Lunatic RBA blames oldies and women for low wage growth

In the Q&A after Tuesday’s address to ACOSS, assistant RBA Governor, Guy Debelle, blamed higher participation from women and older Australians for adding to labour supply and lowering wages:

“It’s ultimately fundamental economics that with demand and supply, if you run out of supply, then the price is going to go up. When demand exhausts supply, the price goes up”…

“When most people who’ve got jobs, who want jobs have got them, and there’s still opportunity out there, that’s the sort of environment where you are more likely to see wage rises. I think that’s been pretty well proven through history, and I don’t see any particular reason to give up on that at all”.

“Just, as we’ve seen over the last few years in Australia, it’s taken longer than we expected. We’ve actually had the strong employment growth, which is good, more people getting jobs is good. But what we haven’t seen is a decline in the unemployment rate for the last 18 months and particularly a decline in the long-term unemployment rate”.

“But, it is absolutely necessary to get that decline in unemployment to have that strong employment growth, and it’s great that we’ve had it. But what has been happening is that over the last few years, it’s been more met by people staying in the workforce longer, and by more females coming into the workforce. Both of those two things are good things. That is, both of those two things are boosting household incomes. What it does mean though is… it’s making it slightly more challenging to achieve that reduction in unemployment that would normally lead to high wage growth across the economy”.

As usual, the RBA has conveniently ignored the biggest driver of Australia’s rising labour supply: mass immigration.

Net overseas migration (NOM) into Australia has surged over recent years:

NOM is also directly responsible for more than 60% of Australia’s population growth.

The lion’s share of recent migrants are of prime working age and, therefore, have high labour force participation.

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 continues to outrun demand and why wage growth remains anaemic.

The RBA has also conveniently ignored the systemic wage theft from temporary migrants, which has become entrenched across the entire Australian economy:

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.

The impact is most pernicious on younger Australians, as explained recently by the Grattan Institute:

As the Productivity Commission noted, where migration does displace existing populations, it tends to affect people with low skills and youth most. That seems to be happening in Australia. And because international students and backpackers are primarily looking for part-time work, they may affect under-employment more than unemployment…

Low-skill migrants might also put downward pressure on wages (if accurately measured). The measured wages of those aged 20 to 34 have not risen as fast as the wages of older workers for some time (Figure 7)…

Australia is now running a predominantly low-skill migration system. People from this system form a material proportion of the younger workforce. Because of visa conditions, many of these migrants have incentives to work for less than minimum wages, and there is anecdotal evidence that many do. It is impossible for data sources on the Australian labour force to pick up all of this phenomenon. It is possible that the scale of this inﬂux to the labour market is depressing wages and increasing under-employment speciﬁcally for low-skill younger workers.

If anything, the rise of elderly and female participation is a response to the failing wages growth arising from the mass immigration model as it destroys industrial relations, leaving households no choice but to work harder and longer.

The RBA needs to examine this issue honestly and admit that its beloved mass immigration ‘Big Australia’ policy is a key driver of Australia’s wage crisis.

Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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