RBA disputes claims low-skilled workers are holding back productivity
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The news: The Reserve Bank has rebuffed claims that weak productivity growth can be attributed to less experienced or less educated workers entering the labour market in recent years. It has also dismissed suggestions that international students have been a major driver of rising rents.
In the post-pandemic period, a surge in migrants on student and holiday visas attracted the focus of some research which suggested that this influx of lower-skilled workers was one of the drivers of the slowdown in productivity.
Researchers at the RBA, who did not specifically point at any particular study it was opposing, said in its latest quarterly Bulletin that its research found evidence that labour quality had actually improved post-Covid and there is “little to no evidence” that the “entry of workers with less skills and human capital can explain weak productivity growth over recent years”.
The context: The Reserve Bank Bulletin is a quarterly publication from the central bank that outlines its latest analysis on significant topics and developments in the economy.
The July edition examined labour quality, international students and the Australian economy, and the impact of global shipping costs on inflation.
On international students, the RBA found they play a “significant role” in the economy, contributing more to demand — via spending on goods and services — than to supply in the short term. While this demand may place upward pressure on inflation, the RBA noted that students were “not a major driver”.
This chapter of the Bulletin included a section on housing, analysing where students live and their impacts on the property market and prices. It found that the increase in international student numbers “is likely to have accounted for only a small share of the rise in rents since the onset of the pandemic” with most of the increase happening ahead of borders re-opening.
However, it said that given the supply constraints on the housing market, changes in the number of international students in the future could have implications for the market “in the same way changes in the population more broadly could”.
The latest research on shipping disruptions found there was evidence of a material pass-through of increased costs to the prices of shippable goods in Australia. But the implications for the trimmed mean inflation measure were less clear.
What they said: "Overall, we found little to no evidence that the entry of workers with less skills and human capital can explain weak productivity growth over recent years," the RBA said in its Bulletin.
"In fact, human capital grew over the period, contributing to productivity growth, and this growth was if anything faster than what was observed over the years leading up to the COVID-19 pandemic," it said.
"This suggests that productivity is unlikely to pick up as recent dynamics unwind — for example, through some of these workers gaining new skills or leaving the labour market.
"More generally, it suggests that other factors – including those evident before the pandemic — are contributing to the recent weak productivity outcomes."
The source: Reserve Bank July Bulletin
