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Wage growth due to lack of temporary visa entrants

Reserve Bank governor Phillip Lowe recently gave a speech to the Economic Society of Queensland in which he appears to be challenging big business as well as the federal government by saying that he thinks that Australia's significant intake of temporary migration appeared to have kept the cost of labour down as strong demand was met with strong supply. He said that in the past firms have been able to draw on overseas workers when skills or workers were in short supply in Australia, in some cases hiring overseas workers to fill specific gaps and in others hiring those already in Australia, for instance students or working holiday makers.


Prior to the COVID-19 pandemic Australia annually welcomed short off 500,000 temporary entrants. The hospitality, accommodation and food trades sector accounting for nearly 20% of their work force from these overseas nationals. Since March 2020 the number of temporary entrants with work rights have dropped by over 250,000 which decline caused sharp jump in the job vacancies in these sectors.


There is a significant pressure on the agricultural and farm sector where labour was more commonly supplied by working holiday visa holders and whilst the Australian Government has offered incentives for international students and working holiday makers to work without the usual restrictions imposed on their visas when working in the agricultural and farm sector the need for domestic work force participation is expected to increase the longer the borders are closed.


Increased job opportunities and flexible work arrangements that are a legacy of the pandemic are expected to draw more people into the labour market and making participation easier. Once the spare capacity in the labour market is absorbed a sustained lift in wages growth can be expected. Historically, the lower the unemployment, the higher is relative income growth.


This is an extract from his speech:


“It is useful to distinguish the effects of this ability to draw on overseas labour markets from the impact of immigration more broadly. 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.


On the positive side of the ledger, hiring overseas workers to overcome bottlenecks allows firms to hire the people they need to operate effectively, and to expand and invest. This benefit was clearly evident during the resources boom, and there are a wide range of businesses and industries that have benefited from hiring foreign workers. Without this ability, output in Australia would have been lower."


Assent Migration Lawyers assist Australian organisations with their international labour hire strategies.


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