This should probably hit productivity, not GDP directly.
Skill shortage propaganda is used by politicians to increase immigration and suppress wages.
In the US at least, the skills shortage is a very real problem affecting a pretty wide variety of industries. There’s a reason why the IT sector has a much higher percentage of foreign born workers when compared to the rest of the economy, for example. According to the US Bureau of Labour Statistics, the percentage of native born workers in IT has been on the decline since at least 1980, despite showing an increase in absolute numbers. If not for foreign workers, the US would likely have ~20% less available workers in IT right now. This trend is likely due to a skills shortage in relevant native populations.
Some articles on the topic:
A nation has a responsibility to train its people to fill skills shortages first. But, instead, firms in developed countries seek overseas workers ahead of local workers to push down wages and conditions and boost profits by oversupplying the labour market with workers who, of course, bring their families along that contribute to the labour market oversupply issues.
You’re right in that nations should train people to fill skills shortages. The problem is the implementation. It would be unfeasible for the government to force people into professions, and encouraging subjects in school can only go so far. Some people just won’t go into certain industries that have shortages no matter what incentive they have (STEM).
I’m not sure about your point on pushing down wages/working conditions, since anybody who comes to America will likely receive the same or higher wages as native born workers as an incentive for their immigration. Working conditions would also be the same as native workers. Workers who bring their families will not necessarily contribute to the labour market oversupply issues, as most of the US is (and has been) experiencing labour shortages in most sectors, not oversupply.
If you mean companies directly hiring overseas firms, then it could be argued that the increased profits allow for continued expansion by the companies in both the poorer and richer countries, thereby benefiting both. Elevating the income of people in lower income countries (may) also help increase demand for imports, as well.
When there is a labour supply shortage, firms increase salaries to attract skilled workers to work for them. However, if they can source those workers from overseas, they don’t have to increase wages. That is why wages in the US are some of the lowest in the developed world.
I think we may be talking about different things here. I was thinking along the lines of the STEM sector, where jobs require years of experience and training. If there was a supply shortage, firms would have no choice but to increase wages in order to attract more foreign born workers. The cost of living in San Francisco won’t go down just because you’re hiring from abroad, after all. Wages in the US are therefore very high for high skilled workers.
According to the Brookings Institution: “The vast majority—90 percent—of H-1B applications are for jobs requiring high-level STEM knowledge . . . H-1B workers are paid more than U.S. native-born workers with a bachelor’s degree generally ($76,356 versus $67,301 in 2010) and even within the same occupation and industry for workers with similar experience. This suggests that they provide hard-to-find skills.”
Most economists are divided over whether immigration affects blue collar workers, but most agree that overall immigration is definitely not the only factor affecting the job market (nor the largest), and that as a whole immigration is beneficial for the economy.
(Trump Immigration Fact Check: Have Immigrants Lowered Wages For Americans? : NPR)
We need to talk about immigration policy
One of the things that bothered me most in government was the insistence by Treasury officials that there was virtually no downside to ongoing high immigration.
Immigration, they maintained, was absolutely necessary to keep up economic growth and to give Australia the skills we needed.
Well, a side effect of our pandemic-closed borders has been that immigration has virtually stopped for the past 18 months, so the Treasury doctrine has now been put to a practical test.
The result? At least in the absence of lockdowns, the economy has bounced back strongly despite zero immigration; there are indeed serious labour shortages but they’re for fruit pickers, restaurant staff and cleaners, not for people with university degrees; and, for the first time in a decade, wages are starting to grow strongly.
In other words, the official orthodoxy, that high immigration boosts growth without depressing wages, looks like being exposed as bunkum.
I’ve always been a supporter of immigration but at the level of about 100,000 new arrivals a year, the average of the Howard era; not at the 235,000 a year we’ve averaged since then.
It’s right that a country of immigrants should continue to give newcomers the chance our forebears had to build a new life in a land of peace and plenty. Still, to keep our country safe and prosperous, it was important that the focus be on skilled migrants when the economy really needed them.
Routinely bringing in a city the size of Canberra every 18 months, especially with economic growth sluggish post-global financial crisis, has always struck me as putting downward pressure on wages, upward pressure on housing prices, and massive congestion on to our roads and public transport, and pressure on hospitals and schools.
The reality of our immigration program has never matched the rhetoric about skills. As every Australian who has ever tried to book a tradie knows only too well, our real skills shortages are for plumbers, electricians, carpenters, welders, builders and mechanics, as well as aged-care workers and other service industries. We’re chronically short of people who can make things and who can make things happen.
We’re not short of accountants, lawyers, middle managers, and marketers. Yet it’s professional skills rather than practical ones that dominate the “strategic skill” list that largely determines the composition of the 80,000 or so (including their dependants) who enter annually as points-tested skilled migrants.
As demographer Bob Birrell has shown, based on the most recent census data, 84 per cent of degree-level migrants during the previous five years had come from non-English-speaking backgrounds and only 29 per cent of them were employed as professionals or managers, even though that was the rationale for granting them permanent residency.
Back in 1994, launching a book of essays, former prime minister Bob Hawke made the remarkably frank admission that immigration policy had effectively been a conspiracy by the political establishment against the Australian public. Hawke agreed with one author’s observation that most voters wanted immigration reduced and that the parties had deliberately kept it out of public debate, saying there had indeed been “an implicit pact between the major parties to implement broad policies on immigration that they know are not generally endorsed by the electorate” and that “they have done this by keeping the subject off the political agenda”.
In a recent speech, Reserve Bank governor Philip Lowe finally admitted the obvious: that the laws of supply and demand applied in the labour market and that, without immigration, wages would rise. Not only that, but employers might have to do their job properly and start training up their workers by taking on appren¬tices again. Hiring overseas workers, he said, “dilutes the upward pressure on wages” and could “dilute the incentive for businesses to train workers to do the required job”.
Conversely, he said, zero immigration with borders closed would mean “wages growth would pick up more quickly”.
Still, the institutional push behind ever-higher immigration is not to be underestimated. At least since the 1970s, the left has supported higher immigration, assuming more migrants would vote Labor and make Australia more multicultural and less culturally conservative (although that’s often not how it has turned out). Big business, too, has supported higher immigration because it meant more consumers and a bigger supply of labour. And lower immigration always risks what Labor finance minister Peter Walsh called a political backlash from the ethnic lobby.
Then there’s the Treasury line that a bigger population means a larger gross domestic product, even though whether it boosts GDP per person depends on the quality, rather than the quantity, of the intake.
While insisting immigration would improve the budgetary position overall, curiously, for a Treasury document, the recent Intergenerational Report also showed only skilled migrants were a net fiscal benefit and, overall, given the composition of the program, immigra¬tion was still a net fiscal drag. Yet it took it for granted, post-pandemic, that immigration would resume at the level of at least about a quarter million a year.
Took for granted? Hang on a minute. If lived reality is demonstrating a link between immigra¬tion and lower wages, shouldn’t there be a serious public debate before we restore the status quo given the negative pressure immigration puts on wages, housing and congestion? Shouldn’t leaders on both sides of politics level with us about whether we really want wages to be lower than they otherwise would be because more newcomers are in the market for jobs? And it’s certainly not anti-migrant, let alone racist, to question whether migration always needs to be as high as in recent years, because recent migrants are often the most vulnerable people in the job market.
Governments’ tendency to keep people in the dark has been on full display throughout this pandemic. Vast sums of taxpayer money have been spent and unprecedented restrictions on liberty have been ordered on the basis of health advice that has never been published. The message of leaders to voters has been: “Stay at home, do nothing and wait for our instructions.”
I think the passivity of our citizens has just about reached its limit and any government intending to restore immigration levels without asking the public first may be shocked by the backlash.
With the borders closed, we have a rare moment in history to have a proper debate about the future size of this country and the migrant skills mix before we just resume business as usual. It’s no coincidence that there’s a government report or plan on almost every aspect of life, yet Australia is without a nationally agreed population plan. That should tell you everything about what they don’t want you to know. And why no debate is encouraged.
These are all good points, however I do think that 18 months is too small a window to gauge the impact of lowered migration, especially taking into account the extenuating circumstances of the pandemic and a large fiscal stimulus (20% of GDP in Australia).
On top of that, the article does in fact talk about ongoing labor shortages in key, low skilled fields that cannot be filled by Native Australians (if they could be filled, they would). The large scale economic rebound and wage increases can be explained by the large fiscal stimulus and the reopening of the economy after COVID. This wasn’t a “natural” economic shock, and so the economy rebounded more quickly than in times like 2008. If the economy suffers labour shortages only 18 months after the stop of immigration, we can likely conclude that there was not an overabundance of workers beforehand. This exact same phenomenon is currently happening in America, where wages are being pushed up due to economic stimulus, and not a lack of workers.
I am not sure about the wage increases the article mentioned:
Labour shortages occur because governments do not fund education and training places adequately.
Oh, my post suddenly blew up after 2 months, cool.
That was my point in an earlier post, you can fund education or training centers all you want, but that’s not going to alleviate your problems in the short term. Training a computer scientist quite literally takes over a decade of schooling. By the time you saw any new workers from your programs, the labour shortage will likely have already ended. By allowing skilled migrants, you not only save yourself the money of funding specific educational programs, but you also increase wages and increase the profits and output of your economy.
Plus, just because you pour money into educational programs does not mean there will magically be an increase in actual people who want to learn the topic. The US Government spent 3 billion dollars on STEM subjects in 2016, and we still have a shortage of workers, even with immigration.
3 billion usd is not much when you think about funding STEM research. If you want to say, get 50,000 more people into STEM, an increase of about 30% that’s something that I imagine would make an impact. It would require spending more than $13 billion+ (4+2 years of college). If you don’t spend the money needed to make a big impact, you won’t see it. These are all numbers for the US. Education is really expensive in the US, maybe it would be cheaper for other countries.
I guess 3 billion would cover 25% of their costs (not including transport and books) but the more money you put in, I guess the easier it would be for students.
What you’ve said is completely correct, but I was more thinking long term. 50,000 people going to STEM colleges, with tuition (not including living expenses) at around 60K a year would be 3 billion USD, which is actually exactly the same amount the government is spending right now.
Although I don’t think the money is being spent on paying for college tuitions, most of the stuff I’ve seen is just promoting the STEM field in schools and colleges, which would cost a lot less than straight up paying for tuitions, which iirc the US government does not do outside of loans/grants. Anyways my point in the original post was that any money you spend to alleviate problems now will only start to have an effect a long time down the line. Immigration is a less costly and more immediate fix to a skills shortage than waiting for more workers to be trained.
What are Cliff’s thoughts on your thoughts on immigration?