The role of the consumer in driving down wages

The Australian Government’s curious attack on the 457 visa migration programme has spawned associated chatter on talk-back radio. One theme that reappears is that 457 visa workers are willing to work for less pay and employment conditions. This argument goes on to purport that there are plenty of Australian workers qualified to do the job but who want pay and conditions higher than business will pay because “those Filipino workers are more malleable”, in the words of one prominent ABC Melbourne morning radio show host. So, business is blamed for rorting the system to drive down wages and keep Aussies out of Aussie jobs.

The proponents of these arguments must have regard to the role of consumers in our economic system, and of course, those consumers include the unwitting commentariat themselves. The world economy is rapidly globalising. Like it or not, geographic separation is much less a barrier to trade than ever before. Price information is much more freely available. Labour and capital flows are freer and consumers can buy in different markets at little extra cost, all thanks to improving technology and liberalising trade agreements that, with some exceptions, have slowly progressed over recent decades.

The consumer has embraced this new world. Internet shopping has exploded in volume. Consumers can shop around the world market for the best price for a good, no longer restricted to the local shops or local shopping centres. I know of no consumer who will pay a higher price for an identical good that is sold for a lower price by the store next door. Nowadays, the store next door is a click away on a website. This is rational consumer behaviour. Altruistic behaviour may occasionally override this decision, but the number of such events are negligible. As a result, business and producers must source the cheapest capital, the cheapest inputs and the cheapest labour consistent with production of the relevant good or service. If one person offers to work for less pay than another to do the same work, then the producer will, like the consumer, take the lower cost option. Otherwise, the sale will go to the competitor next door.

Consequently, any Aussie worker being shut out of a job given instead to a lower paid foreign worker, must adjust to the market realities, rather than complain about malleable Filipinos. There is no rorting going on. There is simply rational behaviour driven ultimately by the consumer who has new buying power. No-one else is to blame. There is no conspiracy.