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Economists mislead again on immigration’s unemployment impact

A group of economists have joined forces to argue against the notion that rebooting ‘Big Australia’ mass immigration would drive up Australia’s unemployment rate and temper wage growth:

But Professor Breunig said the drop in unemployment cannot entirely be explained through changes to the migration program, describing it as “maybe less than half”.

He said this is because when COVID-19 hit while some people were likely willing to take up jobs – that would have been filled by migrants – this number was “small in the overall proportion of the workforce” and focused on specific sectors like hospitality…

Economist Brendan Coates of the Grattan Institute described the closure of Australia’s borders as having a “relatively modest impact” on unemployment.

“The impact of the closure of the borders on the unemployment rate is just dwarfed by the scale of macroeconomic stimulus during the COVID recession,” he said…

“As migrants return then they’ll ease some of the labor shortages that have been experienced in hospitality and in agriculture in recent months,” he said.

“But I don’t expect it will have a big impact on wages or employment overall for Australians…

Migration analyst from the University of Sydney, Associate Professor Anna Boucher, said more migrants didn’t necessarily mean more competition for local jobs.

“Will unemployment rise again if we increase migration? No, I don’t think that’s necessarily conclusive,” she said…

“[It will] hopefully avoid this slightly xenophobic argument that the best way to keep unemployment low is to halt migration.”

Sadly, these economists refuse to acknowledge basic labor market math due to their fetish for ‘Big Australia’ immigration.

The massive stimulus deployed by governments prevented Australia from falling into a deep depression. But it only filled the hole left by lockdowns and did not put the economy on a higher trajectory.

Despite this stimulus, Australia’s jobs growth remains below the pre-COVID trend:

Yet, despite this lackluster jobs growth, the resident unemployment rate has plunged to its lowest level since the mid-1970s and the employment-to-population ratio has hit its highest level on record:

Australia's labor market

Australia’s resident underemployment rate has also fallen to its lowest level since 2008, with underutilisation (ie unemployment and underemployment combined) at its lowest level since 1982:

Labor underutilisation

The reason for the collapse in unemployment and underemployment in the face of lackluster jobs growth is obvious: Australia went from importing over 180,000 foreign workers every year via immigration to losing tens of thousands of migrant workers over the pandemic:

Net Immigration

As a result, Australia’s labor supply went from growing strongly pre-pandemic to barely growing:

Australian civilian population

In turn, the new jobs created went to unemployed Australians rather than migrants, driving the unemployment and underemployment rates down.

Had immigration continued at its pre-COVID level, Australia’s civilian population aged over 16 would be roughly 400,000 larger than it is currently. In turn, both unemployment and underemployment would be significantly higher and the employment-to-population ratio would be much lower (due to an increase in the denominator).

If you don’t believe my analysis go read Professor Bill Mitchell’s take, who is the Chair in Economics and Director of the Center of Full Employment and Equity (CofFEE), an official research center at the University of Newcastle. He has come to exactly the same conclusion and estimates that Australia’s unemployment rate would have been 6.1% in May had immigration continued at its pre-pandemic level:

'What-if unemployment'

Even Greg Jericho was honest enough to admit that Australia’s unemployment rate has fallen on the back of the immigration collapse [my emphasis]:

There are now 139,100 fewer people aged 15-34 in the labor force than there were in March 2020, and compared to the trend since 2015 there are about 354,000 fewer people than would have been expected.

All of it is due to the closed borders during the pandemic, and the reduction in foreign students, who work part-time.

That is a significant gap in output and is why you are hearing so much talk about labor supply shortages.

It will change as migration is opened up, but will also likely lead to higher unemployment rates – purely because the unemployment rate is a mathematical equation of unemployed divided by the labor force.

The data speaks for itself and is 100% conclusive: negative immigration over the pandemic is the primary reason why Australia’s unemployment and underemployment rates have plunged to multi-generational lows.

Thus, rebooting ‘Big Australia’ mass immigration will have the reverse effect of quickly growing the labor force, raising unemployment, and lowering the employment-to-population ratio (other things equal). Wage growth would also be negatively impacted, given the historical negative correlation between the labor underutilisation rate and wages:

Wage growth versus underutilisation rate

The data is staring these economists in the face, yet they refuse to acknowledge it due to their pro-Big Australia bias.

The Grattan Institute’s position is especially galling given it last month called on policy makers to strive for full employment:

A larger pool of unemployed workers reduces the bargaining power of all workers. High unemployment in the years leading into the COVID crisis accounts for at least one-third of the slowdown in wage growth in Australia since 2013

Australia’s economy was sluggish in the years immediately before the COVID recession: inflation had been below its target for more than half a decade, unemployment and under-employment were persistently higher than they could have been, and many Australians had not had a decent pay rise in years.

But Australia has recovered much faster than after previous recessions. The unemployment rate is now at a near 50-year low of just 4 per cent, and the labor market is the strongest it has been for decades. This will benefit Australia’s most vulnerable workers the most. We should learn the policy lessons…

We should not lose sight of the prize of a tight labor market.

Co-author Brendan Coates continually promotes mass immigration, which unambiguously works against the goal of full employment by continuously flooding labor supply, causing unemployment to be higher than it would otherwise be and wage growth lower.

So yes, Brendan, “we should learn the policy lessons” and “not lose sight of the prize of a tight labor market”. This necessarily means abandoning the junk Big Australia immigration policy that Grattan loves so dearly, but Australians hate.

Sadly, advocating lower immigration would aggravate Grattan’s big business financial backers, so it wouldn’t dare.

Unconventional Economist
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