• The federal government has defended Australia’s historic immigration levels after Reserve Bank of Australia governor Philip Lowe commented on the ties between migrant labour and wages.
• As the international border remains closed, keeping many skilled workers out of Australia, the Department of Home Affairs pointed to research showing migrant labour had little negative impact on wages.
• But Lowe only said wage growth has been experienced in specific “hotspots”, as “wage increases remain modest for most workers.”
• Visit Business Insider Australia’s homepage for more stories.

The Department of Home Affairs has disputed the link between closed borders, flat migration, and stagnant wage growth, after Reserve Bank of Australia (RBA) governor Philip Lowe suggested a lack of skilled migrants may be driving pockets of wage growth in certain industries.

In a statement obtained by the Australian Financial Review, the Department, which pulls the levers of Australia’s immigration program, downplayed any correlation between the intake of migrant workers and pressure on wages.

The Department pointed to reports compiled by the Australian National University (ANU), which found migration is beneficial to GDP growth and has little impact on wages and employment for domestic workers, and the Committee for Economic Development of Australia, which has offered similar findings.

Separately, the federal government’s latest Intergenerational Report, released in June, points to continual migration as a foundation of the nation’s economic future.

The Department’s defense was sparked by a Thursday address from Lowe, in which the RBA chief ruminated on the causes of Australia’s stagnant wage growth, long before the COVID-19 pandemic ravaged the national economy.

Wage growth is a key goal for the RBA as it strives to grow inflation sustainably to between 2% and 3%, and the central bank has indicated it will keep interest rates as low as 0.10% until wages grow properly.

Addressing the Economic Society of Australia, Lowe said the closure of Australia’s international border in March 2020, and the exodus of 250,000 working visa holders leaving the country, has indeed applied positive pressure.

Some economists and business leaders have already observed as much, saying local firms are duking it out for the services of a reduced talent pool.

But Lowe hardly called for indefinite border closures to artificially pull wages skyward, saying the effect has only been observed in specific circumstances.

When targeting specific “bottlenecks”, the hiring of migrant workers “dilutes the upward pressure on wages in these hotspots and it is possible that there are spillovers to the rest of the labour market,” Lowe said.

“Some workers have received sizeable wage increases,” Lowe added.

“However, the spillover effects to the broader labour market have been limited to date, and wage increases remain modest for most workers.”

Other factors go some way to explaining why Australian wage growth is only puttering along, Lowe said.

Increasing labour demand has grown alongside elevated levels of workforce participation, he said. And many employers have been able to tap into workers who previously reported being underemployed, meaning more hours can be filled without significant upward pressure on wages.

There is no simple solution to boost wages, even as unemployment plummets ahead of the RBA’s own projections, Lowe said.

“With all these moving parts, and the uncertainty about the future strength of labour demand, it is challenging to determine exactly when the spare capacity in the labour market will be absorbed and, hence, when we can expect a sustained lift in wages growth.”

With Australia’s COVID-19 vaccination still far behind that of comparable economies, and the reopening of the international border inexorably tied to vaccination rates in the community, it will likely be some time before immigration levels are tweaked for post-pandemic life.

And judging by Lowe’s recent statements, the RBA probably won’t be praying for the border to stay shut.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.