• Australia’s economists are disputing links between high immigration and stagnant wages, after RBA Governor Philip Lowe reintroduced the theme in a recent speech.
• While Lowe wasn’t advocating for low immigration, he did conclude that foreign labour had been used to relieve wage pressure that may have otherwise led to higher wages.
• CEDA senior economist Gabriela D’Souza hit back this week, arguing that immigration has helped grow Australia and that, if anything, research points to immigration having “a small-to-negligible positive effect” on aggregate wages.
• Visit Business Insider Australia’s homepage for more stories.

The national immigration debate has been reignited as Australia’s borders remain shut – and the catalyst is an unlikely one.

Reserve Bank of Australia (RBA) Governor Philip waded into the conversation last week as part of a university address, suggesting high levels of high immigration had suppressed Australian wages.

Specifically, he pointed out that the ability to bring in foreign workers to industries unable to find local labour “dilutes the upward pressure on wages” with potential “spillovers” to other sectors.

“In my view, this is one of the factors that has contributed to wages being less sensitive to shifts in demand than was once the case,” Lowe said.

The remarks, uncharacteristic of the typically tactful Governor, have placed the RBA at the middle of the long-running discussion over how big Australia’s population should grow, at a time when it is preoccupied with raising wages.

Exasperated by sharply rising property prices, the debate has picked up steam during a period where historically high levels of migration have fallen to 100-year lows.

Economists hit back

But other economists, and even the government’s own Home Affairs department, have hit back at the suggestion that immigration is the scourge of wage growth.

Member-based think tank, the Committee for Economic Development of Australia, came out this week to dispute the assertion that the verdict is at all in.

“It would be great if this question, which has plagued labour economists for decades, was resolved with such certainty, but there’s no evidence to suggest this is true,” senior economist Gabriela D’Souza said.

“Research by myself and others has shown that immigration does not harm the employment prospects of local workers, and yet the myth persists.”

The reason, which Lowe acknowledged in his own speech, being that immigration and its impacts on the economy is complex, helping fuel growth, demand for goods, as well as expand the tax base.

Lowe added that he wasn’t criticising immigration, and that without it, economic “output in Australia would have been lower”.

D’Souza says the literature shows that immigration actually has “a small-to-negligible positive effect” on aggregate wage growth, with overseas workers doing much more than simply replacing Australians in the workplace.

“So much of Australia’s economy, including our ability to invest in capital and business’ confidence that projects can go ahead, depends on the know-how and skills of our often carefully-selected migrants,” she said.

“They also add to activity in the economy to the tune of $4.2 million over the course of their lifetime – in net present value terms – through consumption of goods and services.”

In fact, Treasury’s own Intergenerational Report lamented the unanticipated pause of migration due to the pandemic as being a drag on overall growth. It noted that skilled migrants contribute a net benefit of $319,000 each to the Federal Budget, and banked much of Australia’s recovery on them.

Planning expert Shane Geha told Business Insider Australia that closed borders simply aren’t a sustainable solution,

“If this continues, the economy will simply stop. In the end, all the services that are filled by migrants, that man the lower end of the economy, in tourism, agriculture, restaurants, and hotels, they will all go, they will all disappear,” the UNSW professor said.

Wages the biggest game in town

But it is the matter of pay – or lack thereof – that the RBA is largely concerned with. The central bank wants to hoist wage growth above 3% a year and keep it there for the first time in a decade.

“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,” he said.

At the moment, there seems to still be plenty of momentum to moving unemployment lower. Job ads and hiring are at substantially elevated levels, pointing to unemployment to fall below 5% in the coming months.

As part of his Q&A session delivered earlier in the same week, Lowe said it was unclear how Lowe it would need to go to move wages but that the RBA was committed to seeing it happen.

He also pointed out re-opened borders were an economic positive, with the timing of it playing heavily into both the central bank and Treasury’s forecasts.

The Morrison government is still backing a return to growing Australia’s population with 200,000 migrants a year, when its vaccine rollout allows. In the meantime, it has prioritised bringing in the wealthy over the skilled as part of a ploy to maximise the value of the few who are making it in.

But where the immigration debate goes from here may well depend on how well the RBA and policymakers can deliver for Australians.

If record levels of stimulus continue to grow the economy and fuel a fast rebound, proponents of a small Australia may not find much support at all, least of all in Canberra and Martin Place.

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