RBA governor Philip Lowe has called out the role of temporary unskilled migrants in holding down wages. But that’s exactly what the Coalition wants.
Amid the corona chaos, a ridiculous stoush erupted last week over whether the surge in temporary work visas in the last few years has depressed the wages of everyday Australians. If more apples are supplied to the market no one truly expects the apple glut to force apple prices higher. Yet the Department of Home Affairs argued that increasing the supply of low-skilled workers pushes their wages up.
Reserve Bank Governor Philip Lowe triggered the melee in a speech https://www.rba.gov.au/speeches/2021/sp-gov-2021-07-08.html
where he specifically distinguished between permanent migration and hiring temporary foreign migrants to fill gaps where workers were in short supply. Governor Lowe pointed out that “this hiring dilutes the upward pressure on wages in these hotspots and it is possible that there are spillovers to the rest of the labour market.”
That’s orthodox economic analysis.
Yet on behalf of the federal government the Department of Home Affairs told the Financial Review https://www.afr.com/policy/economy/home-affairs-rejects-rba-link-between-migration-and-wages-20210708-p587xl that studies had “consistently found no statistically significant relationship between wage growth and immigration.
A well-targeted, permanent migration program can lift wages – by increasing the availability of skilled workers. Confident that Australia has a skilled workforce, businesses would be more likely to invest in projects deploying the latest technologies, increasing national productivity and, potentially, wages.
But Governor Lowe was clearly speaking of temporary visas holders, providing a chart showing they were overwhelmingly employed in industries such as food and hospitality, cleaning and laundry, retail sales, farm work and caring. Only a small minority were in high-tech jobs.
If the government truly believed these low-skilled temporary visa holders boosted the wages of their Australian counterparts it would make no sense for the Nationals to have successfully demanded more of them from the prime minister, opening the door to seasonal workers from the 10 ASEAN countries.
The Nationals were clearly not hoping to increase the wages of seasonal Australian workers through this deal, but to keep them down.
At the same time as Governor Lowe was speaking the truth on temporary migration, some of the nation’s most accomplished labour market economists were having the same discussion at the Melbourne Economic Forum supported by the Financial Review.
None of the experts argued that temporary, low-skilled visa holders boosted Australian wages but readily acknowledged that well-designed permanent migration could do so.
Indeed, Professor Mark Wooden asked why we would want Australian workers to do low-paid fruit-picking jobs. In response, Professor Ross Garnaut pointed out that Australia had lots of disadvantaged workers with low skills, and they would be further disadvantaged if they were out-competed on wage rates by low-skilled temporary migrant workers.
The solution to labour shortages brought on by Australia’s COVID-19 border restrictions that does not seem to have occurred to many businesses is to offer higher wages.
But as the McKell Institute has pointed out https://mckellinstitute.org.au/research/reports/stuck-in-neutral/ that would be contrary to the strategy of wage suppression which has been deployed over the last eight or so years. The McKell Institute has identified the surge in temporary work visas as one of seven different wage-suppressing government policies.
Governor Lowe explained further that the ready availability of low-skilled temporary workers can “dilute the incentive for businesses to train workers to do the required job.”
Using low-skilled temporary visa holders in preference to Australian workers is the easy way out. It enables businesses to avoid raising wage rates for Australian unskilled workers and training them.
More generally, an immigration program preference for temporary workers over permanent migrants denies them an opportunity to make a commitment to this country – to call Australia their home.
As demographers Peter McDonald and Jeromey Temple have pointed out https://www.afr.com/policy/economy/igr-s-population-forecasts-rest-on-brave-migration-assumptions-20210628-p5851q the base-case projections in the latest intergenerational report imply that the number of temporary migrants living in Australia at the end of the 40-year projection period would be close to three million.
By signalling a declining relative role for permanent migration and increasing reliance on temporary migration, the government’s base case in the intergenerational report takes Australia in exactly the wrong direction.
Treasury appears to acknowledge this, pointing out in the parts of the intergenerational report it wrote that a well-targeted, skills-focused migration program can better support Australia’s ageing population by freshening up the skills and age of the national workforce.
Think of four boxes of possible immigration categories: skilled, permanent migration; skilled temporary migration; unskilled permanent migration; and unskilled temporary migration. The federal government is ticking the fourth box, which is effective in suppressing wages but contrary to Australia’s national interest.
Craig Emerson is a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT University and adjunct professor at Victoria University’s College of Business. He is chair of the McKell Institute and a member of the steering committee of the Melbourne Economic Forum supported by the Financial Review.