to its working class roots and represent the interests of regular Australians over inner-city progressives. Otherwise it will remain in the political wilderness.