Migration alone won’t fix worker scarcity

As the jobless rate plunges, Team Australia faces many new challenges.

Treasurer Jim Chalmers wisely says migration is just one part of the picture on labour shortages, and he promises the jobs summit will have many moving parts. Picture: Jerad Williams

As Labor begins the budget and structural policy resets it has promised in its first term, Jim Chalmers has been hit by the rainbow of ultra-low unemployment and the lightning bolt of rampant inflation. What a time!

When the Treasurer returns from this weekend’s G20 meeting of finance ministers and central bank governors in Bali, he will have three essential Canberra set-pieces in his diary over the coming three months.

First, Chalmers will provide an update on the state of the economy and budget when the new parliament sits at the end of the month. “Grim Jim” has been painting the broadbrush strokes of his early, melancholic period.

No recession at this stage, but certainly a recalculation of forecasts for growth, inflation and the budget balance. This last point comes with a temporary splash of colour. The amazing labour market and early 2022 commodity windfall mean the underlying cash balance for last financial year will likely have improved from an expected $80bn deficit at the end of March to about $40bn in the red. Beyond that, it’s “dire” according to the new custodian.

Next, there’s the two-day jobs and skills summit at the beginning of September. Who doesn’t love a summit? There’s an element of retro-Labor stage management, reprising the Silver Bodgie’s aroma of consensus and can-do, and the practical reconciling of business and unions. The forum may actually help.

On Thursday we got another update in the amazing story of the Australian labour market. How low can the jobless rate go? Economists think we can do better than 3.5 per cent, but we are drawing on workers with the lowest levels of skills and recent experience. A fair go demands they get a go, and receive the training to help them succeed, but we also need more job-ready and niche-skilled workers right now.

Finally, there’s a bonus mid-year budget on October 25, where Chalmers can highlight the horror of Labor’s ongoing audit of its opponents’ waste and rorts, begin to deliver on key election prom­ises and recast the fiscal settings for the next few years, hopefully in line with the strategy suggested by Treasury secretary Steven Kennedy in his “wake-up Australia” speech last month.

The backdrop to these three events is becoming more alarming: a slowing global economy, with the menace of stagflation, sharply rising inflation due to supply snarls and energy shocks, and central banks, including the Reserve Bank, picking up the pace on interest rate rises. The US Federal Reserve will be hitting the brakes hard when its policy committee meets the week after next, chasing the tail of inflation that bounded to a 41-year high of 9.1 per cent last month.

RBA governor Philip Lowe is acutely aware of the the ‘sea of troubles’ ahead. Picture: AAP

Ahead of the G20 meeting, International Monetary Fund managing director Kristalina Georgieva said countries faced a “sea of troubles”. The global outlook had “darkened significantly”, with multiple crises, not least the threat of starvation in many nations. “It is going to be a tough 2022 – and possibly an even tougher 2023, with increased risk of recession,” she said.

The playbook for countries to get through this, Georgieva said, was in three parts. First, do everything in their power to bring down high inflation. “Acting now will hurt less than acting later,” she said. Second, fiscal policy must not hinder central banks in the inflation fight. Georgieva said that meant for nations well into recovery – and Australia is in the vanguard – “shifting away from extraordinary fiscal support”.

Third, the G20 needs to lead fresh action for global co-operation. Georgieva said rich nations must immediately reverse recently imposed restrictions on food exports. African countries are particularly vulnerable, facing dual humanitarian and economic crises. “They are calling on the international community to come up with bold measures to support their people,” the IMF chief said. “This is a call we need to heed.”

Chalmers and RBA governor Philip Lowe are acutely aware of these developments, which make their chances of nailing a “soft landing” even more difficult. Last week’s lift in the RBA’s cash rate to 1.35 per cent was the third move in three board meetings; market watchers are tipping another 50-basis-point rise next month, in the wake of a hefty inflation “print” for the June quarter to be published in late July.

Mortgage rate rises, falling home values and economy-wide price pressures are putting shoppers in a sour mood – up to a point. It has yet to stop them spending, a metric that will guide the RBA in how far and how fast it can move along its monetary corridor over the next year.

From the previous Team Australia task of securing the recovery from the Covid-19 recession and driving down unemployment, the present challenge is to fight inflation and cope with what looks like “full employment”, while trying to restore to “normal” budget and interest-rate settings. Kennedy said it was “the most complex international environment in 70 years”, and who could disagree?

A lot of rich countries are in this situation, and it’s made more precarious by the policy indolence of governments of all stripes across a long period. It shows up in stagnant wages, a slide in productivity and lazy budget policy during good times, such as they were in the pre-pandemic years.

In its recent annual economic report, the Bank for International Settlements (the central bank that services the likes of Lowe and US Fed chief Jerome Powell) laid out the political economy of fighting inflation. There will be blood. It’s unavoidable.

It’s not just a policy wonk’s exercise in calibration, although so many central banks are flying blind given we just don’t know how markets will react, whether there will be second-round wage effects or what will happen to asset prices. Your super, your house, your problem.

The BIS said over the long term the challenge of joint normalisation of interest rates and budgets “is itself the reflection of a deeper problem”. “For far too long, there has been a temptation to turn to fiscal and monetary policy to boost growth, regardless of the underlying causes of weakness,” the bank said.

“For fiscal policy, in particular, loosening during contractions has not given way to consolidation during expansions. The temptation to postpone adjustment has been too strong. Such a strategy has arguably generated unrealistic expectations and demands for further support. The only way of promoting robust long-term growth is to imple­ment ambitious structural reforms. Unfortunately, such reforms have been flagging for too long. These reforms are more important than ever at the current juncture, given the signs that globalisation may go into reverse, partly due to geopolitical considerations.”

For now, the small-mandate Albanese government can only watch and wait, although there are levers it can use to take some of the heat out of demand in the economy. That’s something a poll-whacked Coalition did not do; in fact, it did the opposite in the March budget as it tried to ameliorate a cost-of-living voter revolt.

An economy at capacity is bringing its own challenges, of course, notably the skills short­ages that are evident from tradies’ super-profits, hospitality service standards, limited hours for small businesses and queues at airports. There’s an advertised job vacancy for every unemployed person, and businesses are ratcheting up their calls for quick fixes, such as faster visa processing for temporary workers and a massive lift in the number of skilled migrants.

The latest arrivals figures provided to Inquirer from the Department of Home Affairs show that since the border opening announcement in late November last year, and up until Tuesday, mire than 1.5 million temporary visa holders have arrived in Australia. According to a spokesperson that includes, 1.14 million visitors, 236,908 students, 40,616 working holiday makers and 139,354 temporary skilled and other temporary workers.

At the start of the month there were 55,194 working holiday maker visa holders offshore who can travel to Australia, and as this wet winter recedes it’s expected many of these foreign backpackers will be coming to a rowdy hostel near you. These temporary workers don’t show up in the official labour statistics but they’ll be taking up roles in hospitality and on farms and spending what they earn in this country.

The hot talk to address labour supply is all about migration: get people here quick. The industrial wing of the labour movement is not keen on more temporary workers, arguing it leads to a slide in pay and conditions.

Some senior people in government say business groups are always asking someone else to solve their problems, often arising from neglect and short-termism. But they tend to persist in their pleading because they get attention, argue the “national interest” and get favourable treatment because of the power of big companies.

But in this era of group hugs and consensus, let’s remember that problems such as worker shortages are multifaceted and have their roots in institutional failures. The economy is a joint enterprise. Take the issue of skilling up young people. While the number of workers entering apprenticeships is at a record high, only 55 per cent, across a range of trades, are completing them.

A recent dashboard from the Productivity Commission on progress on the National Agreement for Skills and Workforce Development shows we’re losing traction. A target to reduce the number of Australians without a Certificate III qualification or above has not been met. The national benchmark for 2020 was 23.6 per cent, but the latest results showed 36.3 per cent had no qualification at this level.

Similarly, a goal to double the number of higher-level qualification completions (diploma and advanced diploma) between 2009 and 2020 is “not on track”. The national target was 87,500 and the most recent number of completions was 34,000. Covid notwithstanding, that’s a miserable underachievement.

Chalmers wisely says migration is just one part of the picture on labour shortages, and he promises the jobs summit will have many moving parts. “I would caution people against thinking that migration is the solution to all of our economic challenges. It’s part of the story, but it’s not the whole story,” he told the ABC’s RN Breakfast on Tuesday.

The Treasurer said skills, participation, childcare, investment in industries, a Future Made in Australia and the care economy were just as important as migration. For one, the ACTU will be pressing to reform the failing enterprise bargaining system, with a laser-focus on the ability of employers to tear up agreements.

The end product of the summit is a white paper on employment next year, but perhaps there will be areas of consensus – that word again – that will provide good options before the year is out.

Rather than talking about creating jobs as Anthony Albanese and Scott Morrison did during the election campaign, we need to refocus on workers. Where will they come from? Labour, like capital, is a precious resource. What is the best way to get everyone in the jobs mix and off welfare? Hopefully the summit will address that. How do we make sure workers can move from areas of low return to areas of high productivity, wages and profits?

Productivity Commission chairman Michael Brennan asks whether we’re arguing about a finite pie. “It’s not completely fixed: there are policies that could help increase labour force participation, though they come at a cost,” Brennan told the Universities Australia conference last week, including retraining segments of those of working age who are out of the labour force.

There is scope to use skilled migration to ease labour short­ages but it is not an “infinite tap”, he says, calling it a scarce resource we need to ration wisely and efficiently, and ensure that policy settings such as infrastructure provision adjust appropriately.

“That is the big policy issue,” Brennan said. “The point is: government policy cannot and will not fix every perceived labour shortage, through migration, differential training subsidies or promotional campaigns.

“Some labour shortages will be fixed through relative wages; through technology and automation and new models of service delivery, not to mention the digital trade in services which could be a significant new opportunity.”

But with a near 50-year low jobless rate and a 40 year-low in so-called under-utilisation we are in unfamiliar territory. There are more people in work than ever. It’s something to treasure.

As a community we’ll need to adjust our frames of reference, and so will political leaders, businesses, unions and the kings and queens of money, as we try to hold on to what we’ve got while paying off a debt burden for the ages.