Australia’s migration rate is heading back to normal, but what does that mean for wages growth?

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Unions are questioning whether a quick return to pre-pandemic levels of migration may suppress forecast wages growth, particularly as the cost of living climbs.

While inflation is expected to outpace wages growth until mid-next year, real wages are predicted to steadily rise after June 2022.

It is one of the federal government’s key selling points from Thursday’s update, telling voters to look forward to fatter pay packets in years ahead.

As wages are forecast to rise, so is migration — steadily climbing back to roughly pre-pandemic levels.

Treasurer Josh Frydenberg argues migration can climb alongside wages.

“I don’t see it as a binary choice between having a sensible, measured immigration program … as well as getting a tighter labour market and putting the policies in place that drive real wages up,” he said.

Labor has agreed migration is an important source of economic growth but says it should not be a substitute for training Australians to fill workforce shortages.

Unions have called for a migration rethink and suggested rushing back to pre-pandemic levels will “clearly” push wages lower than they otherwise would be.

Where is migration headed?

Australia is currently in the very unusual position of actually losing people overseas, rather than gaining them.

In 2020-21, roughly 100,000 more people left Australia than moved here due to strict border policies.

That trend is expected to continue this financial year, even as borders slowly open — with 41,000 more people to depart than arrive.

But in 2022-23, things will start to quickly turn around.

That year is expected to see 180,000 more people arrive than depart, followed by 213,000 the following year, and 235,000 in 2024-25.

To put that number in context, during the last “normal” year (2018-19), that number was 241,000.

And it has been much higher than that in the past — in 2008-09, it fell just short of 300,000.

Unions worry it is too much, too soon

Some union leaders have expressed concern about the rapid return of significant migration, just as wages growth is forecast to rise.

Acting Secretary of the ACTU Liam O’Brien said he was worried about temporary migration in particular.

“We’re deeply concerned about the fact that the Morison government looks to be restarting and really ramping up temporary migration in this country,” he said.

“This clearly puts downward pressure on wages just when we need to see them going up.”

Mr O’Brien said after years of stagnant wages, the government should be doing everything it can to drive them up as fast as possible.

He said rising wages will drive economic growth more effectively than migration, or anything else.

“Sixty per cent of our economy is workers spending money,” he said.

“And if we don’t have serious efforts to increase wages, then economic growth is going to slow over the long term.”

Are migration and wages really linked?

Some economists pour doubt over suggestions increased migration might affect wages, and others claim it is unequivocally good news.

Chris Richardson from Deloitte Access Economics suggests migrants coming to Australia tend to be younger and more skilled than the general population.

“Over time, migrants don’t affect wages for everybody else,” he said.

“If a migrant arrives and puts up their hand to take a job, they get a job and spend that money and it creates the next job.

“It doesn’t affect job numbers, it doesn’t affect wages over time.”

But he does warn a very steep climb in migration could have unintended consequences.

“If the return to migration is rapid, it may take some time for those people to get jobs — that may be something that slows wage growth, temporarily,” he said.

Danielle Wood from the Grattan Institute said seeing borders open faster than expected is a very good thing.

“What that does is lifts the overall growth rate — if you have more people, the economy grows stronger overall,” she said.

“Given some of the pressure points in labour markets and shortages in various parts of the economy, that will very welcome news for a lot of businesses.”

‘We have to be more ambitious’: Business groups argue forecasts aren’t enough

Business groups are pushing back strongly against suggestions of any slowdown in migration and some are arguing what is being forecasted will fall short of what is needed.

Many industry groups have for months been complaining of significant skills shortages due to the effective suspension in migration, particularly in sectors like IT and hospitality.

Andrew McKellar from the Australian Chamber of Commerce and Industry argues any question over Australia’s migration levels has been long settled.

“The economics of this is well established — migration has been a positive for the Australian economy over a long period of time,” he said.

“We know that it will add to demand, we know it will add to our skills base.”

Mr McKellar said there is a strong argument for larger numbers in the next few years, to make up for lost time.

“We have to get back to much stronger levels of migration,” he said.

“Even the numbers that are factored into the budget at the moment, I’m not sure that’s enough.

“I think we have to be more ambitious and we shouldn’t run away from it, we shouldn’t be afraid of it — we need leadership on both sides on this issue.”

By political reporter Tom Lowrey (Original ABC Article)