An unheard progressive argument: The wage effects of immigration

For progressive types, the importance of increasing wages for low income workers is critical. This is especially the case in a society of rising inequality. However, from what I understand, it is difficult to increase wages at the bottom without also increasing them at the top. It can be done – lifting the minimum wage for example – however there are trade-offs along the way.

While the effect of immigration on wages is (very?) low compared to factors such as technology and education, immigration does plays a role. In what I consider perhaps the best known secret about Australian immigration, current policy is working actively to reduce income inequality in Australia. You might not see placards about immigration at your local Occupy protest, but perhaps you should.

This OECD paper from 2010 outlines exactly how significant these effects are for Australia, relative to other countries:

Wage effect of immigration: 1990-2000

This table shows two things. First, the findings estimate immigration to Australia has the second highest positive effect on average wages (after Singapore), at 1.5 per cent.

Second, and most importantly, low-skilled workers accrue all of the wage benefit from net migration in Australia. Between 1990 and 2000, low skilled workers wages were 3.9 per cent higher because of Australia’s net migration. Even a country like Canada, which is frequently compared to Australia in terms of immigration policy, pales in comparison at 1.8 per cent. The authors say this occurs as immigration is significantly more skilled than the labour market as a whole. If we take the effects of emigration out of the equation (something the government cannot actively control), the sole immigration effect on low-skilled wages rises to 4.5 per cent.

This is an incredible finding, as Australia is such an outlier. The results above show how European countries display a very different trend. The U.S., with a large family migration program and a sizeable irregular migrant population, also shows an approximate neutral immigration effect on low-skilled wages.

I’m no econometrician and cannot speak to the veracity of this specific model, but the authors (Peri, Ozden and Docquier) are three highly regarded migration policy analysts. Unlike some migration advocates, they also account for a range of negative factors. Their analysis contains assumptions that immigrant skills are worth less in home countries, ensuring it errs on the conservative side of the overall contribution. They also account for slow capital adjustment to migration and a crowding out effect which migration can create, common findings of European and American economic migration analysis.

Despite all of these assumptions, which may or not hold in a country like Australia, the impact for low-skilled workers in Australia is still robustly positive. Even the modelled ‘worst-case’ scenario is a neutral impact average wages with a smaller positive effect on low-skilled workers, while the ‘best-case’ sees gains across the labour market of 2.6 per cent instead of 1.5 per cent.

While policy reform and changed emigration trends have occurred since 2000, it’s likely these forces have built on these trends instead of reversed them. Immigration reform has seen further high-skilled migration and larger number of migrants as a share of the population. This means the effects on low-skilled wages for the decade between 2000-10 were likely as high, if not higher, than 1990-2000.

Unfortunately, this perspective is rarely recognised in immigration policy discussions. Except for maintaining a strong defence on the benefit of multiculturalism, I rarely hear a union speak of the social and economic benefits of  immigration (it does happen occasionally).

Nor have I heard the ALP claim this argument despite the substance it would provide to the progressive agenda. This is a shame given the complexities of this policy environment. These findings demonstrate how talking points about migrants stealing jobs is wildly off the mark in a dynamic labour market combined with a highly-skilled immigration policy. They also highlight a pathway to being able to better explain the benefits of migration to a sometimes wary public.

Of course, there are always two (or more) sides to any argument. In this case, while Australian low-skilled workers are the big winners, the losers are those people with low skills who wish to migrate to Australia and are stymied. Australia’s immigration policy is designed to benefit Australia. Across other OECD countries, about ~30 per cent of the growth in immigration is low-skilled, which actively helps foster economic development for poorer countries.

However as this is the purpose of Australia’s immigration policy, I would like to hear a little bit more from the broad progressive movement about the benefits of immigration instead of the more common lament on behalf of low-skilled workers.

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One thought on “An unheard progressive argument: The wage effects of immigration

  1. Pingback: Attitudes to immigration: It’s not the economy stupid | Value for Money

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