One of the less prominent stories of the pandemic has been how neoliberal ideology has taken a heavy blow as governments have struggled to deal with the challenge of locking down their economies for months at a time. Last week, Reserve Bank governor Philip Lowe delivered another kick — aimed right at one of the central tenets of neoliberalism — when he argued that employers’ ability to draw on foreign workers “has contributed to wages being less sensitive to shifts in demand than was once the case”.
“Immigration adds to both the supply of, and demand for, labour: when immigrants work they supply labour and their consumption of goods and services adds to the demand for labour. The precise balance between this extra labour supply and extra labour demand is difficult to determine and depends upon the specific circumstances. The picture, though, is clearer when firms are hiring workers to overcome bottlenecks and fill specific gaps where workers are in short supply. This hiring dilutes the upward pressure on wages in these hotspots and it is possible that there are spillovers to the rest of the labour market.”
For neoliberals, borders should not be impediments to the free flow of both capital and labour, so that they can move to wherever they will be used most efficiently. In practice, this means migration should be allowed to push wages down in higher-wage countries. It also means that, peculiarly, neoliberals and left-wing supporters of immigration are aligned in their support for fewer impediments to migration.
The reaction to Lowe’s comments was febrile. The Financial Review editorialised about how terrible it would be if we didn’t quickly return to high immigration levels. Its economics editor John Kehoe lashed Lowe’s remarks. The government itself attacked Lowe and claimed there was no evidence migration pushed wages down. One of the last institutional holdouts of neoliberalism, the Committee for the Economic Development of Australia (promoter of those asinine “world competitiveness index” surveys), also attacked Lowe. But others joined in as well. Former Immigration deputy secretary Abul Rivzi — a serial critic of the government — challenged Lowe, as did Greg Jericho in the left-wing Guardian.
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The feral reaction, including the Morrison government claiming the head of the Reserve Bank is wrong, reflects how deeply ingrained high immigration is in the policymaking mentality in Australia.
Lowe himself used to reflect this. In a speech in 2018, he put the standard case for high immigration — it reduces the impact of ageing population, it increases our stock of human capital, and it helps address labour market problems:
“Migration increased sharply at the height of the resources boom when demand for skilled labour was very strong, and then subsequently declined as the mining investment boom came to an end. In this way, migration has helped our economy adjust to large swings in the demand for labour. It has also helped address some particular skills shortages.”
Lowe made that statement when the RBA was still in deep denial about wage stagnation — indeed, in that very speech, he predicted that “the labour market is gradually tightening and it is reasonable to expect that this will lead to a lift in both wages growth and inflation”.
Now Lowe has changed his mind on the way migration helps the economy adjust to swings in labour demand. He still maintains a positive view of immigration and that “it is useful to distinguish the effects of this ability to draw on overseas labour markets from the impact of immigration more broadly”.
As Craig Emerson pointed out in a piece supporting Lowe, the governor was focused not on overall immigration and not even on permanent skilled migration, but on temporary migration. In fact, when he made that 2018 speech, Lowe pointed out “a marked increase in the number of overseas students studying in Australia and changes in the policies around student visas”. In 2019, foreign student visa holders in Australia rose still higher, from 430,000 to 480,000. To the end of 2019, total foreign student enrolments rose 86% since 2013.
Lowe also made the point that some specific sectors — food, hospitality, cleaning — relied on temporary workers far more heavily than other industries. We know from the work of the Fair Work Ombudsman that these are also the industries with greatest exploitation of workers — along with the horticulture industry, which aims much of its horrendous exploitation at working holidaymakers. And in some sectors, such as aged care, employers have actually been encouraged by the current government to rely on sourcing foreign workers rather than paying Australian workers more.
It’s important to remember that the benefits of high immigration can be overstated. In 2006, the Productivity Commission concluded, after extensive modelling, that “the overall economic effect of migration appears to be positive but small, consistent with previous Australian and overseas studies”. That was during a period of strong wages growth, at least compared to the last eight years, and when foreign student numbers were less than half their 2019 levels.
Federal policymakers also assume the downsides of immigration can be dealt with by better state government management. Congestion, housing unaffordability, poor access to services and pressure on infrastructure have all resulted from the inability of governments — especially but not only in NSW — to deal with strong population inflows. The push for a bigger Australia — a credible and worthy policy goal — has not been met by the vision and investment needed from state governments, until the last five years when the NSW and Victorian governments began making up for years of underinvestment.
A kneejerk insistence that Lowe is wrong and immigration is always a positive won’t do anything to convince people stuck in congested traffic and without good access to basic services, and who haven’t had a pay rise for the best part of a decade. The pandemic at least will give governments some breathing space to catch up. It might also enable us to test Lowe’s thesis that locking off our borders removes one of the key mechanisms by which employers have been able to evade paying their workers properly.