In today’s Money Morning…less workers, more jobs, higher pay…automation acceleration…all of which could throw a wrench in the RBA’s plans…and more…
RBA governor, Dr Philip Lowe, has revived the immigration debate.
An issue that, for a while now, has taken somewhat of a backseat at a political level. At least compared to the Abbott era of ‘Stop the boats’.
But, thanks to Dr Lowe’s comments yesterday, it looks like migration could become a hot topic once more. Just not necessarily for the reasons you might expect…
Historically, RBA governors have tried to stay clear of the immigration issue. Either dodging around the question or ignoring it entirely.
Not Lowe though.
He has decided to tackle it head-on, categorically admitting that migration has been partly to blame for years of low wage growth. Clearly emboldened to stand by this claim with international borders locked down due to the pandemic.
As Dr Lowe comments:
‘The impact of this change on the supply side is evident in the sharp jump in the number of job vacancies, especially in the accommodation and food services sector. Whereas previously some of these vacancies could have been filled by people on visas, this is now more difficult to do. Since March 2020, the number of people in Australia on a visa with the right to work has fallen by over 250,000, which is a significant decline.’
Less workers, more jobs, higher pay
Now, for the RBA’s goals, this border shutdown has been a welcome development. The halt of migration means less people looking for work, which translates into lower unemployment.
This is evident by the fact that some sectors — like accommodation and food services — are struggling to find workers at all. And this should lead to higher wage increases in order to attract more potential candidates.
That is clearly the RBA’s hope and goal.
It is now simply a matter of waiting for these mechanisms to flow throughout the economy — which may take some time considering the ongoing lockdown in Sydney, and threat of future lockdowns elsewhere.
Which begs the question, what happens once borders reopen?
The current government has made it very clear they want immigration to play a big role in our post-pandemic economy. Albeit with a ‘well-managed’ and ‘skilled’ focus, apparently.
Whether that will put them at odds with the RBA now is unclear. Or perhaps this migration will take more of a backseat for longer if the government wants to ride the booming jobs narrative into the next election.
More importantly for investors, though, it raises a concern over the possibility of rising costs for businesses. Because as is the case with most companies, labour is usually the biggest expense.
And if that is the case, it could place some pressure on margins and earnings. Especially for sectors that may have relied upon migration heavily in the past.
But there is the possibility for another alternative as well…
Automation is the big X-factor in this whole jobs/immigration issue, at least in my view.
Over the past few years, we’ve seen big strides on the automation front. With simple machines already replacing the position of regular workers.
Just look at the implementation of self-serve checkouts in supermarkets. A taste of what is likely only the beginning of a broader transition.
In the US, for instance, we’re seeing fed-up hospitality businesses embrace this kind of technology. Unable to find staff due to a shortage of willing workers, so instead they’re turning to machines.
As Business Insider reports:
‘For instance, Cracker Barrel rolled out a mobile app that lets customers pay for meals; McDonald’s started testing automated drive-thru ordering at 10 Chicago locations; and Dave & Buster’s plans to expand its contactless ordering.’
So, at this point, migration may soon be a moot point. At least for low-skilled migrants.
All of which could throw a wrench in the RBA’s plans.
But for investors, this automated future is one that is worth taking note of. Not only because of its cost-cutting impact, but also as a source of greater productivity.
After all, some of these machines can operate entirely autonomously 24/7 — providing newfound ways for operational efficiency.
It is an extremely exciting prospect for the broader economy.
For the RBA, though, and immigration and low-skilled workers, it presents a new frontier. One that will almost certainly create new challenges as well as opportunities.
It is simply up to the market to ensure that the pros far outweigh the cons.
Which is why, as an investor, I’d be making sure you’re on top of this looming megatrend.
Editor, Money Morning
PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.