Blaming migrants for Australia’s lower wages growth is easy but too simplistic | Greg Jericho

Instead, the RBA might consider the lack of monetary and fiscal stimulus, capped wages growth and reduced worker bargaining power

It is regrettably far too easy in Australia to blame migrants. From societal to educational to economic woes – migrants are the easy target.

Last week the head of the Reserve Bank suggested migration could have caused lower wages growth. It was an unfortunate statement that goes against evidence and ignores the many other factors at play.

Blaming migrants for our economic woes is not new.

Essentially a nation’s GDP grows from two sources – output and population. Those who advocate lower migration will point out that over the past decade migration has become more important for economic growth than it was, for example, in the 1990s:

If you can’t view the graph click here

But the 1990s were also a period of extremely strong productivity growth – spurred on by the massive computerisation of business operations:

If you can’t view the graph click here

Over the past 15 years – including during the mining boom – productivity has slowed. During this time governments – especially those of the Liberal party – have argued (despite an absence of evidence) that the key to productivity (and thus higher wages) is more labour flexibility.

Which brings us to the issue of migrants and lower wages growth that was given a push last week when the head of the Reserve Bank, Philip Lowe, suggested there was a link between the two.

He suggested the hiring of migrants brought in to deal with “specific gaps where workers are in short supply … dilutes the upward pressure on wages in these hotspots”.

This is not altogether startling, but he then suggested “it is possible that there are spillovers to the rest of the labour market”.

Well, yeah. Anything is possible, I guess.

The problem is, as Lowe noted earlier in his speech, “immigration adds to both the supply of, and demand for, labour”.

Essentially migrants increase the supply of people looking for work, but also the demand of things that need people to work to provide. In effect – both taking away and adding to the pressures on wages.

Nothing in Lowe’s speech suggested that migration had a stronger impact on wages growth going down than up.

Unfortunately, when the head of the Reserve Bank talks about migration, nuanced coverage or reaction is not usually the response – and he should know that.

As such a number of economists were quite dismayed that the head of the central bank should stoke the anti-migration fires – especially, as Australian National University economist Ryan Edwards noted on Twitter, it goes against a vast majority of economic scholarship.

Most studies suggest migration has a positive impact on wages growth.

This is because migrants, as was noted in an article published in the Oxford Economic Papers journal in 2020, “perform complementary tasks, rather than substitutable tasks, in the labour market” – ie they don’t take your job, they work with or for you.

The positive finding is consistent with the landmark study led by ANU economist Robert Breunig in 2016 which found “almost no evidence that outcomes for those born in Australia have been harmed by immigration”.

A recent update by Gabriela D’Souza found that “wages are positively correlated with proportion of migrants” and “immigration has largely been a positive for incumbent workers”.

Even a study published in May by the Melbourne Institute which looked at the specific impact on youth workers found that young foreign students increase the competition for work for under 25s, but they also now have to compete with older workers who are staying in their jobs longer.

Blaming migrants for lower wages growth is easy but absurdly simplistic.

And let us just note that the Reserve Bank might be grateful for media and politicians to blame migrants for low wages and inflation, because over the past half a decade it has completely failed to meet its own targets:

If you can’t view the graph click here

From August 2016 to May 2019, the Reserve Bank’s core inflation measure was always below its 2% to 3% target range and wages growth was never once above the 3% rate Lowe now says is needed to get inflation solidly within that range.

And what did the Reserve Bank do? Nothing: it kept the cash rate unchanged for a record length of time:

At the same time the government was reducing the budget deficit – in effect reducing demand in the economy – and all the while was arguing for smaller minimum wage rises and capping public sector wages.

We also had a collapse of the bargaining system, which reduced enterprise agreements and reduced strikes.

When the system makes it harder to bargain for wages rises, not surprisingly wages don’t rise as fast:

If you can’t view the graph click here

So yeah I guess it could be migrants … or as Moe Szyslak might say: “Immigrants! I knew it was them, even when it was low productivity, a lack of monetary and fiscal stimulus, capped wages growth and reduced worker bargaining power, I knew it was them!”

As it is, even with the current lack of migration, there is little sign of inflation getting back above 2% anytime soon:

If you can’t view the graph click here

Even Philip Lowe told his audience last week that he does not think that will happen until 2024.

And that is despite in that time migration being clamped down?

Maybe it wasn’t the migrants after all …


Greg Jericho

The GuardianTramp

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