Chief economist update: Younger migrants and the elderly keep wages low

Australians, all, there's now 25 million of us ... and counting.

The Australian Bureau of Statistics (ABS) reported that the country's population reached 25 million shortly after 11pm AEST on August 7.

According to the report, population has increased from 3.8 million in 1901 to 5 million in 1918, to 10 million in 1959 to 20 million in October 2004 to 24 million in January 2016. See here for more details.

The release is quiet timely for it provided RBA Governor Philip Lowe something new to talk about at his address to Anika Foundation Luncheon in Sydney the day after.

Of course, Lowe spoke about monetary policy but he would have put the attendees to sleep with his nth reiteration of "...we see reasonable prospects that the economy will record good growth, the unemployment rate will come down gradually and that inflation will increase over time ... The timing of any future change in interest rates is dependent upon the speed of the progress that is made in reducing the unemployment rate and having inflation return to around the midpoint of the target range on a sustained basis."  Ho-hum.

What's more interesting are his insights on the demographic changes occurring in Australia as revealed in the ABS report.

The Governor says, "The increase in Australia's population growth over the past decade is largely due to increased immigration; the rate of natural increase has not changed that much." And the "marked increase in the number of overseas students studying in Australia."

While population growth has put pressure in the country's infrastructure and home building, this is now being addressed and investment in these areas are picking up.

What's more significant is that "on average, new migrants to Australia are younger than the resident population ... The median age of new migrants is between 20 and 25, which is more than 10 years younger than the median age of the resident population". This has lowered median age projections from over 45 years by 2040 to around 40 years. The population's median age is currently 37-years-old.

Equally important is the rising life expectancy rate among Australians.

These are both important for a number of reasons but I'd like to look at it from the RBA's stance on wages and inflation.

Both - increased migration and higher life expectancy (which allows older Australians to work longer by virtue of improved health and/or the government's increase in the retirement age) - would expand the pool of available workers in the country. This would keep the unemployment rate higher than it would have been given lesser human resources.

This would keep wages lower than they would otherwise because new migrants and older workers are less likely to demand higher wages for their services than their true-blue counterparts.

Barring exogenous factors (such as a lift in import prices or energy costs, etc.), low wages growth will keep domestic inflation in check and the RBA on hold.

Read more: AustraliaAustraliansAnika Foundation LuncheonAustralian Bureau of StatisticsRBA Governor Philip LoweSydney
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