Finance In a round-a-bout way, our closed borders reveal a wages home truth
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In a round-a-bout way, our closed borders reveal a wages home truth

Links between migration wages and closed borders
More COVID-19 chaos and border closures could lift wages, Michael Pascoe writes. Photo: AAP/TND
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There are uncomfortable truths about. For example, the time between infection and becoming infectious for the Delta strain is quicker than testing and contact tracing.

“It is like a police car that can only do 150km/h chasing a car thief who has stolen a car that does 200km/h,” is a friend’s handy analogy.

The thief won’t be caught unless he crashes or runs out of fuel.

It’s an acknowledgement the New South Wales government appears unwilling to make.

There would be too much political face lost to admit that, yes, with all the benefit of hindsight, NSW should have gone for the short, sharp lockdown – depriving the thief of fuel – as practised by lesser states and sneered at by the federal and NSW governments.

Maybe it still should.

There seems to be another lack of willingness in several quarters to admit something about another aspect of the pandemic: Our closed borders are demonstrating that the way our migration system has been run, particularly our temporary migration system, may well have been one of the factors suppressing wages growth.

The corollary is that the borders remaining closed will help lift wages.

Migration certainly is not the only factor, perhaps not a main factor, but a factor.

Reserve Bank governor Philip Lowe dared to suggest as much in a speech last week and has copped a serving for it, the criticism sometimes quite vehement.

RBA governor Philip Lowe has come under fire for suggesting migration could be a factor in wage suppression. Photo: AAP

Good people, economic commentariat members I admire, have piled on.

“It was an unfortunate statement that goes against evidence and ignores the many other factors at play,” judged The Guardian’s Greg Jericho.

“A myth,” declared CEDA’s senior economist Gabriela D’Souza.

“There is no evidence to suggest this is true.”

Even the Home Affairs Department – not known as a source of economic intelligence – told Dr Lowe he was wrong and there’s a whiff that Treasury might be briefing against him, too.

Well, the government would say that, wouldn’t it?

It has been running the program, has wages suppression in its DNA and is having to deal with its key business backers demanding the earliest possible reopening of the migration gates because, well, they are facing a shortage of workers and don’t want to compete for labour by paying more for the existing pool.

On the other hand, it’s not in the nature of the RBA with its extensive research capability to be hasty about suggesting what is responsible for our sub-standard wages growth.

It has been my complaint that the governor has been far too slow to recognise all the factors, initially ignoring the loss of labour’s bargaining power, but finally nailing the role of the business mindset and government wages caps.

And the RBA is not alone in countenancing the role of employers using easy migration as a quick fix for labour shortages.

Independent economist Saul Eslake was saying as much back in April: “An important but under-appreciated reason for the so-far surprisingly rapid decline in unemployment, from its lower-than-expected peak of 7.5 per cent last July, is the absence of any immigration: Which means that the civilian working age population is now growing at only 8300 per month, compared with an average of 27,700 per month.”

I suspect the you-can’t-blame-migration chorus has several motives, but their argument comes down to the academic studies they brandish, studies that generally conclude migration has negligible-to-slightly-positive impact on wages growth.

As posited here back in March, Australia is now involved in a real-life experiment, not computer modelling, to determine what really is the case.

It may not pay to be too dogmatic while the experiment runs its course.

Thursday’s unemployment rate dropping below 5 per cent – albeit with caveats about underemployment and hours worked – fulfils Saul Eslake’s suggestion that lack of migration is cutting unemployment much faster than anyone dares hope.

And while one should treat anecdotal evidence with caution, if you collect enough anecdotes you get data. All those stories of businesses whinging about not being able to hire staff end up adding up.

Dr Lowe has previously suggested it will take a couple of years of much tighter labour markets for business to overcome its stingy cost-cutting mindset and be prepared to pay more, to surrender to the capitalist law of supply and demand.

It is already happening in some quarters.

It’s only anecdotal so far, but a major firm of accountants told me its staff were getting offers over LinkedIn of substantial pay rises to switch jobs without even an interview. They were jobs that previously would have been filled by workers on temporary visas.

At the same time, their clients were looking to outsource more accounting because of the cost and difficulty of hiring in-house.

The CFO of a software company told me his firm was having to pay its graduates with one or two years’ experience substantially more lest they were “stolen”.

The Robert Half salary survey in March pointed to the need to pay a higher premium to recruit in the accounting and technology space.

Even in hospitality, there are stories of wages creeping up, especially for chefs, given the shortage with borders closed.

Of course there are other factors at work and, if just sticking with the macroeconomic picture over time, migrants do indeed bring more demand as well as more labour.

And, yes, they are on average smarter, younger and more entrepreneurial.

Personally, I am a fan of a bigger and better Australia, one that a strong migration program can help achieve, with more permanent migrants wisely chosen and fewer temporary workers more easily exploited.

We should be very proud of our migration story, of what it has done and will do for migrants and skippys.

My suspicion is that some of the criticism of the RBA mentioning the wages impact comes from defensiveness about research – like the NSW government’s Delta variant reaction, it would be embarrassing to be proven your work was not entirely correct.

Part of it may be a protective instinct for migrants, given the unfair  criticism and blame they cop from the ratbag end of the spectrum, never mind the racist elements.

Part of it may be fear that Dr Lowe’s words will be seized upon by those who would like to limit Australia’s potential.

Part of it may be cover for the vested interests who want easy temporary migration to help keep wages low.

In any case, the experiment now under way will provide a verdict soon enough.

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