Over recent weeks, some economists have tried to argue that Australia’s plummeting jobless rate has been driven purely by stimulus and has little to do with the closure of Australia’s international border to immigration.
Even RBA Governor Phil Lowe this month tried to argue that Australia’s closed borders only had a minor impact on the unemployment rate:
I don’t think the main thing going on here is the cutting immigration. That’s not the main … The main thing going on is the large fiscal stimulus and the monetary policy support… That’s what’s driven the unemployment rate down and in time, wages up…
But the closure of the borders isn’t what’s driven the unemployment rate down and wages up. It’s the combined monetary and fiscal stimulus, and actually the resilience of Australians and their preparedness to get out and adjust, and do things.
Over the weekend, ABC business reporter, Gareth Hutchens, proved without a shadow of a doubt that the collapse in immigration is the main driver behind Australia’s collapsing unemployment (and underemployment):
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In 2002, the Howard Coalition government released the first intergenerational report which raised concerns about Australia’s dwindling birth rate and ageing population.
A few years later, the government began sharply increasing the immigration intake.
That’s why, in the graph above, you’ll see the annual growth in the working-age population (the blue line) pick up significantly from 2005.
But that higher rate of growth in the working-age population stayed at elevated levels after the GFC, and it remained there until borders were closed in March 2020.
And what happened when borders were closed?
It caused the growth rate of the working-age population to plummet…
Recently, the Reserve Bank governor, Philip Lowe, said Australia’s closed borders had had some impact on the unemployment rate but not a very big one.
But he’s clearly wrong.
According to the numbers in the labour force framework, they’ve had a huge impact.
And they’ve been working in combination with our historically massive fiscal stimulus and loose monetary policy to drive the unemployment rate down to near-historic lows.
It’s not an either/or situation.
Check the last grey column in the graph below.
Notice how employment has only grown by 259,600 people in the closed borders era (in the 23 months since February 2020)?
It means employment has been growing by just 135,443 people a year since borders were closed.
Historically, that’s exceptionally slow.
In the 12 months before February 2020, in a period without huge fiscal stimulus, employment was growing by 252,870 people a year.
So, how has the unemployment rate dropped to such low levels in the closed borders era?
It’s simple.
According to the LF framework, when we closed our borders it prevented people from coming to Australia to work and it saw thousands of migrants having to leave Australia, contributing to job vacancies jumping to record highs.
By closing the borders, it cut off a very large source of growth for the working-age population.
It meant the pace of growth in the working-age population fell dramatically below employment growth because the working-age population has only been able to grow from natural increase.
Employers haven’t been able to source workers from overseas.
The government’s massive fiscal stimulus and RBA’s emergency monetary policies have kept the economy humming along through this huge shock, but they haven’t caused employment growth to shoot up to record levels, pushing the unemployment rate down.
On the contrary, with closed borders, employers have had little choice but to draw on the local pool of unemployed people to fill job vacancies and grow their businesses.
And by drawing so heavily on the unemployed pool, it’s pushed the unemployment rate down hard.
That’s just how the LF framework operates.
It also explains why the number of officially unemployed people has fallen to levels last seen in 2011.
When borders reopen the dynamics will change again…
Note that Gareth Hutchens’ analysis comes to exactly the same conclusion and mine (here and here), only it presents the same data in a different way. Bill Mitchell – Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle – has also come to exactly the same conclusion.
Sure, the massive stimulus deployed by governments prevented Australia from falling into a deep depression. But this stimulus only filled the hole left by lockdowns/restrictions and did not put the economy on a higher trajectory than it was on pre-COVID. To the contrary, Australia’s job growth has fallen over the pandemic.
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rather, it was the shift in immigration from strongly positive pre-pandemic to negative that is behind the collapse in Australia’s unemployment and underemployment rates.
These are basic statistical facts that cannot be refuted by the ‘Big Australia’ lobby nor its captured economists, including RBA Governor Phil Lowe.
They need to stop lying and present the data as it is. Because it is irrefutable.
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.
