Key Points
- Australia's closed border policy stopped thousands joining the labour force.
- But that's not the sole reason for the current low unemployment rates.
Australia’s streak of low unemployment is continuing, but analysts say it's too simplistic to conclude a halt to migration is solely responsible.
That’s because the closure of borders during the COVID-19 pandemic combined with massive fiscal stimulus and loose monetary policy have all factored into the result.
Analysts suggest this also means the recovery of migration levels now being witnessed is unlikely to result in the unemployment rate blowing out.
Official figures released on Thursday - it’s the equal lowest level the rate has been at since May 1974.
But a question, which is hard to determine, is to what extent a fall in net migration to negative levels during the pandemic played a role in delivering the outcome.
Some 89,900 more people left than arrived in Australia in 2020-21 because of the international border closure. Source: AAP / Bianca de Marchi
“Migration has certainly played a role in the low unemployment rate so we have a lot fewer workers coming into Australia,” he told SBS News.
“Hundreds of thousands less, so the numbers are pretty big, so that has created important labour shortages in different parts of the economy.”
The unemployment rate has fallen steadily from a pandemic high of 7.5 per cent in July 2020 going on to reach the 4 per cent mark for the first time in February this year.
Alongside this decline, net migration reversed in Australia, with 89,900 more people leaving than arriving in 2020-21 because of the international border closure.
This resulted in thousands of potential workers being stopped from joining the labour force.
But Professor Breunig said the drop in unemployment cannot entirely be explained through changes to the migration program, describing it as “maybe less than half”.
He said this is because when COVID-19 hit while some people were likely willing to take up jobs - that would have been filled by migrants - this number was “small in the overall proportion of the workforce” and focused on specific sectors like hospitality.
'Migration return unlikely to have big impact on wages and employment'
The historic size of the Australian government's fiscal stimulus and the Reserve Bank adopting historically low interest rates also had a big impact on the labour market.
Economist Brendan Coates of the Grattan Institute described the closure of Australia’s borders as having a “relatively modest impact” on unemployment.
“The impact of the closure of the borders on the unemployment rate is just dwarfed by the scale of macroeconomic stimulus during the COVID recession,” he said.
He said the impact of these economic settings provided a boost to labour demand roughly seven to eight times the size of the border closures.
“As migrants return then they’ll ease some of the labour shortages that have been experienced in hospitality and in agriculture in recent months,” he said.
“But I don’t expect it will have a big impact on wages or employment overall for Australians.
"Migrants both add to the demand for labour and supply of labour.”
This is because new arrivals also consume goods and services, generally for a while at a greater rate than Australians - creating demand in the labour market.
Since the shock to the migration program, levels have shown signs of recovery and are projected to reach 41,000 people this financial year.
It’s resulted in the number of arrivals to Australia each month steadily increasing up to more than 651,000 in May this year.
But the figure remains well down from the around 2 million people that would arrive each month before the pandemic.
Migration analyst from the University of Sydney, Associate Professor Anna Boucher, said more migrants didn't necessarily mean more competition for local jobs.
“Will unemployment rise again if we increase migration? No, I don’t think that’s necessarily conclusive,” she said.
"That doesn’t mean there won’t be some displacement around the edges - my concern would be around post-study visas and working holiday makers."
This is because migrants often fill skill shortages unable to be filled by domestic labour and can even act as job multipliers through their employment.
The unemployment rate marked the fourth time since February that the unemployment rate was at 4 per cent or lower.
Professor Boucher said pressure on wages and inflation in the economy were also acting as an incentive for people to engage in employment.
“There are ways they [the government] could target it that would avoid competition with domestic labour," she said.
“[It will] hopefully avoid this slightly xenophobic argument that the best way to keep unemployment low is to halt migration.”
