In yesterday’s speech to the Ai Group, RBA Assistant Governor Luci Ellis again reiterated the central bank’s priority of absorbing spare capacity, achieving full employment, and driving up wage growth towards 3%:
As economies move through recovery to the expansion phase, the focus naturally turns to sustaining that expansion. That means ensuring that demand continues to be supported for as long as spare capacity remains. Absorbing spare capacity and achieving full employment is an important national priority. Full employment is a worthy goal for its own sake, given how important jobs and income are for people’s welfare. It is also a precondition for achieving the rates of wages growth that would be consistent with inflation being sustainably within the 2–3 per cent target range that the Bank is mandated to achieve…
For all these reasons, the Board remains committed to maintaining highly supportive monetary conditions. The aim of these policy settings is to support a return to full employment and inflation consistent with the target.
It is now clear that the RBA is fighting against the Morrison Government, which is hell bent on driving up spare capacity in the labour market and lowering wage growth by flooding the nation with foreign workers.
Consider the recent policy changes announced by the Government, each of which will have the effect of increasing labour supply, eroding worker bargaining power and holding down wages:
- Uncapping the number of hours international students can work while studying in Australia;
- Giving farmers a dedicated agricultural visa so that they can more easily hire foreign workers from South East Asian Nations;
- Giving easier access to UK working holidaymakers under the newly signed free trade agreement; and
- Adding an extra 22 occupations to the Priority Migration Skilled Occupation List, in turn giving these occupations priority processing for migration and travel exemptions.
As noted yesterday by CBA head of Australian economics Gareth Aird, the RBA needs the federal government’s assistance to achieve its full employment and wage growth goals, which necessarily means running a lower immigration intake than existed pre-COVID:
We believe that the RBA cannot achieve their objectives of full employment and inflation “sustainably in the target” without the assistance of the Commonwealth Government. More specifically, fiscal settings need to remain stimulatory and net overseas immigration cannot catapult back to strong pre‑COVID levels if wages growth is to remain at 3% per annum or above…
Clearly the closure of the international border has accelerated the tightening in the labour market. On our calculations the number of non-resident workers has declined by 286k or 55% over the year to the Q1 21…
The laws of supply and demand still work. If firms are struggling to recruit they will be forced to pay higher wages…
The recipe for generating higher nominal wages growth and inflation is quite simple – have fiscal and monetary policy working in tandem to stimulate economic activity and job creation whilst growth in the labour market is somewhat contained…
Immigration in the economy will need to be recalibrated when the international borders are reopened if wages growth is to make a more permanent lift to around 3% per annum.
By reopening the immigration floodgates, the Morrison Government is now working directly against the RBA.
The Labor Opposition should (but won’t) stand up and take a lower immigration policy to the upcoming federal election. Not only is it the right thing to do for Australian workers, but it also has the implicit backing of the RBA.
