Does mass migration push wages growth lower for everyone?
Key points:
- Australia had a globally high rate of immigration until the pandemic
- Pay packets have almost stood still because wage growth has been stubbornly low
- The experience of shutting our borders builds on research breaking the link of migrants causing low wage growth
It seems a simple case of supply and demand: having more of something compared to how much is wanted keeps prices low.
For example, if there are lots of fully-stocked shops next to each other at the beach, one can’t charge markedly higher prices for the same kind of ice cream.
But when COVID-19 forced Australia to shut international borders, it started a test that might kill off the applicability of that basic economic concept when it comes to people.
Research by Gabriela D’Souza, senior economist at the Committee for Economic Development of Australia (CEDA), shows migrants lift wages, not lower them.(ABC News: Kyle Harley)
“It’s great to have this natural experiment, to show people that these things aren’t as straightforward as supply and demand,” said Gabriela D’Souza, senior economist at the Committee for Economic Development of Australia (CEDA).
As the pandemic hit, our population fell for the first time in a century.
Since the borders shut in March last year, more than 500,000 temporary migrants left the country, according to a report by a parliamentary committee on migration.
With the same amount of work to be done, the laws of supply and demand mean wages should have rocketed as employers used higher wages to compete for a much smaller pool of workers.
But Ms D’Souza has found in her research that a person can’t be treated in the same way as an object like an ice cream.
“Workers are not exactly like goods,” she explained.
“Workers also consume products and services in the market and so that’s part of the reason why we see these impacts come about, that there’s no discernible impact on wages because we also see them contributing to the spending in an economy.”
Earn, consume, make a home
With her husband and children, Colombian migrant Monica Hernández Mattos arrived in Adelaide 12 years ago as part of the skilled migrant program.
Psychologist Monica Hernandez Mattos brought her family to Australia 12 years ago and now works in the public service.(ABC News: Michael Barnett)
She worked in jobs not linked to her qualification as a psychologist – cleaning, hospitality, fruit picking – for three years as she improved her English skills and adjusted to Australia.
“I get the point when people will say, ‘Aha! They are taking our jobs!'” she said.
“But I don’t see that it is like that, I think we just work like in a team with other communities: bringing new skills, bringing new experiences, new languages as well.”
Ms Mattos is now working in the Victorian public service and using her international qualifications.
Her family has built a life in Australia and they now work in increasingly complex, better-paid jobs and have started new businesses.
“We’re coming here to contribute to the community. We’re not having the intention to take any jobs from anyone and I think there is enough room for everyone.”
Overseas worker ‘tap’ turned off
By aggressively importing workers – a 10th of Australia’s population had arrived in the decade until the pandemic began – the nation massively boosted the number of working-age people.
Over the same period, wage growth has been pathetic, meaning the purchasing power of wage earners has been stagnating, despite headline economic growth.
Reserve Bank governor Philip Lowe the ability of businesses to get foreign workers can dilute growth.(ABC News: Matt Roberts)
In a speech in July, Reserve Bank of Australia governor Philip Lowe said the ability of Australia’s employers to “tap” global labour markets for foreign workers may have permanently changed wage dynamics in Australia.
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Dr Lowe said companies could hire foreign workers to overcome bottlenecks and to fill gaps where workers were in short supply. This had helped businesses operate efficiently, particularly during the resources boom.
But the ability to get foreign workers from overseas “dilutes” growth or “upward pressure” on wages in some parts of the economy, he conceded.
It was possible there were “spillovers” into the rest of the labour market and that the pool of talent meant less momentum for businesses to skill up people here.
“This hiring can also dilute the incentive for businesses to train workers to do the required job,” Dr Lowe said.
Research says no
While there are some caveats about areas of exploitation and a concentration of migration in certain skilled professions depressing wages for locals, much research doesn’t back a general view that migrants are keeping wages lower.
“That [impact] certainly might be the case in certain occupations,” Ms D’Souza said, but added that overall the impact is nothing.
“On aggregate, we just find that it’s basically a wash.”
One of the winners of this year’s Nobel Prize for Economics was David Card, whose work has consistently upended conventional wisdom.
The research of David Card, who won the 2021 Nobel Prize for Economics, supports the view that migrants don’t lower the wages of locals.(Reuters: Brittany Hosea-Small/UC Berkeley)
His most influential, and controversial, work disputed the previously widely accepted idea that increases in the minimum wage lead to job losses
That work has been used by the Biden administration to push for a $15 minimum wage in the US.
But it builds on his earlier ground-breaking work about the Mariel Boatlift of 1980.
As Cuba’s economy crashed, about 125,000 people escaped to nearby Miami in the US over a period of just six months.
Even though it dramatically altered the Miami economy, Professor Card found wages and unemployment for Miami residents with low levels of education – those considered most likely to lose jobs or conditions because of the flood of fresh labour – didn’t change.
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That research was at odds with anti-immigrant sentiment and exploded basic economic theories of supply and demand. But more recent studies have backed it up.
Modelling by CEDA found temporary skilled migration has been an overwhelming net positive for the Australian economy because it filled skills shortages and helped transfer new knowledge and experience to workers born in Australia.
It’s not a case of migrants equal lower wages, according to Ms D’Souza.
“That’s kind of a well-known fallacy in economics,” she said.
“We’ve seen the experiment of that in COVID, and in shutting down of our borders, and what impact that has on the labour market, which has been quite negligible.”
Exploitation hurts all
There’s one hitch to the theory.
Certain types of visas – particularly temporary and student permits – make people more vulnerable to exploitation by employers. When the threat of deportation or punishment looms, migrants can be stuck in exploitative work and underpaid.
This can go on to depress wages in that sector: something seen through large-scale wage theft and rip-offs in hospitality and the agricultural sector.
Chinese migrant Xueliang Wang came to Australia in 2018 in search of a better life, instead, he said, he fell victim to workplace exploitation.
Chinese migrant Xueliang Wang was working 11-hour shifts picking fruit and paid less than $100 a day, far less than the legal minimum wage.(Supplied)
In March 2020, he started working 11-hour shifts picking fruit on a farm on the mid-north coast of New South Wales, while living in a shipping container with his wife.
He told the ABC he was paid less than $100 per day despite the job being advertised with a $17 hourly rate, and they had to pay $150 a week for sleeping in the steel shipping container.
He described the working and living conditions at the farm as “very unhealthy”.
“It’s very tiring to work 11 hours a day and I got bitten a lot by mosquitoes and insects during the summer,” the 57-year-old said.
“It’s pure exploitation.”
He said around 50 workers, mostly from mainland China, had to share four showers and a rusty kitchen with only four stoves. Three months after arriving he was finally fed up and quit the job.
“A lot of them couldn’t quit because they can’t speak English and worried about finding a new job,” Mr Wang said.
Xueliang Wang feels exploited by his former employer and the immigration system.(ABC News: John Gunn)
“I’m very angry, I thought Australia is an advanced country, but this shows quite the opposite. I’m angry for them as well.”
Where migrants depress wages
Rampant wage theft at convenience store chain 7-Eleven led operators to repay staff – including a huge pool of migrant workers — more than $173 million.
Examples like that inform Brendan Coates, who leads the economic policy program at independent think tank Grattan Institute
“Where migrants’ labour rights have not been enforced, this can hurt the wages of similarly-skilled incumbent Australians employed in the same sectors,” he wrote in a report he co-authored earlier this year.
Temporary visa holders are more at risk of exploitation than permanent visa holders because they must meet conditions – like staying employed – to remain in Australia and go on to seek a permanent visa.
But Mr Coates sees the problem as being with the design of temporary work visas and lax enforcement of labour laws in sectors where migrant workers are concentrated.
He agrees with Ms D’Souza that migrants don’t affect the wages of locals, on average. But “migration that is highly concentrated in sectors of the labour market can have bigger impacts on the wages of incumbents working in those sectors”.
Meaning migrants concentrated in particular jobs or geographies will tend to reduce local workers’ wages.
Although even that might not always be the case.
Analysis of 1 million Australian temporary visas for high-skilled workers in a 2020 study published by Oxford University found that when a particular occupation received a lot of migrants the incomes of local workers tended to rise as they adjusted to competition by shifting to other jobs, often earning higher pay.
Room for all
Cath Scarf runs AMES Australia, which does everything from meet people at the airport to run English language classes – helping around 40,000 migrants settle into Victoria each year.
She doesn’t buy the supply and demand theory that migrants lower wages.
“It’s simple for us to try and say ‘A equals B’, isn’t it?” she said.
Cath Scarf is chief executive of AMES Australia, an organisation that helps new and recently arrived refugees and migrants to settle in to their new country. (ABC News: Michael Barnett)
“The impact that migrants have on wages, and the economy generally is a positive one. They’re filling important skills gaps. They’re bringing obviously new consumer demand to the economy.”
Ms Scarf said the level of commitment required to leave your family and home to move to a new country powers people to take risks and strive for a better life.
“So they’re incredibly aspirational and entrepreneurial and they will do whatever it takes to make that journey work,” she argued.
Ms Scarf said the experience of her staff and clients was that visa settings – such as restricting international students to a maximum of 20-hours work a week – create environments where people can be exploited.
“So the more that we can do to ensure that people have a clear pathway to permanency, then the more likelihood we’re able to work with those groups and ensure that they’re not in precarious work,” she added.
Ms D’Souza wants to level the playing field.
Announced in the last year’s budget was a plan to make newly arrived residents wait four years before being able to get income support like JobSeeker, the carers payment and parental leave pay. That income pressure leads to bad outcomes, she said.
“So an engineer might come here, find that it’s taking them too long to find a job and will probably just work at whatever so that they can make ends meet,” she said.
“If they were eligible for support, they might wait a bit longer and find the right job for them.”
Meanwhile, Monica from Bogotá is now Monica of Melbourne.
“Absolutely. I feel that Australia is my home,” Ms Mattos said.
“We’ve got an income, we’re paying taxes, we’re contributing to the community in a good way.”
“We are very happy here. Not only happy but very grateful.”