Finally, there’s something else in the mainstream rags to read. It was a little tiring constantly hearing about house prices and North Korea.
In the middle of last week, the Australian government announced surprise changes to the 457 Skilled Migrant Visa Program.
The timing is odd. One month after President Trump announced his changes to the American H1B Visa, we go and change ours. Huh. What a surprise. Suddenly the US have changes afoot for their skilled migrant visa, and then shortly Australia does too.
Both heads of state argue these changes will boost local jobs. Although Trump has a much catchier slogan, ‘Buy American. Hire American.’
More to the point, the Aussie government is introducing a policy no one asked for. And there’s scant details on exactly how the replacement will work.
Of course, that hasn’t stopped some parliamentary members taking credit for the idea:
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Both Pauline Hansen and Cory Bernardi took to Twitter to remind everyone that this was all their idea first.
I wouldn’t be surprised to find out this latest immigration policy is all smoke and mirrors. What’s odd is the timing to coincide with changes in US foreign working visa checks.
What bothers me most is the emphasis the Australian government are placing on ‘tighter’ security checks to be made. Nothing rattles me more when pollies start pushing for tighter, stronger or ‘more thorough’ security processes. These moves do nothing but restrict your freedom, while pretending to protect you.
I can’t even call it a ‘kneejerk’ policy reaction. Because it’s not reacting to anything. It’s a half-baked idea that does nothing but pander to the tiniest section of xenophobic voters.
Hello Mr Dutton? Yeah, the 1950s called and they want their White Australia policy back.
Who needs facts?
Though Bernardi and Hanson claim a victory over the visa change, they really stole the idea from Senator Jacqui Lambie.
Back in May 2016 during TV show Q&A, she blatantly blamed the 457 Visa as the reason there was high unemployment in Australia. Telling the audience ‘We have over a million 457s out there, and that’s another reason why we don’t have jobs here.’
Well. Thanks to this awesome tool called the internet, we can fact check this quickly.
Let’s clear one thing up. A 457 Visa is an employer sponsored one. It’s not like people are crash landing their boats into our sandy shores and applying to work in sales or administration.
To get a 457 Visa, an Australia company must to sponsor a person to work for them in this country.
Like anything, there will always be a small number of people who take advantage of it. However when you use data, it’s pretty hard to argue the 457 Visa is stealing jobs from Aussies.
Get this. In the 12 months to September 2016, there were 95,758 skilled foreign workers on a 457 Visa issued.
I know, right? Out of the estimated 11 million people employed in Australia, a grand total of 0.87% were on a 457 Visa.
Whoa…look at all those migrants taking my jobs!
Before you send in the hate mail reminding me that perhaps many non-457 Visa migrants are working for cash…hold that thought. I’ve spent the better part of 12 years surrounded by tradies. The barter system for labour is alive and well there. I can’t tell you how many times I’ve witnessed a conversation end in, ‘Yeah, I’ll do it for a slab.’
Yet, no one is accusing these folks of taking paid work away from their fellow Australians, are they? I wonder if there’s because they tend to fit an idea of what an ‘Australian worker’ looks like. You know the sort. The hard working Aussie bloke. The white one. Or the second generation Australian descendant of European parents.
With that out of the way, let’s dig right into where those job stealers are coming from.
At present, Indians account for 26% of all employer sponsorship visas. And a large portion of these people come here to work as cooks, programmers or software developers.
You know who accounts for second largest group? The poms, with a whopping 16%. Seeing as a Brit pays my wages, I’m not about to go slagging off the mother country.
You know who comes in third? China, with a tiny 6% taking up 457 Visas.
And guess what? Of those people, 9,111 brought their IT skills into Australia. Bless you my friends. Because you possess skills I do not have, and have no intention of developing.
Another 4,226 people went on to become cooks. That’s fine by me because I despise cooking. A further 4,364 job stealers took up roles as general practitioners or a medical officers. Chances are these people ended up working in country towns, where no Australian doctor wants to work.
How fantastic to have more doctors working in Australia. In the long term, this will reduce my waiting times at medical facilities.
Another 3,295 came into the country to be chefs. Super. Give me your food and I’ll eat it.
You can drill right down to minute detail to find that seven florists were awarded a 457 Visa. I think it’s obvious we know where all the job stealers are now. Clearly, this is why my floristry career never took off — not my allergies.
Deep and complex wage recession
Late last year, the opposition party weighed in on the skilled visa argument. Opposition spokesman Brendon O’Connor came out swinging, telling Australia:
‘Too often we’re seeing exploitation, abuse and the overuse and misuse of that visa means downward pressure on wages. That’s why we have almost a wage recession in this country.’
Yes. All the 0.87% people employed on 457 Visa are responsible for a ‘wage recession’ in Australia.
I. Don’t. Think. So.
Stagnant wage growth is a much deeper issue than the small number of people moving to Australia.
A low inflation environment compounds the problem of wage deflation. The consumer price index (CPI) sits at 1.5% for now. Average wage growth in Australia is at 1.9%. When inflation is minimal, wage growth often is as well. This is often called ‘sticky wage theory’.
But low inflation and low wage growth is sort of a chicken and egg problem. What came first?
The slowing mining sector is attracting its fair share of the blame. Incredible six figure salaries once awarded to truck drivers and diamond drillers have dissolved with end of the mining boom.
Source: Reserve Bank of Australia
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The chart above shows you private sector wage growth has been in sharp decline since 2012, which is when the mining boom finally left Australia. Unsurprisingly, the public sector wage growth has taken longer to fall.
One of the factors being overlooked at present is the effect a unionised work force had on Australia’s wage growth.
In the middle of last year, the Reserve Bank of Australia (RBA) released a detailed paper examining the ‘Cyclical Labour Market Adjustment in Australia’. The paper argued that since the 1980s businesses in Australia have reduced hours to save costs, while retaining staff, rather than sack people.
Therefore, unemployment didn’t’ increase dramatically. But underemployment did.
In this massive tome of boring central bank speak, one sentence caught my attention, ‘the reforms to industrial relations arrangements in the late 1980s and early 1990s made it easier for firms to bargain directly with their employees over matters like wages and working hours’.
Labour market deregulation — as the RBA calls it — changed drastically in the late 80s. Suddenly the unions weren’t the most powerful people in the room. In fact, here’s a handy graph from the Australian Bureau of Statistics to prove it.
Source: Australian Bureau of Statistics
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Based on data from the 2006 census, you see steady decline of union membership over the past three decades. Instead of representing 45% of employed Australians, as in 1986, it’s dropped to 19% of working Aussies in 2006.
What was probably masked during the tech boom, the mining boom and two decades of staggering house price growth, is starting to reveal itself.
As fewer people work in manufacturing, production or construction industries — the unions’ heartland — there is less of a wage push from an enormous work force. Employees and employers directly negotiating salary increases individually would affect the outcome of wage growth.
The last stronghold of the unions is Australia’s 1.06 million employed in the construction sector.
That’s a smidge under 10% of Australia’s entire workforce. Like the dwindling mining sector, the construction sector is falling:
Australian Performance of Construction Index (PCI)
Source: Housing Industry Association (HIA)
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The PCI reading for the month of March was 51.2. Normally anything above 50 indicates that construction is in the expansion phase. In other words, one of the signals the economy is growing. At a glance, a reading of 51.2 is a good thing. But like all things, the devil is in the detail.
When you look a little closer, you can see where all the growth is:
PCI activity by sector
Source: Housing Industry Association
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It turns out the construction of new Aussie housing is driving the PCI into the ‘expansion’ phase. Yet the large, multimillion dollar construction buildings are falling. Apartments, commercial and major engineering projects are all contracting.
In other words, there’s fewer and fewer of the large projects coming online.
This poses a major problem to the Australian economy, and wage growth.
The HIA points out that the entire construction industry is coming off from the all-time highs reached in 2014 and 2015. The fact that housing construction is propping up the sector is a cause for concern. Without large scale construction projects getting off the ground, the PCI will shift into contraction territory. That would signal that the expansion phase is over.
JP Morgan recently pointed out that there is a sharp slowdown coming for future apartment developments. By their calculations, there’s a coming oversupply of 100,000 of apartments in Australia. Furthermore, there’s another $120 billion of apartment settlements due by 2018 which may be at risk.
These factors are establishing the perfect storm for high unemployment, reason JP Morgan. As JP Morgan puts it, a 10% decline in financial transactions and a 33% fall in construction could be the trigger. That’s home and apartment construction falling to 150,000 per year from 225,000. Which would put up to 200,000 jobs in the firing line. That’s before the roles which indirectly relate to the housing and construction sector, like real estate agents, are considered.
Tick, tick, tick
As much as some fringe politicians would like you to think it, the slow Australian wage growth can’t be blamed on 457 Visa holders. It makes a great headline. But there’s no data to suggest it’s really contributing to the ‘sticky wage’ problem.
What few people seem to be looking at, is just how much of our wage growth is tied to the construction industry.
Given that is it has been 26 years since Australia’s last recession, we have no idea what it looks like when our construction sector is unemployed. A huge chunk of the population not working is a ticking bomb. And we have no idea what the full impact will feel like.
The pollies may score some easy votes by blaming it on the visa issue. But if they continue to ignore reality, we may only be at the start of persistent wage deflation.
For Markets & Money
Editor’s Note: This article was originally published in Money Morning.