The Lowy Institute has released a new report entitled Economic migration and Australia in the 21st Century, which spruiks the benefits of Australia’s high immigration program without giving due regard to the costs.
The below edited extract from The Conversation summarises the key points from the report:
The impact of economic immigration on Australia’s population, economy, and labour market is virtually unmatched. Since 1945, immigrants and their immediate descendants have accounted for over half of the nation’s population growth.
More than one in four workers in Australia were born in another country. The foreign-born population as a share of total population is higher in Australia than in any other OECD country, except for Luxembourg and Switzerland…
Unemployment among skilled immigrants is negligible because they tend to be employed in high-income occupations and contribute more to government revenue through taxation than they take through public services and benefits.
What struck me most about this report is that it does not address any of the negative externalities caused by Australia’s high immigration program. Not once in the whole report does it mention the additional strain on infrastructure, the costs to the community (and economy) from increasing levels of congestion, or the deleterious impacts on housing affordability.
In fact, the only mention of these costs was the below vague motherhood statement, which is next to useless in any practical sense:
“… accompanying policies are necessary to ensure that these net benefits are distributed fairly and that the social and environmental effects of increased population are managed properly…
Governments should ensure that policies are developed to enable the economic benefits of any increase in net overall migration to be distributed fairly and that the social and environmental impacts are managed properly.”
The purported ‘benefits’ from Australia’s immigration program are also spurious.
Consider first Lowy’s claim that “economic immigrants have offset an ageing population”, which does not pass scrutiny once a longer-term perspective is taken.
In 2014, Dr Katherine Betts from the Monash University Centre for Population and Urban Research released research analysing the ABS’ population projections and showed that high immigration is an inappropriate policy response for population ageing, and can instead drain the nation’s productivity by crowding-out productive investment and capital deepening:
In both Tables 1 and 2 it is clear that reducing the median age by one year via high migration is expensive in terms of numbers of extra people, with all their added pressure on infrastructure, cities, services and resources. By 2101 the high-growth series (1A), which assumes a TFR of 2.0 and a NOM of 280,000 per year, costs up to 4.1 million extra people per one year shaved off the benchmark age of series 68. In contrast, series 56 (the stable projection) costs only 0.98 million extra people per extra year of youthfulness. It is also a much more cost-effective method of reducing the median age than is projection series 14, with a TFR of 1.6 and NOM of 280,000. Series 14 leads to an older median age in 2101 than does the stable projection series but nonetheless adds 4.8 million extra people for every year shaved off the age of the benchmark series.
The message from the 2013 set of projections is clear. If policy makers genuinely want to minimise demographic ageing at the least cost, the most effective way of doing this is to support the two-child family and minimise net migration…
The Productivity Commission report on ageing points out that the infrastructure spending needed to manage population growth over the next 50 years will be five times the total that was needed over the last 50 years. This investment in capital widening must seriously weaken Australia’s capacity to invest in the capital deepening that would boost productivity.
The Productivity Commission (PC) has made similar assessments, most recently in its Migrant Intake into Australia report, released in September:
By increasing the proportion of people in the workforce, immigration can provide a demographic dividend to the Australian economy and reduce the impacts of population ageing. However, it does not offer a panacea — it delays rather than eliminates population ageing. In the long term, underlying trends in life expectancy mean that permanent immigrants (as they age) will themselves add to the proportion of the population aged 65 and over.
Further, immigration is only one tool to increase labour force participation and, moreover, does not address the policy settings underlying Australia’s future structural fiscal imbalance. These issues need to be better addressed through a range of policies including, for example, policies to enhance Australia’s labour force participation amongst older workers and to improve productivity in health care delivery to reduce the fiscal pressures of population ageing…
In its 2005 research paper Economic Implications of an Ageing Australia, the Commission found that ‘larger intakes can start to make appreciable differences to ageing, but only at the cost of unsustainably large population growth’ (PC 2005b, p. XVII). To illustrate this, the Commission projected that to retain the age dependency ratio (the ratio of those aged 65 years and over to those ages 15 to 64 years) at 2005 levels until 2045 would require an annual migrant intake of 3.1 per cent of the population — growing the Australian population to 85 million and the annual net migrant intake to 2.5 million by 2045.
…immigration cannot prevent the ageing of the population without ever rising numbers of young immigrants — there is no silver bullet to an ageing population.
The Lowy Institute’s claim that “economic immigrants have improved labour productivity… [and that] unemployment among skilled immigrants is negligible” is also highly selective.
The below graphic, which comes from the PC’s Migrant Intake into Australia report, shows that the immigrants overall have experienced lower median income, lower labour force participation, and higher unemployment than the Australian born population:
Research by Bob Birrell and Ernest Healy also found that while 69.3% of Australian graduates aged 25-34 had managerial or professional work in 2011 and only 9.5% were not employed, only 30.9% of non-English-speaking-background [NESB] migrants who were graduates of the same age, who had arrived between 2006 and 2011 had managerial or professional work. And a full 31.1% were not employed. Most of this group of graduate arrivals (79%) were of NESB background (see below table).
Next, Lowy’s claim that “a steady inflow of immigrants has eased Australia’s shift from a manufacturing to a services economy” is hardly a positive, since it has coincided with a huge blow-out in Australia’s trade and current account deficit, as well as debt, as these migrants have flooded into our big cities to work in largely unproductive (and non-export producing) jobs, while increasing spending con consumer imports like cars, flat screen TVs and the like.
Anyone disputing this assertion only needs to look at the below charts showing the stalling of export growth and the the sharply deteriorating merchandise trade balances in our two biggest states, which have been the key magnets for immigrants:
Finally, Lowy’s claim that migrants “will play an important role in helping our businesses to innovate in the face of intensified global competition and technological change” is an article of faith. The fact that Australia has become less globally competitive during the past 12-years of hyper immigration, and that migrants typically have lower workforce attachment (see above) must surely counter this claim?
Overall, the Lowy Institute has produced a biased report that purports a whole bunch of ‘benefits’ from Australia’s high immigration program without giving due regard to its costs.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
