Australia is grappling with a productivity decline, and economists are pointing fingers at the nation’s heavy reliance on low-skilled immigration. In the last financial year alone, a staggering 457,560 permanent and long-term migrants entered Australia, many of whom are international students working in low-wage jobs such as food delivery services.
This influx has expanded the labor pool but simultaneously sparked a productivity crisis, with output per worker now in decline. According to MacroBusiness economist David Llewellyn-Smith, businesses are opting out of technological investments, choosing instead to leverage cheaper migrant labor. “Because you’re importing cheap, foreign labor, most of it low-skilled, businesses tend to actually disinvest – they’d have no need to invest in automating processes when they’re just getting cheaper labor all the time,” he explained.
The Economic Impact of Low-Skilled Migration
The effects of this trend are evident across various sectors. Llewellyn-Smith illustrated this with the example of car washes, which have reverted to manual labor, reducing automation and increasing costs for consumers. “That’s an analogy for you about many different things in the economy,” he added.
Productivity fell by 1 percent in the year to March, prompting the Reserve Bank of Australia (RBA) to cut its growth forecast to a mere 0.7 percent annually for the next two years. This is a stark contrast to the 2.1 percent annual growth seen during the internet boom of the 1990s and 2000s.
Challenges and Opportunities in Technology Adoption
While artificial intelligence holds the promise of boosting productivity akin to the internet revolution, the RBA has warned that the high costs associated with new software are deterring businesses from investing in these technologies. This reluctance to adopt new technology compounds the productivity dilemma.
Former Treasury Secretary Ken Henry recently highlighted the economic cost of stagnant productivity growth since the 2000s, estimating a loss of $500,000 in potential pay rises for Australian workers. Meanwhile, his successor, Martin Parkinson, suggested that recognizing the qualifications of degree-holding migrants could bolster productivity.
“This is a political and economic no-brainer. Everyone here, citizen, resident or new migrant, should have the opportunity to contribute to their maximum ability,” Parkinson stated.
Shifting Perspectives on Immigration and Labor
Traditionally, trade unions have opposed high immigration levels, arguing that an increased labor supply suppresses wages. However, a shift in perspective is emerging. ACTU assistant secretary Liam O’Brien advocated for reducing bureaucratic barriers to skills recognition while maintaining high standards, suggesting this could unlock a stronger future for the country.
“Tackling the unnecessary barriers to skills recognition while maintaining our existing high standards for skills will unlock a better future for all workers here in Australia,” O’Brien stated.
As Australia’s productivity continues to decline, the RBA’s forecast remains bleak, predicting only a 0.7 percent growth over the next two years, down from an earlier projection of 1 percent.
Government Response and Future Outlook
The debate on productivity and immigration comes as Treasurer Jim Chalmers convenes a three-day Economic Reform Roundtable at Parliament House in Canberra. With business and union leaders in attendance, the aim is to address the nation’s productivity challenges.
“I have realistic expectations about the next few days, but I’m optimistic as well,” Chalmers remarked. “I’m optimistic that there is an appetite for reform, there is ambition when it comes to dealing with the three major challenges in our economy. Productivity, first of all, but also economic resilience and Budget sustainability as well. So, I’m realistic, but I’m optimistic that we can make some progress together.”
As Australia navigates these economic challenges, the outcomes of these discussions could shape the nation’s approach to immigration, labor, and technological investment in the coming years.
